29 May 2024
Social efforts within sustainability mandates focus on long-term improvements surrounding equity, well-being, and environmental sustainability for better quality of life, closer to and farther out from a given business activity. With our primary concerns on environmental sustainability precisely stemming from an identified need to mitigate negative societal impact on future generations, the sound linkages between the environment and social impact must be brought to the forefront.
Breaking down “Social”
Within the conversation surrounding Social, two key terms, “social impact” and “social value”, are often used interchangeably, but let’s look into its significant differentiators:
*Here, “affected stakeholders” can be seen in as narrow or wide of a vision, but we shall look at the widest breadth in alignment with the CSRD’s demarcation within their “Social” topics: own workforce, consumers and end users, affected communities, and the value chain.
Understanding both Social Impact and Social Value is crucial as one allows us to focus on mitigating potential and actual negative risks, and the other on fostering value-add beyond any positive outcomes that would arise within your usual business operations. For instance, say you are the sustainability manager of a real estate firm specialising in affordable housing. Your metrics on total increase in supply of affordable homes is something that would happen as a standard flow of your business operations. Therefore, whereas this can be used to claim “social impact”, it would not be a valid “social value” case. Beyond, “social value” would require more exploration on intentional activities and metrics such as increasing supply in a specific area known to have higher crime rates, monitoring granular DEI metrics of tenants subject to data privacy, and more.
Businesses should note that if one were to unknowingly claim “social value” when an action only meets the thresholds of “social impact”, business risks may arise. For instance, reputational risks due to accidental social washing or risk of rejection from receiving a green loan due to uninformed reporting of metrics.
Yet, the Social continues to be secondarised in sustainability strategies and implementation plans for many due to two key bottlenecks which interrelate:
- Lack of expertise
- Where its boundaries are given the potential scope relates to all of society
- How to make sense of its metrics given the fundamental basis is of a qualitative nature
- Resourcing commitment (partially due to the above)
- Unwillingness to make space within their budget as the Return On Investment (ROI) breeds, in some ways, a different nature from our traditional ways of understanding value-add.
However, beyond a general understanding that generating social value and mitigating social risks are “good” for the global community, there is a sound business case as to why corporate entities ought to allocate budget towards such activities. These can be broken down into:
- The legislative aspect – You need to do it, whether you like it or not
- The monetary / economic aspect – It is good to do it for your own benefit
The Legislative Mandate
The European Union certainly has come to lead in efforts to bring Social towards the forefront within its wider EU Green Deal framework. From the EU Taxonomy’s Minimum Social Safeguards[1], to the Corporate Sustainability Reporting Directive’s (CSRD)[2] materiality assessment mandating of value chain mapping; the growing equitisation of Social parallel to Environment is sure to push companies to rapidly figure out how to better integrate the former. The most exciting recent update in the global legislative landscape is regarding the Corporate Sustainability Due Diligence Directive (CSDDD) and its successful voting of its adoption by the European Parliament on 24 April 2024[3]. When fully implemented, this Directive will require firms to significantly increase attention, accountability, and transparency on mitigating adverse impacts to the environment and human rights across the upstream and downstream value chain.
These are sure to contribute to the growing normalisation of Social factors such as, but not limited to, stakeholder engagement processes, human rights due diligence, and securing labour rights. Although these Directives mandate compliance only for companies larger than a certain threshold[4] and country-specific implementation is yet to reveal in shape, it starts to provide a robust framework of what it means to fully embrace Social impact, risks, and opportunities. The cherry-on-top of the CSRD and CSDDD is that it may serve as a standardised best practice at the global level, due to non-EU companies with significant EU operations[5] also requiring compliance with the Directive.
Although mandatory compliance is most impactful, recommendation pieces and geopolitical pressure also shape best practices. For instance, whilst anticipating for the EU to develop a Social Taxonomy, there is increasing anticipation on what this would mean for businesses. Another example is Japan’s Social Impact Real Estate Guidance document that was officially released in 2023 by the Ministry of Land, Infrastructure, and Transport. This begins to guide the sector’s impact monitoring journey. Regardless, sustainability documentations from governmental bodies surely heightens urgency to take action.
Farther out across the value chain, minimum legal requirements on human rights decreed by the United Nations comes into play far more tangibly. One may say that the real estate sector’s direct and indirect contribution to unethical labour practices globally is just as pressing as its contribution to global carbon emissions level. The International Labour Organization (ILO) estimates that annual profit generated from forced labour amounts to USD $236bil[6]. Additionally, it was estimated as of 2020 that 7% of the global workforce was employed by the property and construction industries, within which 18% of known modern slavery victims were found in the construction industry; and 22% of known forced labour victims were found manufacturing and production of raw materials[7].
Yet, the expansive outreach of the real estate sector’s negative contribution counterintuitively implicates the possibility of creating positive impact in these areas. Whilst there may be less control as we go farther out the value chain, it is our utmost corporate duty to ensure that as much work is being done to mitigate such risks at minimum.
The Financial Mandate
Further, whilst an adjusted lens from what has traditionally been boxed within the Return on Investment (ROI) narrative, there is a strong set of quantitative evidence for the ROI for Social Impact and Value .
Closer to an investment firm’s core operations, ensuring employee and tenant/user health, safety, well-being, and overall satisfaction may substantially contribute to cost savings. A 2017 report by the World Green Building Council notes that the US’s private sector employers lose $2,074 per employee per year from absenteeism; and that UK employers lose $30 billion a year due to the effect of poor mental health on production, recruitment, and absence[8]. Further, AirRated’s 2023 survey of 1,405 employees and decision-makers regarding the indoor air quality of their workplace demonstrated a vast ROI on the implementation of better ventilation systems. Whereas running this system required cost input of $14–40 per person per year, the estimated ROI came to $6,500-7,500 per person per year from ‘improved productivity in faster response times and increased accuracy’[9].
Other examples of ROI are listed below:
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Direct ROI examples |
Indirect ROI examples |
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The above only lists a portion of the wide range of financial and reputational opportunities associated with Social-related implementation and enhancement measures. In other words, any given firm does have a sound rationale on both societal and financial impact for budget approval of Social initiatives.
Concluding Remarks
There are undoubtedly continued hurdles in the sphere of Social, such as the need for further education and awareness raising or difficulty in capturing an accurate picture farther out in the value chain. Notwithstanding, the business case for Social initiatives is slowly but surely beginning to gain its rightful attention in the corporate arena. It is not only a value-add to “do” Social but an imperative that individuals in the global society bear in pushing for change, even when incremental.
To maintain accountability of Social Impact-related implementations and track their progress, the facilitation of risk management, accurate data monitoring, and transparent reporting are fundamental next steps. Longevity Partners is here to support your journey across each step of your social impact and value-add journey – whether Social KPI setting, B Corp certification, risk assessment, or more. We utilise approaches and methodologies based on both internationally acclaimed third-party schemes and in-house methodology that integrate best practices reflected across such schemes, tailoring our services in accordance with the breadth, depth, and timeline that may be best fit for you.
[1] Final Report on Minimum Safeguards, 2022 Platform on Sustainable Finance
[2] EFRAG ESRS requirements webpage
[3] EP Press Release, “Due diligence: MEPs adopt rules for firms on human rights and environment”
[4] CSRD is mandated for large EU limited liability companies that meet two of the following three conditions: 1. EUR 50mil in net turnover, 2. EUR 25mil in assets, or 3. 250 or more employees. For non-EU companies, those that have a turnover of above EUR 150mil in the EU.
CSDDD is mandated for EU companies and parent companies with over 1000 employees and a worldwide turnover over EUR 450 mil; companies with franchising or licensing agreements in the EU ensuring a common corporate identity with worldwide turnover higher than EUR 80 mil if at least EUR 22.5 mil was generated by royalties; and non-EU companies, parent companies and companies with franchising or licensing agreements in the EU reaching the same turnover thresholds in the EU.
[5] See comments in footnote 4 for thresholds of non-EU companies.
[6] Profits and poverty: The economics of forced labour, 2024 International Labour Organization (ILO) report
[7] Property, Construction, and Modern Slavery, 2020 Australian Human Rights Commission report
[8] Health, Wellbeing & Productivity in Offices, 2017 World Green Building Council (WGBC) report
[9] Our Air in Review: The workplace edition report, 2023 AirRated
[10] Investing in Health Pays Back, 2022 International Well Building Institute (IWBI) report
[11] Our Air in Review: The workplace edition report, 2023 AirRated
[12] Investing in Health Pays Back, 2022 IWBI report
[13] Diversity Matters Even More: The case for holistic impact, 2023 McKinsey and Company
[14] Investing in Health Pays Back, 2022 IWBI report; exact figure depending on extent of improvements
[15] Investing in Health Pays Back, 2022 IWBI report
[16] As of 2024 GRESB Reference Guide
[17] BREEAM In-Use International Technical Manual: Commercial v6; percentages for the Health and Wellbeing varies slightly across versions