Understanding the Social Component of ESG with People Analytics Software

ESG investments have gained rapid recognition in the past few years, appealing to investors concerned about the global impact of assets in their portfolio.

According to a recent report by Bloomberg Intelligence, ESG assets jumped from $22.8 trillion in 2016 to $35 trillion in 2020. It is forecasted that ESG assets will surpass the $50 trillion mark by 2025, which is about one-third of total assets under management globally. Considering the rapid growth of ESG funds, it becomes imperative to understand what exactly they are and why are they in the SEC's bucket of disclosures.

ESG funds are those that prioritize environmental, social, and governance related factors. Securities that consider sustainability as their core goal fall under this category of funds. Perhaps the least understood component of ESG is the S: social. People analytics software can come in handy for diving into the social component of ESG.

Comprehending S in ESG

Unlike the other components of ESG, Social activities are less clearly defined and are not easily quantifiable. In recent years, experts have emphasized the difficulty in defining and mapping the impact of social activities. This is because of the absence of a reliable and quantitative measuring standard for the same. It covers a wide variety of topics such as diversity and inclusion in the workplace, health, safety, satisfaction and development of employees, emphasis on the treatment and experience of clients, relationships with suppliers, etc. These factors are assumed to have a pivotal role in an organization’s success.

A basic question which arises is if these activities are not easily quantifiable, can people analytics software help to delve deeper into mapping out S in ESG?

People Analytics Software – The Solution?

In the field of Data and Analytics, organizations these days lay out enormous emphasis on insights. These insights are gathered on readily available data and cannot look at data which lies out of sight. For example, an organization may wish to uncover intelligence about how much time employees are spending on meetings, or whether employees are working past business hours, for the purposes of finding early indications of employee burnout. Consider a scenario where a need arises to know about the most impactful people in every department of the organization, or experts on a particular topic within the organization. How can companies solve these kinds of queries?

80% of employee working hours are spent communicating, and much of it over digital communication platforms. These communications can act as a powerful source of collective insight into diversity and inclusivity in the workplace, satisfaction among employees with managers, impact and expertise of employees, and even the strength of relationship with clients. New developments in People Analytics can enable organizations to go deeper in mapping out the S in ESG.

Why Lay Emphasis on an ESG Score

Together, the Environmental, Social and Governance factors form an ESG score. It can be utilized by investors to infer which organizations not only focus on optimization of profits but also are dedicated to sustainability. Since sustainability has gained enormous interest in recent years which has impacted the net worth of organizations, the SEC has added the ESG disclosures in its bucket to put investors in a better place while investing. ESG investments are long term investments which won’t lead to sky-rocketing profits in a short period of time. Thus, being patient is important for an investor to uncover its true potential.

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Aryan Shaw is a graduate from St. Stephen's College (University of Delhi). Since childhood, he has had a fascination in mastering the art of putting things into eloquent words. His interest has landed him in ZL Tech's Marketing department.