What is the Social in ESG?
What is the Social in ESG?
When business leaders hear “ESG,” the focus often falls on environmental and governance topics. But the social aspect of ESG is equally critical — and often the hardest to define. It covers how companies manage relationships with employees, customers, suppliers, and local communities, and how they respect human rights across global supply chains.
For small and medium-sized enterprises (SMEs), understanding the social side of ESG isn’t just a compliance exercise. It’s about building trust, reducing risk, and improving long-term business success. In this article, we’ll break down what the “S” in ESG really means, why it matters for SMEs, and how to integrate it into your sustainability strategy without overcomplicating things.
Quick Takeaways
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The social in ESG focuses on people, relationships, and community impact.
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Strong social practices improve employee satisfaction, financial performance, and brand reputation.
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SMEs that prioritize social responsibility gain a competitive advantage in sustainable development.
What is the social in ESG?
The social in ESG refers to a company’s relationships with people — employees, suppliers, customers, and surrounding communities. It highlights how businesses treat workers, respect human rights, and contribute positively to society.
For SMEs, this includes practical steps like ensuring fair wages, maintaining workplace safety, supporting employee well-being, and engaging with local communities. Social factors can be harder to measure than carbon emissions, but they are increasingly relevant for investors, regulators, and customers who expect ethical practices in daily operations.
Examples of Social Factors in Action
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Fair labor practices: Paying fair wages, preventing discrimination, and ensuring safe working conditions.
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Community engagement: Supporting local communities through volunteering, partnerships, or sponsorships.
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Human rights: Respecting workers throughout global supply chains, avoiding exploitation and human trafficking.
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Employee engagement: Building a culture of trust, inclusivity, and diversity.
When SMEs take social factors seriously, they not only strengthen compliance but also boost employee satisfaction and brand image. This contributes to a more resilient, sustainable business strategy.
How does the social aspect connect to Environmental, Social, and Governance (ESG)?
The social pillar works alongside environmental and governance factors to form a complete sustainability framework. While environmental factors focus on natural resources and governance ensures accountability, the social component ensures ethical treatment of people across business operations.
Business leaders need to see social responsibility as part of a sustainable business model, not an optional add-on. Social issues like labor practices, diversity, or worker health can directly influence a company’s financial performance and reputation.
Key Connections
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Environmental + Social: Worker safety in industries with environmental risks.
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Governance + Social: Ethical sourcing policies that prevent child labor.
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All three pillars together: Creating a sustainability strategy that balances natural resources, people, and business practices.
Ignoring the social side can prove challenging for SMEs, especially as external stakeholders and institutional investors demand full ESG disclosure.
What are the key drivers of social impact in business today?
The biggest driver of social impact is expectation — from employees, customers, regulators, and investors. People want to support companies that operate ethically and contribute positively to society.
Institutional investors now screen companies for ESG considerations, and the social component is gaining growing importance. For SMEs, this means human capital, responsible sourcing, and diversity and inclusion are no longer optional. They are business priorities that directly affect access to capital, partnerships, and competitive advantage.
Main Drivers
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Human capital: Attracting and retaining skilled workers.
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Responsible sourcing: Ethical practices in supply chain operations.
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Diversity and inclusion: Building workplaces that reflect gender equality and equal opportunity.
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Community participation: Actively contributing to the surrounding community.
SMEs that embrace these drivers often see higher employee satisfaction, stronger brand image, and improved business success compared to industry peers that ignore them.
Why is ESG reporting important for social factors?
ESG reporting helps businesses prove their commitment to social responsibility. By disclosing labor practices, human rights protections, and employee welfare programs, companies show transparency to external stakeholders.
Frameworks like the Global Reporting Initiative (GRI) provide guidelines that SMEs can follow to ensure they meet investor expectations without needing expensive software. Reporting on social issues is increasingly relevant for regulatory risks, and businesses that stay ahead build stronger trust.
What SMEs Should Report
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Employee satisfaction, well-being, and engagement scores.
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Community engagement initiatives and partnerships.
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Supply chain audits on labor practices and human rights.
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Diversity and inclusion efforts, including gender equality metrics.
Clear reporting helps SMEs strengthen their corporate responsibility profile and attract sustainable investing opportunities.
What social risks and opportunities should SMEs watch for?
Social risks can create serious financial and reputational damage. Issues like human trafficking, environmental violations in supply chains, or unfair wages can erode trust quickly. But SMEs also have opportunities to lead by showing authentic commitment to ethical culture and community support.
Common Social Risks
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Poor workplace safety or weak employee welfare policies.
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Exploitation in global supply chains.
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Lack of diversity or gender equality.
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Failure to respect human rights.
Opportunities to Contribute Positively
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Partnering with local communities to build resilience.
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Investing in employee engagement programs.
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Creating fair labor practices that set industry standards.
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Leveraging ESG initiatives as a source of competitive advantage.
SMEs that manage social risks effectively often find that the same actions create growth opportunities and long-term sustainability.
How can SMEs integrate social responsibility into business strategy?
The answer is to treat social priorities as core business strategy, not separate programs. Business operations that include ethical sourcing, workplace safety, and employee welfare drive better financial performance over time.
Practical Ways to Integrate Social Factors
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Embed ESG principles: Make ethical practices part of your sustainability strategy.
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Engage employees: Involve staff in decisions about workplace safety and culture.
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Adopt responsible sourcing: Audit supply chain operations for human rights and labor practices.
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Build a sustainable business model: Link social responsibility to long-term business success.
When social responsibility becomes part of corporate strategy, SMEs benefit from stronger trust with external stakeholders and sustainable growth.
Why does ESG investing focus so heavily on social priorities?
ESG investing is primarily focused on finding companies that balance profit with positive social impact. Investors want to fund businesses that demonstrate ethical culture, fair labor practices, and strong community engagement.
The global pandemic highlighted the importance of worker health, diversity, and resilience. Companies that managed employee well-being and community participation during this period stood out as reliable, sustainable investments.
What Investors Look For
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Strong social track records and proven ESG initiatives.
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Evidence of employee satisfaction, fair wages, and engagement.
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Transparent ESG reporting that covers social issues in detail.
SMEs that prioritize social responsibility become more attractive to institutional investors, gaining access to sustainable investing opportunities.
Conclusion: Why the social in ESG matters for SMEs
The social pillar of ESG is not just about compliance. It’s about how businesses operate every day — their relationships, ethical practices, and responsibility to society. SMEs that integrate social considerations into their business strategy gain resilience, stronger reputations, and a clear competitive advantage.
By focusing on fair labor practices, employee engagement, and community participation, SMEs can mitigate risks and contribute positively to sustainable development. In short, the social in ESG is the bridge between profit and purpose — and it will define business success in the years ahead.
FAQs
What is the social in ESG
It is the part of ESG that focuses on people — employees, communities, suppliers, and customers. It includes human rights, fair wages, and community engagement.
Why is the social aspect of ESG important
Because it directly affects business success, reputation, and financial performance. Ethical practices build trust with stakeholders and reduce risks.
How can SMEs improve employee satisfaction under ESG
By paying fair wages, offering workplace safety, supporting diversity, and promoting employee well-being through open engagement.
What are examples of social risks in ESG
Human trafficking, poor labor practices, weak workplace safety, lack of gender equality, and failure to respect human rights.
How does social responsibility affect financial performance
Strong social practices reduce turnover, improve brand image, and build customer loyalty, which in turn drive profitability.
What role do supply chains play in the social pillar of ESG
Supply chain operations must ensure fair labor practices, ethical sourcing, and respect for human rights across global suppliers.
How can SMEs engage with local communities
By supporting local initiatives, creating jobs, sponsoring events, and building partnerships that strengthen the surrounding community.
What frameworks guide social reporting
Frameworks like the Global Reporting Initiative (GRI) help SMEs disclose social factors, including labor practices and diversity.
Why are investors increasingly focused on the social component
Because companies with strong social responsibility are seen as lower risk and better long-term investments.
How does the social pillar connect to governance factors
Governance ensures accountability for social commitments. Ethical business practices and strong oversight help ensure fair treatment of people.
About ESG The Report
ESG The Report is your trusted source for practical insights on environmental, social, and governance reporting. We provide research, expert commentary, and strategies that help SMEs and investors navigate sustainability with clarity. From ESG reporting and supply chain audits to corporate responsibility and diversity initiatives, our articles show how businesses can turn ESG challenges into opportunities. Join our community of leaders who value accountability, transparency, and innovation in sustainable development.
More Frequently Asked Questions
What is the social part of ESG?
The social component of ESG focuses on relationships, looking at how a company interacts with its employees, financial stakeholders, communities, and the political environment. It covers topics such as employee treatment, boycotts, labor violations, product recalls, community engagement, and overall impact on society.
These topics are important to consider when evaluating a company’s ESG performance, as they can have a significant impact on the company’s reputation and long-term success. Companies that prioritize social responsibility and ethical practices are more likely to be viewed as companies that prioritize social responsibility and ethical practices.
What is the purpose of ESG and social?
ESG and social focuses on human rights and equity, including an organization’s relationships with people and its actions that impact individuals, groups, and society. These focuses are important for companies to consider when making decisions, as they can have a significant impact on the environment, society, and the economy. Companies should strive to ensure that their decisions are in line with their ESG and social objectives.
How can companies build a resilient workforce through ESG principles?
Companies can build a resilient workforce through ESG principles by promoting diversity, equity, and inclusion, and providing appropriate labor practices and employee well-being. By creating a workplace that is diverse, equitable, and inclusive, companies can foster a culture of respect and collaboration. This can lead to improved employee engagement, productivity, and morale. Additionally, it provides fair labor practices and promotes employee well-being.
What are the challenges in quantifying social data?
Quantifying social data for ESG purposes presents several challenges, including the lack of a reliable measurement standard and the difficulty in capturing qualitative aspects. Additionally, data may contain artifacts that need to be filtered out before being used. As such, it is important to ensure that the final answer is accurate and free of any artifacts.
How is the growing importance of social factors reflected in ESG investing?
The importance of social factors in ESG investing is increasingly evident, as stakeholders push for higher expectations and a shift from environmental to social priorities. Stakeholders are increasingly looking for companies to demonstrate their commitment to social responsibility, and ESG investing is a way to do this. Companies are expected to take into account the social impact of their decisions, and investors are increasingly demanding this.
AUTHOR BIO
Research & Curation
Dean Emerick is a curator on sustainability issues with ESG The Report, an online resource for SMEs and Investment professionals focusing on ESG principles. Their primary goal is to help middle-market companies automate Impact Reporting with ESG Software. Leveraging the power of AI, machine learning, and AWS to transition to a sustainable business model. Serving clients in the United States, Canada, UK, Europe, and the global community. If you want to get started, don’t forget to Get the Checklist! ✅