Photo- The Social Education Group

Many Australian companies are touting their Environmental, Social and Governance (ESG) credentials, but social performance remains a blind spot for many.

Social performance is about the ‘S’ in ESG - how a business goes beyond financial outcomes to create social value for employees, suppliers, contractors, customers and the broader community in which it operates.

Social enterprises have been the proof point of social performance in practice for decades. These are businesses with a goal to create social and environmental impact through their work. They are mainly small to medium-sizes businesses that exist for a purpose, and they use business as a mechanism to deliver broader social value. They are great examples for organisations looking to navigate social performance and translate it into their business.

Looking at the social pillar in ESG presents an opportunity for businesses to get a competitive edge. In recent decades, when discussing ESG, social has often been overlooked and taken a backseat to the environmental emphasis that now dominates boardrooms.

Getting ahead of the curve

We see change on the horizon and expect social performance to become a mandatory requirement for businesses to deliver and report.

In January we saw the introduction of Mandatory Australian Sustainability Reporting Standards for large businesses and this will expand over time to cover businesses of all sizes.

The EU’s Corporate Sustainability Due Diligence Directive (CSDDD) introduced assured integrated reporting on responsible corporate behaviour. Australian business subsidiaries with ‘in scope’ parent companies or contracting with ‘in scope entities’ may be subject to new checks on human rights and environmental standards.

The International Sustainability Standards Board (ISSB) has an open research project covering ‘human capital’ as a next consideration for mandatory disclosures.

It’s not a matter of if, but when social performance will be part of mandatory reporting. When we talk about social performance, we are effectively looking at your impact on people – your employees, customers, suppliers and communities.

Most organisations won’t be starting from scratch, many have initiatives that are already in place. Social performance activities are set to become a point of competitive advantage to attract better talent, win more customers, and generate greater goodwill.

Still a long way to go

The UNSW Centre for Social Impact (CSI) recently released a report card on the state of ‘S’ reporting by Australia’s largest companies. In analysing the financial reports of the ASX100, the research found significant weaknesses in how corporate Australia tracks and reports its social impact.

While an impressive 97% of ASX100 companies do report on social topics in some form, the scope and quality of these disclosures remains relatively weak.

One major issue is overemphasis on internal workplace metrics at the expense of external impact metrics. According to the UNSW study, reporting by ASX100 companies is heavily skewed towards internal indicators like workforce diversity (reported by 97.9% of companies) and employee training (91.4%)

These internal metrics – covering areas such as gender diversity, employee engagement, and workplace health and safety – are important to track, but too often they come at the expense of looking outward.

Social performance is so much more

To conceptualise the gap in reporting, the UNSW researchers borrowed a page from the environmental playbook by categorising social impact reporting into:

• “Scope 1” social impacts are those internal to the company

• “Scope 2” social impacts are those at the interface of the company and its immediate partners or suppliers

• “Scope 3” social impacts extend to the broader value chain and society

Currently, ASX100 companies primarily focus on internal, direct (Scope 1) social impacts related to workforce metrics like safety, diversity, and employment, the broader social impacts along value chains remain significantly underreported. It becomes both harder to implement and more difficult to measure as you look more broadly across your entire value chain but this is where some of the greatest impact can be made.

Practical ideas to broaden your scope

Within this gap lies a tremendous opportunity. Just as the corporate world rallied over the past decade to improve environmental disclosure, there is now a chance to elevate and standardise social disclosure – and in doing so, unlock new forms of social value and impact corporates can deliver.

We often get asked where do we start, or what more can we do. And it is not an easy answer as the ‘S’ is different for each business. Businesses need to consider what is most relevant to them based on their product and services.

However, there are a range of initiatives that you may think about implementing, or may already have in place, that help you deliver on social performance. We like to think about it across four areas:

People

• Paid internships to train and provide opportunities to those from a disadvantaged background – helping them obtain skills for future employment

• Fair and inclusive employment opportunities and workplace practices to support people who might have some barriers to work

• Find purpose-driven social enterprises or not-for-profits who would benefit from some skilled mentoring or volunteering from your people

Supply chain

• Look for opportunities where your business can divert its spend to buy from social enterprises, diversifying your supply chain while creating impact

• How can you engage your peer network to support and promote opportunities for social benefit suppliers to help them grow

Products and services

• How can you make your products and services more accessible to groups who may otherwise not be able to access or afford them

• Pro bono or low bono support services; offering your services in different ways so social enterprises can access them in order to scale their impact

• Collaboration with social enterprise to bring them into co-creation or co-delivery of your products and services

Stakeholders

• Community outreach or local community initiatives

• Can you make your facilities open for community groups to use

• Targeted donations and charity partnerships

• Buy one give one models as made famous by TOMs

These are all practices that have come from social enterprises that have been doing the work of social performance for decades across all industry sectors right around the globe.

We can replicate these in everyday corporate Australia. We’re encouraging forward-thinking leaders to look at what you could apply to your business as a way to add and enhance social performance into the work you're already doing.

As the report by CSI concludes: “By adopting this holistic approach to social impact, companies can better position themselves to avoid future regulatory breaches while strengthening their social value creation. More importantly, it enables organisations to generate and measure positive impact across all stakeholder groups, moving beyond compliance to creating meaningful societal benefits.”

Looking for more ways to deliver social value and report on it?

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