Is ESG the same as social value?

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Is ESG the same as social value?

Guy Battle, CEO of Social Value Portal addresses a number of frequently asked questions from corporates about their intent, needs or journey towards measuring social value and how it differs from ESG.

So, what are the differences and similarities between ESG (Environmental, Social Governance) and social value?

For many of our corporate clients, there seems to be a never-ending number of external questions being asked by ratings agencies on their ESG performance, none of which really get to the core of how they are working and what they are doing.

On top of that, our customers are faced with an alphabet soup of acronyms and recipes for ESG assessments – no wonder it’s so confusing! In my view, all of them suffer from the same two fundamental flaws.

The first key issue, and this is a structural flaw, is that an ESG assessment was developed as a risk-based analysis, designed by agencies who are more interested in mitigating risks than measuring the value created. This is unsurprising, given the fact that ESG was the industry’s interpretation of sustainability. At the time of its creation, there was no clear link between a business that had a good sustainability strategy and business value created. Things are different now.

The second, and even bigger flaw, is that an ESG assessment actually misses a key part of the sustainability story: the contribution that a business makes to the economy in terms of job created, skills developed and local spend. The index really should be called the ESEG Index (Environmental, Social and Economic), with Governance wrapped around the core value creation activities as a means of delivery and management.

We should of course be grateful that ESG has gained so much traction and that sustainability is now seen as a key business driver. However, these two fundamental short-comings within a typical assessment mean that whilst ESG might suit the analysts, it does nothing to help an organisation describe its social value creation story.

‘Outside-In’ ESG versus ‘Inside-Out’ Social Value

In simple terms, ESG is an outside-in risk assessment that was conceived when assuming a business can only ever have a negative impact, and so has been designed to mitigate this adverse impact. On the other hand, a Social Value analysis lets you tell your own story and is all about the value you create for society. It is built around the wider contribution that a business can make to society through the products it makes, the people it employs, and the support it provides to its communities, and society as a whole.

It’s time to take back control of your own narrative, rather than let the outside world decide. It’s time to tell your Social Value Creation story through the people you employ, and the products and services they deliver every day.

Published, 30 April 2021.

Guy Battle is CEO of Social Value Portal.

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