The ‘S’ in ESG: Why, what and how

Environmental, social, and corporate governance (ESG) is increasingly important, but the occasionally neglected ‘S’ needs attention, Zurich CEO for Asia Pacific tells PARIMA conference. 

Speaking at the 2022 PARIMA ‘Resilience Week’ conference in Singapore today, Tulsi Naidu broke down the ‘why’, ‘what’ and ‘how’ of achieving the ‘social’ component of ESG.

“Never has risk management been more centre stage in businesses and boardrooms,” said Naidu. “There has been a sharp change from 10 years ago, when we were talking more about social cohesion and rising inequality.

“Then we went through a pandemic, and everything that came with it. We now know how to deal with a pandemic, but fast forward six months and we have geopolitical tensions and a looming set of concerns about economies across the world.”

Naidu said recession, inflation and geopolitical issues have all flowed into concerns about the cost of living, job cuts, growth, union action, cyber risk and nuclear warfare. The implication of the ‘social’ aspects of ESG have remained vital.

The why

Naidu stated that a vital consideration is how a firm can manage its relationship with society.

“This means thinking really hard about your business model. What are the quality of the employee relationships? How do the products and services you provide stack up in the minds of consumers? How does the community perceive you? And what can you do to make sure your business it is seen in a positive light?” she said.

Naidu said the focus should be on about being forward-looking and comprehending what will happen in society in the coming years.

As for ‘why’ this matters, it is chiefly because it effects three areas:

• Investors
• Talent
• Risk management

“Investors is an obviously point, this is relevant to most businesses. On talent, this concerns the people we attract and retain in our organisations. A PwC study found that 85% of employees look to understand the community and social footprint of a business and are attracted to those with a positive footprint,” said Naidu.

“Another study found a correlation between high engagement, the quality of innovation in a firm, and business performance. It is about asking ‘Do I understand how to attract the best employees?’”

On the third aspect – risk management – Naidu said there are risk implications to how an organisation reacts to social issues, and how quickly it reacts.

“The PwC study found that 76% of customers will not trade with a company that does damage to the environment, to the communities or to its people. Through a risk management lens, this is a topic which is front and centre right now,” she said.

The what

Naidu said there are two social elements: Aspects which are important to employees and aspects which are important to external stakeholders.

These can be broken into trends which need to be monitored such as waste management, energy efficiency and a responsible supply chain. There are then aspects which must be proactively managed, such as ethics and compliance, transparency, and natural disasters. Then there are strategic priorities such as climate change, data privacy and security, and a fair and inclusive workplace.

“Over the last few years, our whole sustainability approach at Zurich has been underpinned by a set of interviews and research with internal stakeholders and employees, alongside external stakeholders and communities we work in,” said Naidu.

“We identified 21 themes that we think are relevant and that we should watch. These form the basis of our sustainability, thinking and footprint.”

The how

For the implementation of these social themes, there are three focus areas: customers, employees and communities.

“We have commitments around customers and a customer code of conduct to ensure fair and transparent conduct, particularly around disclosures to customers on products,” said Naidu.

“On the employee side, it is important to have an inclusive and diverse workplace. We are in a world where the skills required for work are changing sharply. There is a whole generation of people who might not be in employment unless they are upskilled. As such, we are looking to provide learning solutions for our current employee base, and commit to internal hiring as a way to ensure work sustainability,” she said.

Naidu said for the third ‘how’ element of the communities, an organisational charity fund and employee volunteering is important.