Although ESG has by now been around for some time, in truth businesses have only been taking the S seriously for a few years. The social sector is very much environmental’s little sister.
And, as with any emerging sector, the quality of metrics can vary and this can be a challenge for any organisation looking to get serious on reporting. How then, should you approach the task of finding a reliable standard against which you can report your social metrics?
There are a number of nationally and internationally recognised social measurement frameworks. Understanding what makes most sense for your business is an industry-specific one. In general, businesses should look for independently verified social reporting tools. For example, GRESB has a number of social metrics within its standards, and the UN Sustainable Development Goals naturally need to be considered. The World Green Building Council’s Health and Wellbeing framework is a central plank in the way we do all things social here at EVORA and it is favoured because it offers the flexibility to meet the needs of funds across different geographies while relying on a well-respected overarching framework. Likewise, standards should require evidence for certification against them – the market will no longer tolerate businesses marking their own homework. With the principles of evidence-led and third-party assurance alongside recognised standards, businesses can report in confidence.
The metrics within the frameworks can vary quite broadly from one geography to another. This is a great strength in social reporting. Insofar as it is possible to compare the two, environmental targets should typically be science-based targets (SBT) which tie in with global climate resilience parameters, and have a strong compliance component. Social metrics, meanwhile, don’t fit into quite such a neat box. Because social metrics are about doing what is right for specific people in specific places, the metrics should vary from place to place.
This is not to say that there are no commonalities between markets and geographies: high quality jobs, excellent training and education opportunities and strong local partnerships should always feature in social reporting. That said, understanding the challenges of individual communities, the goals of investors and the legislative requirements of the jurisdiction mean that the details should be considered and embedded into the framework too. For example, in Germany, limits around employee data protection mean that collecting information on protected characteristics is not possible. Hence, businesses need to think locally about what they can realistically deliver.
The differences between environmental reporting and social reporting are not so vast, however, when it comes to the rigour required to report what is being delivered. Both types of reporting require organisations to meet the highest standards of transparency and evidence. In some jurisdictions, as in the European Union, where the EU Social Taxonomy promises a new direction for social reporting within the member states, and will likely require third-party verification and audit processes for social data.
For investment managers, our advice is to find a reporting framework which meets the highest standards of external scrutiny, focusing on independently verified reporting above all else. The framework needs to be flexible to work across the fund and asset types to meet the different social needs in each place. Finally, understanding investors’ own objectives is crucial in ensuring a fund can meet expectations, and where this isn’t obvious – ask questions.
If an investment manager needs to guess, there’s a risk of running a generic programme which neither meets community needs nor the expectations of investors.
If you need help building up a social reporting framework for your business, please get in touch with Sarah Coughlan, EVORA Associate Director.
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