Merging E and S into ESG

A case for looking at socio-economic-environmental interventions from a singular lens. 

In a conversation about market-based models for development, an interesting distinction came – social policy and environmental policy. As a social policy professional, my examples and arguments stemmed from interventions that impacted the life outcomes of beneficiaries, while the environment policy examples were more global, with climate change as a key focus. The distinction between environment and social policy in a way always existed, something I too am guilty of. As we discussed further, we realized that often, environment projects and social projects see each other as either an afterthought or as a single pillar in a multitude of metrics. The argument I make in this note is one for further integration, to look at them as one homogenous issue, rather than (even) two sides of the same coin.

A key reason for this is the degree of integration and co-relation between the two spheres. As a coffee brewer, I am aware of the impact of climate change on coffee production. The uncertainties of rain and heat have a direct impact on the poorest and the most vulnerable migrant workers. This is not limited to agriculture. Air pollution, for instance, is estimated to have caused seven million deaths globally between 1990 and 2019 and led to a loss of 100 million plus disability-adjusted life years (DALYs) annually. In economic terms, it represents a major global annual economic impact of $5 trillion.

Linked to this is the economics of sustainability. The Double Materiality principle in ESG bridges both environmental and social materiality i.e., the companies' “impact outwards” and financial materiality i.e., the “inward impact” of social and environmental change. Considering the increasing role of market-based policy interventions and the growing customer need for impact-centric businesses, a cohesive socio-environmental outlook is essential. The benefit is also from the impact evaluation aspect – a greenhouse mitigation project is not only looking at carbon credits earned but also impact on the local population’s health and wellbeing – an SDG 3 objective.

Lastly, is the regulatory and political aspect of sustainable development. Environmental issues over the last decade have received greater attention and growing financial interests. The global green bond market is set to reach US$1 trillion by the end of 2022, with a target of US$5 trillion by 2025[1]. Social issues tend to have a political advantage, as they impact the electorate more urgently and tangibly, in the short run.

Linked together, a socio-environmental policy can create political patronage and legislative opportunities (policy windows) where solutions can be implemented. The fact is that these challenges exist anyway. Inequality can be seen from a climate perspective, where the richest 10% of the world’s population are responsible for 52% of the cumulative carbon emissions between 1990 and 2015, creating mitigation costs disproportionately that impact the poorest quartiles [2]. Similarly, a shift to a green economy is a major labor policy concern, involving massive re-skilling of the population. Stranded assets, for instance, can have huge consequences on communities that live off such operations. For climate goals to be achieved 80% of the world’s coal reserves will have to be stranded [3], requiring a balancing of social, economic, and environmental concerns. Changing the narrative from the green economy as an antagonist to social policy, to the opportunity to create safer, cleaner, and better-paying jobs can create a political opportunity. By taking away the optimism bias [4] faced by environmental issues and linking it to the day-to-day concerns of constituents, greater political will can be generated to avoid the (literal) boiling frog parable. The current business ecosystem is also maturing, with frameworks for Sustainable goal impact measurement and management and ESG Triple bottom terminology weaving together the environment and social issues and becoming more mainstream.

Estimates show that climate disruption is already costing US$1.2 trillion annually, cutting global GDP by 1.6%[5]. Crises such as fears of Disease X, climate change, unemployment, hunger, migration both by conflict and environment and several other security risks, collectively impact social and environmental wellbeing. When we talk of bridging public, private and civil governance, and talk of systemic thinking, it is only prudent to avoid a fresh barrier between the E and S.   

[1] https://www.businesstimes.com.sg/banking-finance/global-green-bond-market-set-to-hit-record-us1t-by-end-2022-research

[2] https://www.oxfam.org/en/press-releases/carbon-emissions-richest-1-percent-more-double-emissions-poorest-half-humanity

[3] https://www.sei.org/featured/five-lessons-from-past-mining-closures/

[4] https://crowdsourcingsustainability.org/climate-change-inaction-is-the-optimism-bias-to-blame/#:~:text=We%20think%20climate%20change%20is,re%20better%20than%20average%20drivers).

[5] A Guide to the Cold Calculus of a Hot Planet carried out by the DARA Group