The S in ESG: Managing social responsibility and stakeholder relationships

Research shows companies with strong ESG-related practices have lower risks, lower cost of capital, better performance in operations, as well as better share price performance over the long-term. That’s why investors want to know the companies they’re investing in are conducting business responsibly. 

ESG measures involve three components: environment, social, and governance. Last week we looked at environmental measures. This week, in part two of the three-part ESG series, we’ll examine factors investors weigh to determine social performance.

 

Social

 

The COVID-19 pandemic exposed gaps and weaknesses in global health and social issues. So, it’s not surprising that attention on the social factors of ESG performance increased. For Canadian pipeline companies, social factors relate to managing relationships with three major groups: employees; the communities where they build and operate; and Indigenous communities.

 

Here are six of the categories investors weigh when evaluating social factors.

 

  1. Indigenous engagement – in this category, responsible investors want to know there’s a foundation of trust and respect in the company’s relationships with Indigenous communities. Scientific studies and historical evidence inform some of the factors measured, such as culture, heritage, and tradition. Companies also have Indigenous engagement strategies in place. Many outline steps to increase cultural awareness and how the company approaches training and growth opportunities for Indigenous people.
  2. Employee physical safety and health – In addition to providing standard benefit programs, companies set safety measures and track employees’ on-the-job safety performance. Many companies link executive compensation to safety performance. And it’s also becoming a best-practice for companies to hold third-party contractors to the same safety standards as employees.
  3. Employee mental health – Some companies have created employee programs that focus on mental wellness. And some of those programs include training for leaders and employees to promote mental health and reduce stigma and discrimination.
  4. Employee voluntary turnover – This category looks at the company’s ability to retain employees. That’s because, according to decades of employee engagement research, growth and opportunities to learn, as well as employees’ enjoyment at work, are fundamental to an energized culture and strong performance.
  5. Employee diversity – Human rights, diversity, and inclusion are typically part of most sustainable business strategies. Many companies report the number of females in the workplace and in management. And some companies go one step further by disclosing the percentage of employees who are minorities, Indigenous and/or disabled. It’s also common for companies to have codes of conduct to avoid issues such as harassment, bullying, and discrimination.
  6. Community investment – Investors consider whether companies are building relationships with community groups and organizations to empower those communities and create healthy and sustainable environments. Pipeline companies operate in many communities across Canada. And as such, it’s common for them to track how much they spend in each community, including the charitable investments they make in community life.

CEPA members strive to achieve best practice performance in social ESG measures, and that’s evident in their commitment to fully implementing CEPA Integrity First. To learn more, visit the 2020 transmission pipeline industry performance report.

In next week’s About Pipelines blog, we’ll explore the governance component, or the G in ESG.