Analysis: Fixing the S in ESG
By Jason Saul
Is the planet really more important than the people? According to CNBC, most money managers who use ESG (environmental, social, governance) factors in their investment analysis have focused on the E, or climate change, as their leading criteria for their decisions. But what about the S, or social dimension of corporate impact? As one fund manager put it to me in a recent conversation: “Planet isn’t necessarily more important than people, it’s just easier to measure. Investors like measuring things that they can put into their models, and carbon is easy to quantify.”
No doubt, quantifying social impact is a challenge. A 2021 Global ESG Survey by BNP Paribas revealed that 51 percent of investors surveyed (covering 356 institutions) found the S to be the most difficult to analyze and embed in investment strategies. The report concluded: “Data is more difficult to come by and there is an acute lack of standardization around social metrics…. Investors have been willing to accept data that does little to actually assess the social performance of the companies in which they invest.” For most investors, S is merely a check-the-box exercise.
So, what can be done to improve S data?