Why are social metrics essential in ESG evaluations?

Social metrics are essential in ESG evaluations because they gauge societal impact and workforce equality, which are crucial for long-term sustainability. These metrics examine how a company engages with its employees, suppliers, customers, and the communities in which it operates. By evaluating factors such as labor practices, employee engagement, diversity and inclusion, community development, and human rights, social metrics provide insights into how well a company manages its social responsibilities.

Understanding a company's social impact allows investors to assess risks and opportunities associated with social issues that could affect business performance. For instance, companies with strong labor practices and community relations are often better positioned to foster loyalty, enhance their reputation, and reduce risks associated with social conflicts. Thus, incorporating social metrics into ESG evaluations contributes to a comprehensive understanding of a company's overall sustainability and its capacity to thrive in the long term.