For generations, business has often been viewed through the lens of financial metrics, leadership, strategic planning, operational excellence, and more.
As the world continues to evolve and perspectives change, a new pillar emerges that defines the most successful and resilient companies today: ESG (Environmental, Social, and Governance).
Introduced in the early 2000s, the ESG has become today’s strategic imperative. Far from being a simple corporate buzzword or a compliance checklist, this framework has become the primary lens for a business’s long-term viability.
While the ESG framework is often associated with environmental sustainability, its scope extends beyond ecological considerations. It also encompasses critical social aspects, promoting inclusion, transparency, and accountability within an organization.
The “S” in ESG—the social pillar—can sometimes be overshadowed by the other factors. Yet, alongside the other two pillars, it plays a critical role in ensuring that sustainability is embedded in a business operation.
What does the social pillar mean in ESG?
The social pillar in the ESG framework works together with the environmental and governance pillars to ensure the ethical treatment of people across business operations.
This touches end-to-end participation, from higher management to employees of all levels, reflected in four main aspects: labor standards, human rights, diversity and inclusion, and community engagement.
How is business taking these into account?
Cultivating an inclusive working environment is essential for improving working conditions and, consequently, improving workforce representation across gender, age, and ethnicity.
This should be viewed not merely as an effort to provide equal opportunity but as a critical assessment of a business’s capacity to adopt a comprehensive perspective on people-related aspects.
Subsequently, companies can more effectively ensure employee well-being by supporting competitive wages and appropriate compensation.
Finally, by taking a holistic view of social aspects, companies can ask themselves: have we been listening to what our people need?
This then underscores the crucial role of stakeholders in their engagement with employees, suppliers, and communities.
How does this differ from “just charity?”
The development of ESG started with the Corporate Sustainability movement, which emerged as management wanted to initiate positive changes in response to their negative environmental impacts.
It was later commonly understood that this approach was often perceived as a marketing tactic, which could leave the impression that it is for mere reputational benefit.
Over time, this is what ESG as a comprehensive framework has transformed into. It is meant to be embedded in the business model, not only seen as a side initiative or even merely a corrective action, but also as an aspect that generates revenue for the company when done properly.
From the social perspective, creating jobs that foster well-being and prosperity correlates with employee stability, allowing for greater work quality and productivity. Ultimately, this could generate up to US$11.7 trillion in global economic value, a McKinsey report reveals.
It is important for stakeholders to see the social pillar of ESG as a component that can directly support a company’s performance and reputation to unlock the wide possibilities beyond philanthropic nuance.
What does social impact look like for a business?
Investing in the social pillar creates a powerful ripple effect, generating positive outcomes both within the company and in the wider community.
1. Internal impact: A resilient workforce
A strong social conscience is a magnet for talent. Studies have shown that a company’s commitment to social responsibility is a key factor for employees, particularly millennials and Gen Z, when choosing where to work.
When employees feel that their employer shares their values and is making a positive contribution to society, they are more engaged, more motivated, and more likely to stay with the company long-term.
The Parentinc, Singapore’s fast-growing parent-tech company, is implementing a clear leveling system in the company’s hiring and promotion process to ultimately provide equal chances and opportunities for all employees regardless of their gender. The firm’s Group CEO and Founder, Roshni Mahtani Cheung said this on our Women with Impact Forum.
2. External impact: Trust in an evolving society
Externally, a strong social pillar builds trust with customers, investors, and the community.
For example, consumers are increasingly making purchasing decisions based on a company’s social and environmental record. A company that is known for its ethical practices and community engagement is more likely to build a loyal customer base.
Furthermore, by investing in local communities, supporting ethical supply chains, and respecting human rights, businesses can play a vital role in creating a more just and equitable society.
As the pioneering VC (venture capital) firm in Southeast Asia, we are committed to fostering an ecosystem of socially conscious firms that positively impact their communities.
For example, local F&B (food and beverage) businesses closely work with local farmers to source their ingredients through ethical supply chains. Many local farmers lack access to fair markets, and the rising young generation also faces limited job opportunities.
Fore, which manages leading premium-affordable brands such as Fore Coffee and Fore Donut, is creating more than 3,000 jobs in the F&B industry. Fore empowers local farmers to provide high-quality coffee beans for the business and trains young baristas.
Not only that, Fore also equips over 130 Fore Coffee stores with recyclable and sustainable materials—including its countertops, tables, chairs, and other furnishings—which are made of upcycled plastic waste.
In that case, the social pillar does not necessarily need to stand alone. Often, businesses can achieve positive impacts across multiple pillars through one initiative.
Arukah empowers farmers in the Global South to turn agricultural waste into opportunities for better livelihoods and climate solutions. Through its India dairy farmer biogas project, the firm has recorded about 13% of income improvement for its workers.
Learn more about East Ventures portfolio companies’ impact through our latest Sustainability Report.
3. Financial benefits: Key driver of sustainable growth
A strong social pillar can be a significant driver of financial performance. Aside from increased sales and customer loyalty, it can also improve access to capital, as a growing number of investors are incorporating ESG criteria into their investment decisions.
From our perspective as a VC firm, a company’s commitment to ESG is not just a secondary consideration but a core component of our investment analysis.
Before making an investment decision, we conduct a thorough assessment of the company’s overall ESG framework and its potential for creating a positive impact.
This goes beyond simply looking at their financial projections; we also evaluate their responsible operations, compliance with ethical standards, and the social aspects of their business model.
Our Sustainable Investment Framework guides our responsible investment practices by minimizing adverse environmental and societal impacts while enhancing corporate governance within our portfolio companies.
We believe that implementing a strong ESG framework from a company’s early days is a crucial form of risk mitigation. Establishing these principles from the outset is far more beneficial than correcting deep-seated problems later.
Ultimately, East Ventures is committed to fostering companies that are not only profitable but also long-lasting and sustainable.
How can businesses implement this pillar?
When it comes to implementing the social pillar of ESG, it is important to identify the material issues most relevant to your business.
Turning these materials into tangible action begins with policy. In a social context, this may include policies on human rights, occupational health and safety, or diversity and inclusion.
The next step is determining the actions of every party involved. This includes stakeholders and employees, and those who must be informed about the ESG targets they are contributing to.
Once these steps are in place, monitoring and reporting progress over time is the thing that makes it a full circle. See East Ventures’ Sustainability Report.
A continuous record of how the social aspect of your ESG has evolved will not only provide transparency but also help set ambitious goals and indicate the direction of your social sustainability efforts.
Authenticity is key
Avoiding social washing by launching a superficial social marketing campaign can hurt overall progress by having mistrust from the intended audience. Social washing comes in many forms, of which the most common is the act of disclosing positive data while neglecting the negative impact.
Being authentic means being transparent, inclusive, and chasing a long-term goal rather than a short-term win.
