Many HR directors and sustainability officers take issue with the lack of ambition from management when it comes to defining their social strategy, and the unsufficient resources allocated to them. Others are struggling when challenged by their Board in asking for evidence that their social initiatives are actually “profitable” to the company.
Most of the time, behind these difficulties lies a fundamental underestimation, by management, of the criticality for the company undertaking a deep reevaluation of its relationships with its employees, stakeholders and a lack of questionning of the company’s wider role in the community.
Let’s take a look below at some of the most common misconceptions, and arguments to deconstruct them.
MISCONCEPTION 1-“CORPORATE SOCIAL POLICY SHOULD INCREASE PROFITS”.
Considerations:
The primary function of a sustainable development strategy, whether environmental or social, is to ensure the company’s lasting prosperity in an environment that has become structurally uncertain.
The world does not stand still. In addition to climate change, we’ve witnessed some unexpected political and economic turning points, and it seems prudent to assume that more will come. According to a survey released by PWC during Davis Summit 2024, nearly half of CEOs fear that their companies will not survive 10 years due to AI and climate change.
An efficient social policy shall have a positive impact on the company’s financial performance.
A company capable of supporting its employees on its sustainable journey and aligning its interests with those of its stakeholders, gives itself the means to withstand adversity. For the key reasons that it makes itself attractive to new talent capable of innovation, and can count on a workforce committed to its focus on creating the optimal conditions for profitability over the long term.
Numerous studies have demonstrated that companies which were early adopters in placing their social policy at the heart of their strategy are significantly more profitable than their peers who adhere to a classic governance model, geared solely to the short-term satisfaction of their shareholders1.
A company’s social performance cannot be measured using solely financial indicators. It has its own “non-financial” performance criteria.
In January 2023, new EUCorporate Sustainability Reporting Directive (CSRD) entered into force, providing valuable clarifications for the market in defining indicators to measure, notably, social performance. The main indicators include structural and movement indicators, inclusion factors and economic data.
The performance of these indicators is analyzed through the KPIs set by the company as its action plan progresses.
The positive impact of a proactive social policy is only measured overtime.
Integrating social objectives into corporate strategy with the same level of importance as environmental and financial objectives requires a profound transformation of the way the company operates, and impacts the entire organization.
In addition to HR policies, which need to be reviewed in line with the company’s social objectives, all operational, business and control functions need to integrate the social dimension into their scope of activities.
It also involves educating all employees on new ways of being at work, and to more democratic forms of collaboration.
The Board ultimately must revisit its own priorities and practices in putting the social project at the heart of its agenda and fully embodying the company’s new strategy by making its involvement visible.
This overall cultural change doesn’t happen overnight. In a first phase, the implementation of a precise action plan with clear milestones will facilitate the monitoring of progress made.
MISCONCEPTION NUMBER 2: “SHAREHOLDER REMUNERATION MUST REMAIN A PRIORITY”.
Considerations:
This reasoning is based on an outdated vision of the company’s business model, according to which social measures are no more than a concession extracted from shareholders in an evolving balance of power between the company’s workforce and its shareholders, thus reducing the importance of human resources to the status of costs that need to be optimized.
For a company that makes its social performance an integral part of its strategy, the budget allocated to the social goals becomes an investment, that can be expected to create long-term value, instead of being a cost that the company shall aim to reduce.
MISCONCEPTION NUMBER 3: “THE EXPECTED EFFECTS OF THE SOCIAL MEASURES UNDERTAKEN ARE NOT FORTHCOMING”.
Considerations:
There are a number of reasons for this observation, or perception:
– Social initiatives & policy disconnected from the real impact of the company’s activities on its employees, stakeholders and the community
– Objectives formulated in overly general terms, impossible to measure
– Non-binding objectives
– Lack of tools in measuring social performance
– Insufficient management involvement.
Many players still omit a crucial step: that of analyzing and characterizing their social impact.
Furthermore, the measurement of a company’s social impact is inseparable from the perception of those impacted stakeholders.
Initiatives that may look in theory favourable, may well bring no value to the company, and even turn out to be counterproductive if taken blindly, without consideration for the actual externalities created by the company.
MISCONCEPTION NUMBER 4: “ESG IS ALL ABOUT MARKETING”.
Considerations:
Those who believe that a company’s social performance is primarily a marketing advantage will soon be overtaken by reality.
The CSRD standards have been specifically designed to overcome any practices of ‘greenwashing’ by requiring the disclosure of specified indicators for the company’s sustainability performance.
The directive may well not necessarily apply to you, but the guidelines are intended to become market standards that all players will have no choice but to follow if they wish to remain credible partners for their supply chain.
Worth noting that in order for this to be an accessible goal for SMEs, the European Financial Reporting Advisory Group (EFRAG) introduced a simplified version of the ESRS for SMEs. These standards are designed to be proportionate to the size and complexity of SMEs, and to take into account their specific needs and circumstances.
MISCONCEPTION NUMBER 5: “THERE’S STILL TIME”.
Considerations:
Maybe you think you’re the best, or have “something else to offer”. Or maybe you have a monopoly? But you certainly don’t want to be last in having an inspirational and forward looking strategy for your employees.
At a time when a single social media post can ruin a company’s good reputation, patiently built up over the years and when best practice becomes so widespread as to be set as the industry standard, your company could well find itself lacking credibility among both its stakeholders and workforce.
The implementation of sustainable social practices is a lengthy process that impacts the company in all its dimensions, and requires solid planning with clear, measurable milestones over time. Therefore there is a real urgency in setting out a plan of action.
And let’s not forget that regulators have been clear that they are prepared to use the regulatory toolkit as a ‘stick’ to incentivise faster progress.
Conclusion
Boards urgently need to understand the scale of change required at all levels of the organization and in relation to their value chain.
It takes time to move from one business & management model to another, to adopt new governance rules and to redefine relationships with stakeholders. It takes even longer to cultivate a new corporate culture, implement it across the organization and develop the tools to make it work.
Those who fail to grasp these issues and take the necessary steps to initiate their transformation in time run the risk of being left behind, and facing major challenges in catching up and reintegrating their ecosystems.
adVeci provides comprehensive assistance in human resources and corporate governance matters to support its clients’ sustainable prosperity.
For more information, contact Sandrine Leclercq (s.leclercq@adveci.com). Tel: +352 26 177 820 / +352 661 121 306.
- “A study by France Stratégie, entitled “2023 Corporate Social Responsibility and Competitiveness – Assessment and Strategic Approach”, indicates in economic performance a gap of around 13% on average between companies that implement a corporate social responsibility policy and those that do not.
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