Relative to governance and environmental dimensions, investors find social factors the most difficult to incorporate into ESG analysis. Difficulty in defining social factors, their qualitative nature and the lack of corporate reporting on social issues are barriers to integrating these factors into investment decisions. Alt data sources, however, can offer investors ways to quantify qualitative social factors that need not rely on corporate disclosure information. In this report, we outline where to find datasets that measure social factors and how they can be integrated into an ESG strategy.

AN ISSUE FOR INVESTORS

Almost half of BNP Paribas’ 2019 ESG Investing Survey respondents find social dimensions the most challenging factor to access and incorporate into investment analysis. This is unsurprising, considering the varying challenges associated with defining social issues and its subjective nature.

These problems leave corporations in the dark on how to measure and report on social dimensions – particularly when such metrics are based on qualitative assessments. This subsequently leaves investors with few data points to integrate into an ESG analysis.

DEFINING SOCIAL DIMENSIONS

Social dimensions broadly refers to a company’s treatment of its employees, customers, suppliers and the wider community as a whole – or, more generally, they are factors that measure a company’s real social impact.

However, defining social dimensions can be slightly more complex – particularly in comparison to how governance and environmental factors are defined. Environmental dimensions focus on quantitative performance metrics that measure a company’s footprint and the impact it has on its physical surroundings. Governance dimensions focus on the management of a company, which operates within existing standards and regulatory frameworks.

Social dimensions, however, can encompass a broad range of metrics – and defining what these metrics are can differ across markets, sectors, companies and cultures. Even when these metrics are defined, there is little industry consensus on how they should be assessed. For example, is product sourcing from a grassroots organization in an emerging market a more ethical choice than sourcing from local suppliers, which has a relatively smaller corporate footprint, and at the same time supports local communities?

DATASETS THAT ASSESS SOCIAL FACTORS

When tacking the ‘S’ in ESG, defining social dimensions and which socially-related issues should have greater focus ought to be the biggest challenge for investors.

Finding the relevant datasets needn’t be an ESG investing challenge. The availability of alternative datasets that measure social dimensions has grown rapidly over the last decade – investors just need to know where to find it.

We outline below the types of socially related datasets available to investors, the data providers that operate in this space and how to quantify the qualitative factors.