The business landscape is shifting fast, with regulatory efforts intensifying and consumers and investors favouring ethical, responsible businesses. More than ever, having a demonstrably positive impact is a key consideration for future-proofing your business model.
So how do you go about showcasing your purpose? There are many avenues that businesses go down – with two common ones being Social Value and Environmental, Social, and Governance (ESG).
Here, we look at the crossover and distinctions between these two approaches, and why Social Value has unique potential to drive positive change.
Defining our terms: Social Value vs ESG
Before we discuss the relative merits of each approach, let’s start by laying out some clear definitions of both ESG and Social Value.
ESG
Having grown out of the investment space, ESG reporting helps investors assess whether there are any environmental, social, and governance risks inherent in a business’s operational model. This encompasses how an organisation’s operations and supply chain affect the environment, how it ethically it engages with stakeholders, and whether it has the right processes to manage environmental or societal risks that may impact shareholder value.
ESG ratings agencies score companies on their performance, typically using data that has been voluntarily submitted against reporting frameworks like the Sustainability Accounting Standards Board, the Global Reporting Initiative, and various others.
Social Value
While Social Value has been around since the 2000s, it was put on the map by the Public Services (Social Value) Act of 2012, which made it a requirement for public sector buyers to consider Social Value in procurements.
Simply put, Social Value is the good that organisations contribute to society beyond an operating profit and in addition to core contractual requirements or business as usual standards. It covers social, economic, and environmental considerations – for instance, hiring local people, creating apprenticeship opportunities, and reducing carbon emissions beyond the industry baseline.
The Social Value TOM System™ is the leading standard for capturing and reporting positive impact. It aligns to key pieces of Social Value guidance like the central government’s Social Value Model, as well as all major ESG frameworks.
Reporting using the TOM System™ allows us to identify our strengths and areas of improvement. We’re now able to think more strategically about where we go next, because we have the data we need to support those decisions.
Charlotte Davies, Social Impact Manager, Equans
ESG: Necessary, but not enough
So, while ESG and Social Value overlap in notable ways, they do different things. And while ESG has proven valuable in promoting responsible business practices, it has several limitations:
- Risk-focus: ESG frameworks prioritise risk mitigation and compliance, often overlooking the proactive, positive contributions made by organisations.
- Unstandardised: Different reporting frameworks and rating agencies use different criteria for scoring, making it challenging to use ESG reporting as an objective benchmark.
- Reliability: Variations in data quality and reporting practices can create disparities in ESG scores.
What makes Social Value so effective?
ESG reporting is an important way of driving more sustainable behaviours in the business landscape. Social Value, however, has a wider focus and offers several unique benefits to businesses that want to prove their positive impact. True Social Value is:
- Embedded: Core to a business’s operations and values.
- Additional: Beyond contract and business-as-usual requirements.
- Responsive to needs: Tackling specific community and wider societal challenges.
- Material: Aligned to the business’s activities and capabilities.
In essence, where ESG reporting shows that a business is compliant and risks are well managed, Social Value goes beyond this, focusing on how a company can create sustained prosperity and wellbeing for individuals, communities, and society.
CSRD: The convergence of Social Value and ESG
The Corporate Sustainability Reporting Directive (CSRD) requires businesses to report their impact on the environment and society against the European Sustainability Reporting Standards (ESRS). It also adopts a 'double materiality' approach, which considers both ‘financial impact’ and ‘impact materiality’.
This move brings Social Value and ESG closer together, embedding positive societal impact into the heart of the European reporting landscape.
Social Value is an essential tool for responding to the evolving ESG landscape and effectively reporting under CSRD. For more on CSRD and what it means for in-scope businesses, check out our deep dive.
Starting your Social Value journey
When it comes to Social Value vs ESG, it is not a matter of choosing one over the other – both approaches are important and should co-exist. To understand how Social Value Portal can help you integrate Social Value into your strategy, book in a discovery call with one of our experts.
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