WBCSD and Shift Releases a Primer for Advancing the “S” in ESG For CFOs.
The World Business Council for Sustainable Development (WBCSD) and Shift just recently released a primer for CFOs on advancing the “S” in ESG. With social issues becoming a higher priority on the business agenda, it is important for CFOs to begin to understand and communicate social performance as an essential part of their roles. This is immensely important as reporting and disclosure standards around ESG develop across the globe.
After defining what, who, and how the “S” in ESG means and how to address it, the primer then outlines the six focus areas CFOs should use when evaluating their organization’s social performance from both a conduct and outcome perspective. These six focus areas include board and senior leaders' actions, the quality of risk identification and assessment, driving sustained behavior change, setting targets and KPIs that meet robust and credible design criteria, focusing on inequality-related metrics when evaluating outcomes in the workplace, and using sentiment or 'voice' data to gain insight into stakeholders' experience. Sustaira has walked through this piece and put together a quick summary of each part of the primer.
Defining the “S” in ESG
The primer provides a starting point for CFOs to improve the measurement of corporate social performance and covers an overview of the what, the who, and the how of corporate social performance.
What
Directly from the primer, the what of social performance is the considerations around the positive and negative impacts it has on people. This means considering impacts from the company’s execution of its business model and strategy and any impacts that could potentially undermine a person’s basic dignity and equality.
Who
Photo by Hannah Busing on Unsplash
Addressing the who of social performance is where this primer looks at the people who are affected. This includes four groups and looks into things like safety, child labor, harm to livelihood, indigenous peoples’ rights, nondiscrimination, privacy and a multitude of other ways these groups may be impacted.
A company’s own workforce, including but not limited to its employees.
Workers across the value chain, both upstream and downstream.
Affected communities, whether local to a company’s operations or within the value chain.
People affected by the use of a company’s products and services.
How
The last definition of “S” in ESG is dedicated to how a CFO might act with due diligence to anticipate and address risks to affected stakeholders. This section is where organizations, particularly the CFO are urged to address all actual and potential impacts according to international standards. These standards require companies to identify and mitigate risks to people connected to their operations and value chains, provide remedy when they cause harm, and communicate progress and setbacks. The standards are pragmatic and allow companies to prioritize their efforts, focusing first on the most severe risks to people. Companies can meet their responsibility by ensuring their own practices aren't contributing to the problem and using their leverage with others to improve outcomes for affected people.
“CFOs are good at evaluating risks, including human capital risks close to home. For some time, my company has been seeking to cultivate the competence to spot, assess and address social externalities deep in our supply chains. Continuing this work is central to building a resilient business model that can perform well through social, political and economic disruptions.” - CFO Network Participant, WBCSD CFO Network
Photo by Glenn Carstens-Peters on Unsplash
Six Focus Areas for Evaluating the S in ESG
Moving into part two of this piece is where we break down the six focus areas that a CFO should use when evaluating their organization’s social performance. These focus areas help to evaluate the “S” conduct as well as the “S” outcomes and these 6 focus points are categorized as such. In the primer each of these area’s is explained in a bit more detail which you can view through this link.
Focus Area #1 - Focus on demonstrating whether boards and senior leaders are taking steps to embed policy commitments in corporate cultures and day-to-day practices.
Focus Area #2 - Focus on signaling the quality of processes to identify and evaluate people-related risks.
Focus Area #3 - Focus on uncovering whether company actions to address people-related risks are driving the behavior changes needed to achieve better outcomes for people.
Focus Area #4 - Focus on “S” targets and KPIs that credibly evaluate outcomes for people using key quality criteria.
Focus Area #5 - Focus on a small number of quantitative workforce metrics to provide insight into how the company is impacting inequalities in its own operations.
Focus Area #6 - Focus on using qualitative data translated into clear metrics about the experience of affected stakeholders.
Measuring so-called paper compliance does not work for business ethics, safety or diversity. So, CFOs, investors and indeed regulators definitely need to do better when it comes to how well companies address even more complex social issues. - CFO Network Participant, WBSCD CFO Network
Photo by Júnior Ferreira on Unsplash
What your CFO should ask themselves
At the end of the Primer they offer 6 questions that a CFO can ask themselves when initially looking at their organization’s social performance. Those questions are as follows:
Does my company look across our operations and value chain to make sure we are aware of any impacts on people’s human rights, in particular those that significantly exacerbate inequalities? Do we understand how these issues may relate to business risks or opportunities?;
Are we testing with others, in particular affected stakeholders or their legitimate representatives, whether we have any blind spots or false assumptions that would lead us to miss something?;
Do we have the necessary controls, culture and relationships to manage risks to people such that we are contributing to better outcomes for affected stakeholders, tackling systems-level inequalities and driving positive results and resilience for the company?;
Do our internal audit function and external assurance providers have the expertise they need to provide this evaluation?;
Are we gathering the quantitative and qualitative information needed to evaluate the effectiveness of our actions? How are insights we gain factored into decision-making?; and
How is our social performance impacting the implementation of our business strategy? How does our business strategy impact our ability to improve our social performance?
Sources:
https://www.wbcsd.org/Overview/CFO-Network/Resources/Advancing-the-S-in-ESG-A-primer-for-CFOs
https://www.eyeonesg.com/2023/03/business-and-human-rights-a-primer-for-cfos-for-advancing-the-s-in-esg/
https://esgnews.com/wbcsd-and-shift-release-primer-for-cfos-on-advancing-the-s-in-esg/
