Recently, a large tobacco company outscored a pioneer electric vehicle manufacturer on ESG score. How? The answer lies in the “S” of ESG – the Social indicators.
 
The tobacco company made significant strides in areas like board diversity, social justice initiatives, and minority business funding. Meanwhile, the electric car manufacturer has shown less interest in these social indicators. According to CNBC, most money managers who use ESG (environmental, social, governance) factors in their investment analysis have focused on the E, or climate change, as the leading criteria for their decisions because it seems more urgent to investors.i
 
In this scenario, the previously undervalued “S” in ESG has been repositioned, shedding light on its critical importance. As per a study, culturally and ethnically diverse management teams can result in 19 per cent higher revenue. In the case of the tobacco company its high ESG rating was influenced by its efforts in empowering female tobacco farmers and promoting diversity. The company utilised ESG to shift its image from being a “company in a controversial industry” to a socially responsible company. Yet, it’s crucial to mention that a high ESG rating should not obscure the significant health, economic, and environmental damage a company can cause. 

Companies with a high focus on Social parameters see a more motivated and productive workforce, a stronger sense of community, and even improved employee work-life balance. A Mckinsey report (Delivering through Diversity) states that having a diverse executive team can provide a company with a competitive edge by over 20%.
 
While tobacco and oil companies have managed to elevate their ESG ratings with a focus on Social factors, it’s essential to remember the importance of the “S” in ESG goes beyond simply checking boxes. The intricacies of the social elements, from employee well-being to diversity and inclusion to human rights, should be genuinely integrated into the fabric of a company. More importantly social impacts and plans to mitigate them must be considered in the context of climate action strategies, transition plans, and net zero roadmaps.
 
Climate issues, while pressing, hav