The Story of 'S': What does 'social' in ESG Encompass? Sustainability advocates and governance leaders weigh in.

• Author: Hall, April
• Position: THE CHARACTER OF THE CORPORATION

Defining the "S" in ESG (environmental, social and governance) issues and responsibilities in corporate America seems to be a moving target.

Even the U.S. Securities and Exchange Commission has no definition for "social" responsibilities, according to a spokesman with the agency.

Directors face a conundrum. There are no legal criteria to measure if a company is doing ESG right, but there is growing pressure to report on it.

Many agree that "environmental" and "governance" seem easier to define. But the "social," defined by Merriam-Webster as "relating to human society," is a challenge given its "ambiguity," says Georg Kell, the founding director of the United Nations Global Compact, the world's largest voluntary corporate sustainability initiative working with thousands of corporations in 160 countries.

For the Global Compact, the "S" is largely about the treatment of workers, explains Kell, who is also chairman of Arabesque Partners, an asset management firm focused on ESG investing.

Labor principles under the "S" as outlined by the Global Compact and the United Nation's International Labour Organization include:

* The freedom of association and collective bargaining;

* The elimination of all forms of forced or compulsory labor;

* The elimination of child labor (under 18 for "hazardous work," 13 for "light work"); and

* The elimination of discrimination in the workplace (gender, religious affiliation, political affiliation).

These principles are not only supposed to be followed by corporations but by the vendors in the supply chain as well. How far up the chain? That is uncertain.

There's a lot of uncertainty when it comes to defining the "S," so Directors & Boards decided to reach out to a wide swath of people across the governance spectrum. The one consensus among directors, legal experts, investors, and academics, was that the "S" is about people.

The following offers a variety of viewpoints on what the "social" in ESG encompasses.

"The 'S' in ESG is a lot like the Supreme Court's definition of pornography: 'I know it when I see it.' Also, there are a bazillion different ways of measuring 'S,' and many of these definitions lead to wildly contradictory rankings. That leads to an environment in which there is almost infinite flexibility in defining 'S.'"

--Joseph A. Grundfest, William A. Franke Professor of Law and Business and a senior faculty member at the Hock Center on Corporate Governance at Stanford Law School; and Directors &amp...