Decoding the ‘Social’ in ESG

Abstract

Traditionally, a company’s financial performance indicators, such as revenue generating capacity, profit margins, and inventory turnover were the driving force behind a company’s attractiveness as an investment opportunity. The rising popularity of environmental, social and governance (‘ESG’) norms in the last decade however has seen a shift in investors’ risk appetite – investors are moving away from archaic definitions of performance indicators and assessing an investee’s impact in terms of ESG metrics.While there is clarity on what factors constitute ‘environment’ and ‘governance’ principles, the ‘social’ metric continues to remain shrouded in mystery. In this article, we discuss the factors which form the building blocks of the ‘social’ metric as well as review the yardsticks available to measure this metric, particularly from an Indian standpoint.