The Social pillar of ESG is arguably the most diverse. It is also the most personal to stakeholders, since these issues directly affect stakeholders. “Social” includes occupational safety, living wages, diversity and inclusion, modern day slavery, human rights, and dozens of other issues. The GRI (formerly Global Reporting Initiative) has more reporting categories for Social than any other pillar of Sustainability.

There are regulatory requirements for Social issues, including occupational health and safety; workplace conditions; conflict minerals traceability and reporting. There are laws in US and Europe requiring practices to prevent modern day slavery and human trafficking in supply chains, and (in the EU) for public non-financial reporting. Social issues offer the opportunity to enhance reputation and increase an organization’s value. The speed and impact of social media can damage reputation quickly, costing companies significantly.

DHC’s efforts in the Social pillar have focused on Health & Safety; conflict minerals; modern day slavery; and (internal and external) Non-Financial Reporting. DHC led an effort to “turn a Client’s Safety Manual inside out”, replacing a dry recitation of regulations with guidance tied to employees’ tasks – and written in clear English. DHC developed a conflict minerals program for a large tech company that was deemed among the very best by two Big 4 reviewers. DHC led five of the very few voluntary Independent Private Sector Audits pursuant to the SEC’s Dodd-Frank Conflict Minerals rule. DHC has worked with Clients – often in a co-sourced model – to align company Social efforts with business objectives, and to improve the reliability of information and data for the Social pillar of ESG reporting.

DHC’s experience in first-line operations has paid dividends to Clients for over 40 years. Nothing builds perspective on what happens in Operations like working with Operations, including the overnight shift. Chemical engineering background has facilitated mapping business processes for environmental management. Business background has facilitated meaningful Client ESG communications to Management, the Board, financial auditors, regulators, and investors. Social issues are often regarded as “soft” – difficult to justify costs, and difficult to report. DHC has provided value by applying widely accepted business frameworks and practices to social skills, to facilitate program development, performance and reporting in the Social pillar of ESG.

Social issues are widely regarded as “soft” by Company management. It is easier to justify programs when imposed by government regulation (occupational health and safety), but not so easy otherwise.

Social issues can change quickly, changing the potential impact and expectations on companies equally as fast. COVID-19 is inherently a health and safety issue and has devastated large segments of the global economy. Racial injustice and inequities have been systemic for decades; the death of George Floyd and others in 2020 put the spotlight on companies, with the expectation that they should be taking actions. Developments can affect organizations directly or indirectly. Either way, it is becoming more difficult for organizations to remain passively on the sidelines. There are ways to participate that also align with organizational objectives. These efforts must be meaningful, honest and valid. “Greenwash” – or outright fraud - on social programs can backfire and cause reputational damage, or worse.

“Social” seems like an odd place for occupational health and safety (H&S) – but there it is. OSHA regulations establish compliance requirements in the US for employees. Health and safety obligations extend to those not covered by OSHA regulations. COVID-19 is a stark example of how H&S can affect all aspects of an organization. Longstanding H&S practices are being more widely adopted to combat COVID-19 in workplaces and communities. COVID-19 has also challenged H&S professionals to learn even more, and to apply new learnings across the organization. It’s a perfect example of the value of applying standard principles and practices from Enterprise Risk Management to ESG, including risk assessments, policies and procedures, risk mitigation, training, continuity planning, monitoring and auditing.

Social issues can seem soft, or local – or both. Often, they are neither. Forced labor and human trafficking continue to thrive in many places; people – and companies – profit off of this. Some of these people are unscrupulous; others are companies simply looking for reliable supply and lower costs. Forced labor / human trafficking is present globally, affecting sectors including fishing, textiles and apparel, electronics and tech, and hospitality. California’s Supply Chain Transparency Act and the UK Modern Slavery Act both require supply chain due diligence and reporting. The Dodd-Frank Conflict Minerals act originated with similar concerns. These laws affect a range of criteria for companies doing business there, not just those headquartered there. Regardless of the level of enforcement, if reports surface of slavery in an organization’s supply chain, the adverse reaction can be swift and impactful. Company management may protest that no one organization can stamp out modern day slavery worldwide. They’re right. But it is not an excuse to do nothing. There are standards, frameworks and programs that can be used to show good faith and mitigate these risks. These practices continue to evolve; continuous support by specialists in the topic and good governance can make these programs more efficient and effective. They can also enable organizations to seize competitive advantage.

Why should the biggest, richest companies in the world thrive on the backs of miners knee-deep in filthy water, toiling under oppressive heat and under the watchful, merciless eyes of armed guards in the Democratic Republic of Congo? Why don’t investors have a reliable way to know whether companies are profiting this way, so they can make their investment decisions accordingly? These two questions were compelling enough for Congress to include provisions for “conflict minerals” in the Dodd-Frank Act. The EU followed suit with rules – slightly different, and still changing. These laws forced companies to develop new standards and methods of oversight for supply chains. Dodd-Frank is arguably the first legislation that requires an SEC filing of a non-financial issue – a Conflict Minerals Report. Dodd-Frank recognized the value of assurance in SEC filings and included a provision for an Independent Private Sector Audit (IPSA) – a mechanism to obtain assurance for the CMR. Dodd-Frank set a precedent in that IPSAs can be conducted by non-CPA auditors; after all, the subject of assurance is operations, supply chain, and governance. Industry associations, NGOs, software solutions and consultancies grew up to meet the challenge. DHC conducted one of the first four IPSAs, and is still one of a very few non-CPAs to have IPSAs on file at the SEC. The spotlight on third party risks has continued to grow, including modern day slavery, cyber risks, and COVID-19. Learnings from Conflict Minerals can be applied to the growing challenges of third party risk management.