Every decent organisation in the land is mindful of its role in supporting its local place, community and footprint. Businesses know they must dramatically rethink their social impact strategies if they are to deliver the transformative and overdue change we need to see.
Our survey of more than 250 businesses across the UK reflects this, with 86% saying their environment, social and governance (ESG) goals will be increasingly important in the next five years. Nearly three-quarters (73%) say it’s core to their business strategy.
Meanwhile, economists, politicians, academics, writers and commentators are making the credible and urgent case for why our current economic models are incompatible with a meaningful journey towards reduced inequalities, social justice, and a sustainable planetary environment.
But how does this talk of change translate to action? The landscape doesn’t inspire optimism. Brexit, the pandemic, inflation, and rising costs on UK businesses are having an impact, and messaging from government is confused. Last month saw the dismantling of the Department for Business, Energy and Industrial Strategy (BEIS), and the creation of four new departments. Aside from new names and some changes in personnel, what might this mean for UK plc? We need radical change towards increased partnership between business, innovation, and communities. Not a few desks being shifted in Whitehall.
An upward trajectory?
As the movement towards responsible business marches on, local businesses, in particular, have incredibly strong, often deep-rooted commitment to their place and people. Social enterprises, mission-led businesses, co-operatives, and community-owned businesses are all demonstrating ways of developing to effectively blend financial, social and environmental returns. Other movements in this direction are growing too, with the UK’s 1,000th accredited B-Corp business celebrated at the end of 2022.
Further, in The Young Foundation’s poll of UK businesses, which was conducted last summer, almost 80% said they felt responsible for tackling the climate crisis, and a similar number felt responsibility for the wellbeing of their local communities.
This latter point could be pivotal. We hear more and more that employees, especially millennials, prefer companies who ‘give back’ – and, in our survey, 79% of businesses said their organisation understands the needs and priorities of the communities in which they work. But while, in their annual reports, we found that 76% of the FTSE 100 cite ‘communities’ as a key stakeholder, it’s unclear what this means to them, or how it connects with their ESG strategies and purpose.
‘Social’ is confused, too. When asked to reflect on how they create social value, two thirds of the businesses surveyed (66%) cited investing in staff health and wellbeing initiatives; 62% said providing secure, fairly-paid work; and about half (54%) referenced programmes to increase diversity of the recruitment pipeline. Employee volunteering (46%), charitable fundraising (45%), and strategic partnerships with public, education or health sectors (42%) were also popular. More than half the businesses surveyed let staff give money to charity through payroll (54%), and 58% support staff to take volunteering days. Similarly, in FTSE 100 companies, donations and volunteering were the most common ways of contributing towards social initiatives.
Only a third (32%) said they invested in or contracted with businesses that deliver strong social impact and value, which demonstrates a potentially huge untapped area. By bringing social value into decisions on procurement, businesses can directly contribute to positive social, economic and environmental impact.
Plotting a path
Overall, our report uncovers huge variation in the reporting of social impact and a lack of standardisation that stands in stark contrast to reporting requirements for greenhouse gas (GHG) emissions. In other words, while it’s relatively straightforward to measure the ‘E’ of ESG, it’s harder to demonstrate impact on the ‘S’.
To address this, the Quest for the S proposes a simple ‘four-scope framework’ for organising meaningful strategies to deliver against a business’ social responsibilities. This offers a route to understanding and setting expectations; brings the ill-defined notion of ‘communities as stakeholders’ much more overtly into the realm of social responsibility; and opens expectations of collaboration between businesses, public, academic, and civic actors to work on long-term social and environmental challenges together.
This has to be a welcome shift. Alongside the important issues of workforce diversity (usually of gender, rather than race) and employee engagement, it spotlights fair pay and security of employment – issues we know have a profound impact on people’s health, wellbeing and ability to live a decent life.
It also brings the ‘E’ and ‘S’ of ESG together, supporting businesses towards re-skilling for a green economy, and helping them to transition to net zero in ways that do not entrench poverty and inequalities. Our global shift to a carbon-neutral future will impact every industry and every household. And, according to evidence from our Institute for Community Studies, it is likely to affect the most vulnerable people in the UK the most.
A brighter future
If the Better Business Act (or similar legislation) is passed, there will be a legal obligation on businesses to operate in ways that benefit their stakeholders – including communities. This will require a credible understanding of needs, aspirations and priorities. It will quickly take businesses into new or deeper collaborations with local partners – such as universities, local government and others. Measuring employee volunteering hours or volume of charitable giving won’t hold as the primary route for a company’s social contributions. While these activities have impact, just as reusing plastic cups won’t save the environment, they don’t really touch the sides of the problem.
To truly ‘level up’ and deliver the ‘S’ of ESG, we need a new kind of collaboration between investors, businesses, local communities and government. It’s long overdue. And those engaged in such partnerships must face down the evidence, which shows that strategies for tackling inequalities across different places in the UK have not been successful. The truth, for businesses, is the greater and deeper their partnerships with local communities, the more successful their social strategies are likely to be.
The statistics and framework shared in this article are detailed in our Quest for the S in ESG report