ESG Data Explained: A Comprehensive Guide to Metrics, Calculation, and Reporting — Part II

Table of Contents

Introduction to ESG Data
Understanding ESG Classifications
Environmental Data:
— Key Terminology and Classifications
— Overview of Reference Data
— Explanation of the Calculation
— Authorities & Data Providing Mechanism
— Reports

Above covered in Part I — Link: https://mrmanna.medium.com/esg-data-explained-a-comprehensive-guide-to-metrics-calculation-and-reporting-part-i-ba5479e527ce

Part II
Social Data:
— Key Terminology and Classifications
— Overview of Reference Data
— Explanation of the Calculation
— Authorities & Data Providing Mechanism
— Reports

Part III (in progress)
Governance Data:
— Key Terminology and Classifications
— Overview of Reference Data
— Explanation of the Calculation
— Authorities & Data Providing Mechanism
— Reports
Conclusion

Social Data: Key Terminology and Classifications

When we talk about the “S” in ESG, we’re referring to a broad range of issues related to how a company manages relationships with its employees, suppliers, customers, and the communities where it operates. Here are some of the key terminologies and classifications within social data:

Labor Practices

This refers to a company’s approach to managing its employees. Key aspects can include wage and benefits policies, health and safety measures, training and development opportunities, and union relations.

Human Rights

Companies are increasingly expected to respect and uphold human rights in all their operations. This can involve ensuring non-discrimination, avoiding complicity in human rights abuses, and preventing child or forced labor in their supply chains.

Supply Chain Management

This includes a company’s efforts to ensure responsible practices throughout its supply chain. Key issues can include labor rights in the supply chain, the environmental impact of suppliers, and supplier relationships.

Customer Relations

This relates to how a company interacts with its customers. Aspects can include product safety and quality, marketing practices, data privacy and security, and customer satisfaction.

Community Impact

This involves the effect a company has on the local communities where it operates. It can include community development efforts, managing the impact of operations on local areas, and philanthropic initiatives.

Product Responsibility

This pertains to the responsibility a company has in ensuring their products or services do not adversely affect users, encompassing elements like product safety, ethical marketing, and customer privacy.

Understanding these categories and how to measure them is crucial for companies to assess their social performance and for investors to make informed decisions.

Social Data: Overview of Reference Data

Social data is collected from a variety of sources, often categorized as primary data (collected directly by the company) and secondary data (sourced from external providers). Reference data, in this context, would be widely accepted external sources, frameworks, or standards that provide benchmarks or guidelines for what a company’s social data should look like.

Here are a few key sources and types of reference data for social data:

International Labour Organization (ILO) Standards

The ILO is a United Nations agency that sets international labor standards. These standards, which cover areas like wages, working hours, and safety conditions, can serve as a useful benchmark for a company’s labor practices.

United Nations Guiding Principles on Business and Human Rights (UNGPs)

These guidelines provide a global standard for preventing and addressing the risk of adverse human rights impacts linked to business activity.

Sustainability Accounting Standards Board (SASB)

SASB provides sector-specific standards for sustainability reporting, including a range of social issues like labor practices, employee health and safety, diversity and inclusion, and data privacy.

Global Reporting Initiative (GRI)

GRI Standards are widely used for sustainability reporting, providing guidelines on reporting a range of social issues, from employment and labor practices to customer health and safety.

Social Metrics from ESG Rating Agencies

ESG rating agencies like MSCI, Sustainalytics, and others provide companies with assessments of their social performance based on a range of metrics. These ratings can serve as a form of reference data for companies to understand how they’re performing relative to peers.

Industry-Specific Guidelines

Many industries have their own specific guidelines or standards for social issues, whether it’s the Responsible Business Alliance (RBA) for electronics or the Fair Labor Association (FLA) for apparel and footwear.

NGO Reports

Reports or databases from NGOs focusing on specific social issues can also serve as reference data. For example, the Access to Medicine Index for pharmaceutical companies or the Corporate Equality Index for LGBT+ rights.

These are some of the sources of reference data for social aspects in ESG. They help companies understand what good performance looks like and how they’re performing relative to these standards.

Social Data: Explanation of the Calculation

Social data in the ESG context is complex due to its qualitative nature. Quantifying social impacts often involves creating metrics that reflect a company’s policies, practices, or outcomes related to social issues. However, due to the diverse nature of social issues and the many ways companies can impact society, there’s no one-size-fits-all approach to calculating social data.

Here are a few examples of how social data might be calculated:

Employee Health & Safety

Companies often report on their safety performance using metrics like the Lost Time Injury Frequency Rate (LTIFR). LTIFR is calculated as (Number of Lost Time Injuries / Total Hours Worked) * 1,000,000. It reflects the number of injuries resulting in lost work time relative to the total hours worked by the workforce.

Diversity & Inclusion

Companies may report the gender or ethnic diversity of their workforce as a percentage of total employees. For example, Female Representation at Senior Levels = (Number of Female Employees at Senior Levels / Total Employees at Senior Levels) * 100.

Supply Chain Standards

Companies might assess the social performance of their suppliers using scorecards or audits. Scores may be based on a range of factors, such as compliance with labor standards or human rights policies. This could be expressed as a percentage of suppliers that meet company standards or as an average score across all suppliers.

These calculations rely on primary data from the company (such as the number of injuries or demographic data) as well as reference data from authorities or industry standards (like ILO labor standards or GRI reporting guidelines).

Note: The calculations mentioned are indicative and may vary based on company-specific definitions or industry norms.

Social Data: Authorities & Data Providing Mechanism

Authorities for social data primarily consist of international bodies, NGOs, ESG rating agencies, and industry alliances or consortiums. These entities set the standards, develop frameworks, or rate the companies based on their social performances. They play a vital role in influencing corporate behavior and driving transparency in the marketplace.

Here are a few key authorities and their data-providing mechanisms:

1. International Labour Organization (ILO): The ILO, a specialized agency of the United Nations, sets labor standards, develops policies, and devises programs to promote decent work for all. They publish these standards and guidelines online, providing a robust reference data source.
2. United Nations (UN): The UN’s Guiding Principles on Business and Human Rights and Sustainable Development Goals (SDGs) serve as global standards for various aspects of social data. These principles and goals are freely accessible online.
3. Global Reporting Initiative (GRI) and Sustainability Accounting Standards Board (SASB): These organizations provide comprehensive guidelines for companies to report their social data, among other ESG data. They make these guidelines publicly available on their websites.
4. ESG Rating Agencies (e.g., MSCI, Sustainalytics): These agencies use a combination of public disclosures, data providers, and stakeholder surveys to score companies on their social performance. Their methodologies are typically proprietary but are based on widely accepted standards.
5. Industry-specific Alliances or Consortiums: Organizations like the Responsible Business Alliance (RBA), Fair Labor Association (FLA), etc., provide standards and guidelines for their industry. These are often available to members or publicly online.

These authorities usually update their data and APIs periodically. Updates could be triggered by changes in global or industry-specific standards, new research findings, changes in company operations, or feedback from stakeholders. Most of them provide subscription-based access to their databases and API services, while some basic information or guidelines might be freely available.

These authorities help define what good social performance looks like, offering companies a benchmark to measure their performance and guide improvement efforts.

Social Data: Reports

Social data is usually reported within broader ESG or sustainability reports. However, certain reports have a more explicit focus on social issues. Some widely recognized reports include:

Sustainability Reports

These comprehensive reports often include a significant section on social issues. For instance, they may detail a company’s approach to employee welfare, diversity and inclusion, human rights, supply chain management, and community relations.

Human Rights Reports

Some companies, particularly those in sectors with significant human rights risks, may produce specific human rights reports. These will detail how the company identifies and manages potential human rights impacts, and how it responds when issues arise.

Corporate Social Responsibility (CSR) Reports

CSR reports focus more specifically on a company’s social and environmental contributions. They usually include details about philanthropic activities, community development programs, volunteer efforts, and other social initiatives.

Diversity, Equity, and Inclusion (DEI) Reports:

These reports provide data on a company’s workforce diversity and its efforts to promote an inclusive and equitable workplace.

Modern Slavery Act Statements

In countries like the UK and Australia, companies are required to publish annual statements outlining what they are doing to prevent modern slavery in their operations and supply chains.

Workplace Safety Reports

Particularly in high-risk sectors like mining or construction, companies may publish detailed safety reports. These will outline safety risks, measures taken to mitigate these risks, and performance against safety targets.

India Specific Reports:

In India, the Business Responsibility and Sustainability Report (BRSR) mandated by the Securities and Exchange Board of India (SEBI) includes substantial social data. Companies are required to disclose information about their policies and performance on various social issues like employee welfare, human rights, stakeholder engagement, and product lifecycle sustainability.

These reports help stakeholders understand a company’s social footprint and its efforts to create a positive impact. With this, we conclude the social data section.

Disclaimer: The views reflected in this article are the author’s views and do not necessarily reflect the views of any past or present employer of the author.