Social: making sense of the S in ESG

March 2024 / 8 minutes

Key points

  • We believe that understanding the roles of businesses in society can help us achieve better client outcomes
  • We discuss these matters with the companies we invest in and sometimes challenge management
  • Social and environmental factors are often linked and shouldn’t be considered as part of separate silos

Your or your clients’ capital may be at risk.


We’ve become accustomed to a steady stream of corporate scandals about social practices: questionable treatment of workers, opaque and complex global supply chains, sweatshops, lack of regard for local communities, discrimination and harassment. These are serious issues that merit our time and attention.

Amid all the negative headlines, it is easy to forget the bigger picture and reasons for optimism: across the world, poverty and child mortality have decreased, life expectancy has increased and other social development indicators have improved.

The private sector has unlocked innovation and investment and contributed to solutions for global challenges.  

Across Baillie Gifford, companies we invest in on behalf of our clients create jobs, enhance skills, develop technologies and produce goods and services that often benefit society.

Analysing the social aspects of these holdings can cover many issues that are core to a company’s reputation, brand value and customer satisfaction – what’s known as intangible value. These topics are as diverse as:

  • health and safety
  • human capital and talent management
  • corporate culture
  • working conditions and fair pay
  • data privacy and cybersecurity
  • supply chains
  • diversity and inclusion
  • social licence to operate – ie approval from their stakeholders, employees and the general public

Not every company needs to be a ‘world-saver’ to have a positive social impact. I suspect most readers use Microsoft. Aside from meeting the needs of its customers, it also provides high-quality employment to nearly a quarter of a million people.

Understanding how a business contributes to society can strengthen our conviction in its growth prospects.

MercardoLibre has built a complex logistics network to serve buyers and sellers in Latin America. © Bloomberg/Getty Images.

The ‘social’ business opportunity

Our following holdings are among those with beneficial social effects:

  • MercadoLibre: the Latin American ecommerce platform demonstrated 49 per cent revenue growth in its last financial year, resulting from its ability to help retailers in Brazil, Argentina, Mexico and other countries. The firm is also expanding access to financial services via its innovative Mercado Pago platform, which provides access to credit and the ability to make online payments, among other economic opportunities. This has the additional benefit of bringing more activities into the formal economy. Social opportunity is core to the company’s growth prospects
  • The pharmaceutical companies Moderna and BioNTech have been critical in advancing mRNA technology. This enabled the development of their Covid-19 vaccines, which have saved countless lives
  • HDFC, a longstanding holding, provides housing finance in India

While it is important not to lose sight of the positives, we acknowledge actual and potential negative impacts. It is also critical to remember that if companies fail to consider their footprint, it can seriously affect their social licence to operate and, in turn, their ability to do business.

So, as with any non-financial aspect of a business, once social interactions have a significant impact, either good or bad, they can affect the company’s stock price. And understanding how social factors affect a company’s risk exposure, growth or competitive advantage can help us provide our clients with better outcomes.

At a local and global level, social and environmental considerations are deeply intertwined. Think of ‘fair share’, the principle that countries take responsibility for their historic share of global carbon emissions, leading to some nations having to make bigger and faster cuts than others. Or consider ‘a just transition’, the call for the responsibilities of a shift to a greener economy to be shared widely. The direction of travel and ambition are often as important as the starting point for a business.

These linkages between the ‘E’ and ‘S’ in ESG (environmental, social and governance) complicate matters and illustrate why it’s important not to look at issues in a silo. Understanding the interactions of our investments with society is complex. Moreover, analysing social issues, as emotive as they are, is rarely simple. It requires thoughtful analysis. Context is important.

We are wary of industry trends oversimplifying these nuanced issues and attempting to turn social into a binary ‘good or bad’ category. This risks imposing a narrow worldview over the diverse business universe. For this reason, our various investment teams undertake their own bottom-up research, engagement and analysis.


Making sense of social

Working out which social aspects are most relevant to each company depends on factors such as what it does, where and how it operates and its supply chain.

Moreover, they can have different implications depending on how they affect a firm’s revenues, costs, competitive advantage and future growth. They can affect customer happiness, employee wellbeing, the resilience of supply chains, and relationships with neighbours and governments.

They are difficult to measure, unlike some aspects of climate analysis. There, we can measure emissions using metrics including CO2 emissions and carbon intensity calculations, albeit in an imperfect manner. However, there is no real, meaningful way to produce numerical comparisons between businesses.

We deal with this by considering each topic on a company-by-company basis, similar to how we consider all investment-relevant issues. By deepening our understanding, we seek to produce better returns for our clients.

We address these challenges in three ways:

1. Educating ourselves

We learn from academics, businesses, policymakers and non-governmental organisations (NGOs) from different sectors and parts of the world. In the last few years, we have invited human rights practitioners into the office to speak to us about their work, commissioned research by leading academics and talked to a range of stakeholders across different issues.
Learn more about our academic relationships

2. Challenging ourselves

Looking at social factors through a human rights lens helps us analyse and engage with the topic. Baillie Gifford’s Human Rights Working Group has developed tools to contribute to our research, analysis and engagement, with input from leading academics and practitioners. This has included drafting our human rights principles to help us think and work through complex cases.
Read Baillie Gifford’s human rights principles at the foot of this article

3. Researching and engaging on material issues

We conduct our own bottom-up research in addition to using third-party data providers. This includes talking to managers at the companies we invest in to understand their perspectives and seeking other stakeholders’ views. Engagement lets us learn, monitor, support and sometimes influence our holdings about material factors that we believe are critical to their long-term success.
Explore our voting and engagement reports

Meetings with the leadership of Indian bank HDFC have helped give us greater insight into the social criteria it uses to make loans. © Bloomberg/Getty Images.

Our Stewardship Report provides further details about our approach and case studies. Several examples follow. 

Data security

Software company SAP’s cloud-based services help firms manage their business operations and customer relations. The broader adoption of the cloud has had many benefits but has also introduced new cyber-threat vulnerabilities. We had this in mind when we met with SAP’s chief security officer (CSO) and chief trust officer in 2022.

We learned that the chief security officer and his team:

  • update the board fortnightly on security issues
  • meet as a team monthly
  • report quarterly to the firm’s audit committee
  • report annually to SAP’s technology committee


In addition, the CSO reports directly to the company’s chief executive, which we consider best practice. We also learned that there had been cases when SAP had prioritised cybersecurity over shorter-term ‘wins’, such as an earlier product rollout. These and other insights the two executives shared reassured us that SAP appears to have a thorough cybersecurity process and policies in place, competent leadership and strong governance.


Worker rights

Some Amazon warehouse workers have complained about the firm’s efforts to prevent them from unionising. We understand there is no perfect company and that international norms guide those with global businesses and global supply chains. Even so, in 2022 and 2023, we supported shareholder votes that asked Amazon’s management to fully explain how its business practices aligned with workers’ rights to freedom of association and collective bargaining, as recognised by the International Labour Organization and UN. The votes failed to achieve the required threshold, but we continue to engage with the company over the issue.


Supply chains

DSV is a Denmark-headquartered transport and logistics company that serves thousands of customers across over 80 countries. We have been a shareholder since 2009 and have forged a strong relationship with its management.

In late 2023, DSV announced a joint venture to provide logistics for a major construction project in the Middle East, helping to build a large new city. The tie-up will see DSV and its partner provide services and infrastructure, potentially employ up to 20,000 people and contract with many third parties.

We are concerned that the scale of this project could expose DSV to risks related to human and labour rights. The human rights organisation Freedom House warns that foreign workers in the region have “limited legal protections and remain vulnerable to trafficking and forced labour [and] face discrimination, including lower wages”.

DSV truck and trailer driving on a motorway type road.

DSV provides its clients with air, sea, road and train transport for their goods, among other services.

© Shutterstock / Vytautas Kielaitis

We discussed this with DSV’s sustainability and investor relations chiefs in December 2023, and they explained some of the protections they had put in place to manage these risks. We then wrote to the firm the following month, stating that we believed the joint venture represented “an unusually high-risk project”. To mitigate this, we recommended that the firm be ambitious about setting very high standards in how it operates the joint venture. We also gave examples of how some of our other holdings had demonstrated they were upholding high standards when operating in more challenging environments.

DSV’s board acknowledged our letter and subsequently backed a shareholder proposal calling on the firm to improve its reporting around how it manages human rights issues. And in March 2024, the company formally adopted the resolution after a vote in its favour at DSV’s annual general meeting.


Community engagement and human rights

MMG is an international mining company listed in Hong Kong that produces copper and zinc, among other metals. Its Las Bambas mine in Peru’s southern mountains provides approximately 2 per cent of the world’s copper. The facility has faced disruption from roadblocks, strikes and other protests involving members of local indigenous communities.

Las Bambas is an open-pit mine located at more than 4,000m above sea level.

It’s common for there to be tensions between miners and those living nearby, but the issues concerning Las Bambas have posed significant challenges. Over the past year, we wrote to the company to ask questions and met with management to learn more about MMG’s commitments to human rights and community relations, as well as health, safety and the environment. This included discussions about its new approach to working with community leaders, government and other partners to contribute to the region’s development.

We discussed MMG’s community plan with its management in August and believe the company is heading in the right direction. However, some questions remain, and we intend to continue engaging with its leadership and monitoring its progress. 


Connections between social and environmental issues

Reliance Industries is bringing the same ambition to the energy transition it earlier brought to expanding internet access in India. The firm aims to provide the ‘world’s most affordable green energy within this decade’. One of its goals is to enable at least 100 gigawatts of solar power production by 2030. That’s the equivalent of about 45 per cent of India’s current peak power demand, and about 20 per cent of the country’s renewables target for 2030.

Reliance Industries aims to begin production of solar modules in a factory in Jamnagar, Gujarat in 2024. © Bloomberg/Getty Images.

Reliance’s ambition is critical for India’s long-term sustainable development. While some ESG frameworks may score Reliance poorly, we see the potential opportunity, as well as the positive contributions from both a social and an environmental perspective. We have just returned from India where we met with Reliance as well as a whole range of others in the new energy ecosystem. 
Read more about Reliance’s efforts


Diversity and inclusion

Cemex is a world-leading cement producer. We have engaged with the company over its sector-leading decarbonisation strategy, as well as broader social considerations and board diversity. The company has actively sought our views, and we were pleased to have contributed to its executive away day panel in 2023 on sustainability. In addition, we have had conversations with the company about board diversity over the years. We had previously voted against the election of members because of a lack of diversity and have been pleased to see Cemex make progress on the issue recently. 
Read our Investment Stewardship Activities Report 2022



This article illustrates the range of issues that can fit under the S of ESG. We still have more to do.

Each Baillie Gifford strategy communicates its approach to ESG integration to its clients in a manner appropriate to that strategy. But company-wide, we believe being a supportive investor and engaging with companies on issues such as supply chain practices, environmental management and corporate governance provides the chance for improvement. And with that improvement can be opportunities and better outcomes for our clients.

Our human rights principles

Baillie Gifford’s Human Rights Group created the following principles in June 2023 as a resource to help teams across the firm address human rights questions in their work:

  1. We do and must think about investments in their totality. It is short-sighted to think about companies without their social and political contexts and the opportunities and risks those contexts present. Considerations of corporate behaviour can easily become subjective or inconsistent without a structure in which to embed them.

  2. Human rights are a robust structure with which to consider corporate behaviour and social and political context. Internationally, human rights are codified in a series of multi-lateral treaties, as agreed by United Nations member states and as expressed in the International Bill of Human Rights. These are some of the most widely agreed principles in human history. We are expected to respect these rights both in our business and in how we invest on behalf of our clients as set out in the UN Guiding Principles on Business and Human Rights.

  3. We are stewards of our clients’ assets. Maximising the long-term returns of investments in companies is often not possible if one ignores the rights of those involved. Violation of rights, in addition to the harm they cause to victims, can damage the reputation and value of companies.

  4. Human rights are universal. Their implementation, however, must be local and progressive. It is not possible, nor in the spirit of the treaties, to insist on complete uniformity. Investment decisions must take into account local context as well as direct and indirect impacts and distinguish degrees of agency.

  5. Our investment decision-making balances a range of factors. How balances are struck will vary between investors and funds, according to the client’s mandate.

  6. We develop, maintain and apply our own frameworks for thinking about human rights in investment. The purpose of these frameworks is to help us act consistently and transparently.

  7. We will, at times, be wrong. We must monitor how we incorporate human rights and how our consideration of them shapes our understanding of the trade-offs where they arise. We have implicitly done this but must continue to develop and refine our approach.

Risk factors

The views expressed should not be considered as advice or a recommendation to buy, sell or hold a particular investment. They reflect opinion and should not be taken as statements of fact nor should any reliance be placed on them when making investment decisions.

This communication was produced and approved in March 2024 and has not been updated subsequently. It represents views held at the time of writing and may not reflect current thinking.

This communication contains information on investments which does not constitute independent research. Accordingly, it is not subject to the protections afforded to independent research, but is classified as advertising under Art 68 of the Financial Services Act (‘FinSA’) and Baillie Gifford and its staff may have dealt in the investments concerned.

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