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The Social Licence to Operate: the 'S' of ESG

04 April 2023

The focus on ESG and its impact on business by Odgers Interim Financial and Professional Services Practice continued at an expert panel event on 'ESG Culture and the Workplace'. The panel included Tracey Groves, who recently joined DWF as Partner and Head of its ESG & Sustainability Advisory Practice, and a main speaker at previous Odgers Interim events on a variety of ESG-related topics. In this article, Tracey builds on her panel comments to highlight the growing significance of social factors and the need for business to have a social licence to operate.

The 'Social' factors of ESG are often overshadowed by its more easily definable neighbours across the 'Environmental' and 'Governance' related risks of ESG. However, there is an ever-increasing focus on the social factors and their crucial importance to the development and growth of long term, sustainable business practices – i.e. the 'social licence to operate' and the resulting culture of an organisation.

Firstly, what do we mean by 'culture' and the 'social licence to operate', and what is the connection to ESG and Sustainable Business?

'Culture' isn't just a word or label that can be bolted on to an ESG strategy as an afterthought.  'Culture' can be defined as a collection of choices and behaviours that lie at the heart of every business decision. In order to create a mutually beneficial outcome that drives both financial and non-financial prosperity over the long term, it is essential to identify the desired behaviours linked to an organisation's values and purpose. These are ultimately manifested through various cultural dynamics and earn the business licence to operate at a societal level.

Central to creating a social license to operate is how businesses treat their people, their suppliers, their customers and the communities in which they operate. Engaging with employees and workers, promoting a culture of transparency and inclusion, implementing inclusive strategies and caring about the wider supply chain, are all critical considerations of the social risk factors of ESG.

The following three key aspects are critical to the ever-increasing need for business to have a social licence to operate and be sustainable in not just what it does, but how it does it, and why:

1) A business is nothing without its people

The human-centric approach to ESG and sustainable business should be at the forefront of any business strategy. The conduct, behaviours and culture that is instilled in a workplace are critical enablers of long-term value creation and high performance. Focusing on these areas and the people in a business will unlock talent, create value and foster loyalty from both your workforce and customers/clients alike.

Furthermore, the interdependency and connectivity between the environmental factors and the social licence to operate is no better highlighted than by the fact that an environmental strategy is nothing without the buy-in and support from those who hold the key to its delivery – its people. If leaders don't bring their people with them, don't empower their colleagues, or if they are not trusted to do what they say or align their decisions to corporate purpose, businesses will arguably never be able to meet long-term environmental or wider sustainability goals.

2) Measuring the social elements of ESG

One of the many issues which has held back the prominence of social factors has been the lack of a precise, industry-wide definition of what these are, coupled with the challenges around how to measure them. We now have greater clarity on both fronts.

The clearly defined values, desired behaviours, levels of employee engagement, activated corporate purpose and cultural norms of a business provide a tangible basis for assessment and monitoring. For example, the levels of psychological safety in the workplace and / or the activation of corporate purpose through integration and hard-wiring into critical business processes and procedures.

Assessing organisational culture centres on behaviours and how they manifest themselves – what can you see, hear, and feel in the workplace environment? Increased scrutiny by regulators and new legislation on social elements will only accelerate in the future and become more intense across both regulated and non-regulated sectors.  Expectations are now firmly set in the direction of business not only providing data but also reinforcing this with a clear and well-articulated narrative that is evidence-based and progressive.

3) The impact social factors can have on business performance

Focusing on the social licence to operate requires not a transactional, 'one size fits all' approach and there must be a move away from any sort of tick-box, compliance-only mind-set. This is not about companies chasing ESG ratings, but rather future-proofing their business through elevating impact and providing a strategic platform for growth and innovation with integrity.

The time to act is now

Getting this right can be a game-changer for businesses who are looking to build resilience, engage with authenticity and generate long-term growth and sustainable prosperity. Ask yourself the following questions to stimulate your thinking about your own organisational culture to kick-start a plan of action:

  • Are we considering all the potential positive and not-so-positive consequences of our business decisions on key stakeholders across our end-to-end value chain and eco-system?
  • How are we hard-wiring our purpose into our day-to-day decision-making processes – do we connect and activate our purpose through our actions and behaviours?
  • What more could we do to foster a workplace environment where dialogue, debate and discourse are respected and valued?

Contact Tracey Groves for more information.

Further Reading