The S in ESG: Why Social Factors Are Harder to Measure Than Environmental Ones

Ask an investor which letter of ESG is hardest to analyze, and the answer is consistently the same. In a 2021 BNP Paribas Global ESG Survey covering 356 institutions, 51% of investors named the "S" — social — as the most difficult dimension to assess and embed into investment decisions. Years later, despite real progress on climate disclosure, that gap hasn't closed nearly as much as the E has.

Why Carbon Is Easier Than Culture

Environmental metrics have a structural advantage: physics gives you a common unit. A ton of CO2 is a ton of CO2, whether it comes from a factory in Germany or a power plant in Indonesia. The GHG Protocol standardized how to count it over two decades ago, and the entire reporting ecosystem — CDP, SBTi, the various Scope 1/2/3 frameworks — built on top of that shared foundation.

Social factors don't have an equivalent. What does "good employee wellbeing" mean in a unit you can aggregate, compare, and audit? What's the standardized way to measure a company's contribution to a community, or the quality of its labor practices, in a way that's comparable across a software company and a garment manufacturer? There isn't one — and that absence isn't a temporary gap waiting to be filled. It reflects something genuinely harder to quantify.

What "Social" Is Actually Trying to Capture

The S pillar typically spans a wide range of issues that don't share a common measurement logic:

• Workforce diversity and pay equity
• Employee health, safety, and wellbeing
• Human capital development and training
• Labor practices across the supply chain
• Community impact and engagement
• Product safety and customer data privacy
• Human rights due diligence

Each of these has its own data challenges. Diversity figures can at least be counted as percentages. But something like "employee wellbeing" or "community impact" resists that kind of clean quantification — it's inherently more qualitative, more context-dependent, and more vulnerable to companies reporting only what makes them look good.

The Standardization Problem, in Practice

Industry analysts who've spent years trying to build usable social metrics describe the same recurring issue: a near-total lack of standardization around what to measure and how to measure it consistently. Companies frequently lack standardized reporting processes, internal controls, and reliable data pipelines for social metrics — and reporting is still largely manual in many organizations, compared to the increasingly automated systems built for carbon accounting.

One widely cited critique put it bluntly: investors have often been willing to accept social data that does little to actually assess a company's real social performance, because there's been no better alternative. For a long time, the S has functioned more as a check-the-box exercise than a genuine analytical input.

Is It Getting Better?

There are real signs of progress, even if the gap with environmental reporting hasn't closed. The EU's CSRD and ESRS framework is pushing standardized social metrics — covering workforce, value chain workers, affected communities, and consumers — as mandatory disclosure categories for companies operating in Europe, not optional narrative add-ons. The growing use of human capital metrics in executive compensation (even as DEI-specific metrics have faced political pushback in some markets) reflects boards taking social factors more seriously as material business risks, not just reputational ones.

There's also a meaningful conceptual shift underway: framing the question not as "how do we measure niceness" but "how do we measure risk." Poor labor practices, weak safety records, and high employee turnover are increasingly understood as leading indicators of operational and financial risk — which gives the S a more rigorous, decision-relevant framing than vague goodwill metrics ever provided.

What This Means for Investors and Readers

If a company's environmental disclosures look polished and quantified while its social disclosures stay vague and narrative-heavy, that's not necessarily evidence of bad intentions — it partly reflects how much harder the S genuinely is to measure well. But it's still worth scrutinizing closely. Look for specific, comparable figures: actual turnover rates, actual safety incident data, actual pay equity figures — not just mission statements about "valuing our people."

The frameworks are slowly catching up. Until they fully do, the S in ESG rewards a healthy amount of skepticism toward anything that sounds good but can't be counted.

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