A new report from the International Regulatory Strategy Group (IRSG), in partnership with KPMG, published today (7 June) calls for a global approach to social principles and standards to deliver better outcomes and make global markets more resilient.
The report warns that, while social issues have become central to the reputation of companies across all sectors including financial services as part of the ESG agenda, a lack of consistency and comparability in approaches and data risks impeding the direction of capital towards more sustainable investments.
Social or ‘S' factors of ESG can be more difficult for investors to define and quantify than the ‘E' (environmental) and ‘G' (governance) factors. As such, the IRSG – which is co-sponsored by TheCityUK and the City of London Corporation – urges policymakers to secure a global consensus on an overarching set of global social principles and accompanying metrics before then developing global social standards to improve transparency and accountability. International banks and financial institutions should act as a catalyst of change by applying consistent standards across all jurisdictions they operate in to raise social standards.
One possible framework is a ‘floor approach’, with regulators at the global level agreeing minimum social standards that would be applicable in all cases and in all transactions. These minimum standards should not be static with mechanisms put place to uplift these minimum standards as required.
In order to accelerate progress, the report recommends that a lead social principle should be chosen to prioritise and narrow focus by finding common ground across jurisdictions. The IRSG recommends that modern slavery is the most appropriate lead principle. An ambassador should be appointed to lead this agenda, starting with modern slavery but over time promoting socially sustainable finance more broadly.
Finally, the report calls for regulation that creatively encourages voluntary efforts (including by the financial sector) by incentivising progressive improvement rather than relying on the addition of further criminal offences, many of which cannot be enforced in practice.
Deputy Chair of the IRSG and City of London Corporation Policy Chair, Catherine McGuinness, said:
“Addressing social issues is not only ethical, but essential to running a sustainable business. Staff, consumers and investors are increasingly keen to understand how firms are treating the people whose lives their operations impact upon.
“There is clear need for greater consistency and comparability on social principles and standards across all markets to deliver better outcomes. Greater transparency and accountability will ultimately benefit communities across the globe.
“Policymakers should take action now and urgently set out a roadmap to deliver progress on this critical agenda.”
Noeleen Cowley, Financial Services Lead Partner for ESG at KPMG in the UK added:
“Environment has long been the standout focus when it comes to ESG, but we now need to turn attention to social and governance issues. Getting behind a strong, globally established set of social standards that can be tracked and measured will help accelerate truly responsible investing. Firms that fully embed the ‘S’ in ESG in their strategy will ultimately put themselves on the front foot for long-term success and will help drive forward an important global agenda.”
The full report can be downloaded here (from Monday): https://www.irsg.co.uk/resources-and-commentary/accelerating-the-s-in-esg-a-roadmap-for-global-progress-on-social-standards/