Tara Anderson, Social Traders CEO, puts the spotlight on the missed opportunity that the 'S' plays in ESG.

ESG – a little acronym, but a big opportunity. Customers want it. Employees are excited about it. Investors are backing it. Governments are regulating it. And the world needs it. The question is, how are you going to capitalise on it?

You’re probably familiar with the ‘E’ & ‘G’ elements of ESG (environment and governance). But what about the ‘S’ (social)? This is where real competitive advantage lies. You might not know it, but there’s an entire sector that’s road-tested the ‘S’ in business globally, for decades. They’re social enterprises, and we can show you how to replicate their successful ‘S’ business models.

First up, why ESG? It’s the new normal, and it’s driving competitive advantage

Business is facing a transitional moment where the conversation about ethical and sustainable business is shifting from ‘why’ to ‘how’. ESG outcomes are now expected from your investors, staff, customers - and your regulators will follow [1].​

The business world is pivoting. Not so long ago, 180 of the world’s biggest companies overturned three decades of orthodoxy to pledge that their firms’ purpose was no longer to serve their owners alone, but customers, suppliers and communities too.

• KPMG found that more than half of CEOs have shifted away from profit-maximisation to a purpose-driven approach. One in five CEOs now say it’s their primary objective.
• McKinsey showed that 90% of S&P 500 companies now publish ESG reports. They also found that social-related shareholder proposals rose 37% in 2021.
• PWC has highlighted that those not prioritising the 'S' are being scrutinised - and left behind.

We’re at an inflection point as ESG moves from being a cost centre to a profit centre. It can open capital markets, generate new revenue streams and add value to your brand. It’s now part of your competitive advantage. On the flipside, Australian businesses that haven’t prioritised ‘S’ have found themselves on the front pages for all the wrong reasons - resulting in immediate action from the Board to manage the fallout with customers, employees and stakeholders.

[1] For example, the Modern Slavery Act 2018 requires entities with annual consolidated revenues of at least $100 million to publicly report their actions to assess and address modern slavery risks in their operations and supply chains.

To capitalise on the opportunity of ESG, you can’t ignore the ‘S’

If you’re not thinking about your’ S’, you should be​. While the ‘E’ (environmental) and ‘G’ (governance) are relatively well understood, the ‘S’ (social) is largely ignored. This is a critical error by business leaders.

The social element of your ESG strategy is where there are opportunities to create real competitive advantage. It’s a differentiator. Because it’s about people – your staff, customers, stakeholders and communities. ‘S’ is your social licence to operate.

You might have heard ‘S’ described as things like employee policies, staff wellbeing, living wages, the gender pay gap and Modern Slavery. These are only your bare minimum ‘do no harm’ ‘S’ activities. They are an important baseline, but they're simply getting your house in order. The frontrunners in this space are having an impact on people and society in many other ways.

What does good ‘S’ look like?

Many business leaders may not know it, but there’s a whole sector leading the way in best practice ‘S’ – social enterprise. ​Social enterprises are businesses that exist specifically to create positive impact. There are over 12,000 across Australia. They contribute $21.3 billion to the economy and employ over 206,000 people. ​

Their whole reason for existence is to deliver social impact (‘S’ outcomes) - using business. And they’ve been doing it for decades, globally. They exist in every sector of our economy. There will be social enterprises in your industry already. Social enterprises reinvest 29% of their revenue in delivering social impact. ​They’re sustainable businesses, that deliver ‘S’ activities every single day.

Social enterprises know that purpose isn’t ‘something you do’, it’s everything you do. ​They are the proof that it’s entirely possible to combine commercial and social outcomes.

What social enterprises can teach us about ‘S’ in business

We’ve worked with almost 700 social enterprises across Australia since 2008 and we’re a social enterprise ourselves. We’re also Australia’s only certifier of social enterprises - confirming that social enterprises have embedded impact in their business model. Through the certification process, we’ve identified 13 different proven models for generating ‘S’ outcomes. You can access the resource at bottom of this article.

What next?

Turning your attention to ‘S’ isn’t just essential now, it will become even more important in future. It’s a crucial part of a comprehensive approach to ESG. And it’s how you can differentiate. Social enterprises have been delivering ‘S’ outcomes globally for decades. They’ve done the hard work of exploring how to create and measure social impact using business. In our work with almost 700 social enterprises, and as a social enterprise ourselves, we understand 'S’ in business inside out.

We’re already working with over 140 of Australia’s leading businesses on their social procurement strategies. Businesses including Microsoft, Australia Post, Lendlease and four state governments. We bridge both worlds and know how to translate 'S’ outcomes into a business context. Whether you're starting your ‘S’ from scratch or looking to align your ‘S’ to your core business. Or perhaps you're looking to consolidate and report on your existing work in the ‘S’ - we can help.

Social Traders is Australia's leader in social enterprise procurement and can also work with your business on your ESG strategy. Access your free ESG resource below, unpacking the 13 ways you can build the 'S' into your ESG strategy.