The Importance of Social Metrics: Why Social Data is a Key Lever of ESG

Environmental, Social, and Governance (ESG) investing has matured from a niche consideration to a central pillar of institutional decision-making. While environmental factors such as carbon emissions frequently dominate headlines, the social dimension—the “S” in ESG is equally essential, yet often less understood and harder to quantify.

Social metrics provide critical insights into how companies interact with their workforce, communities, customers, and other stakeholders. They serve as powerful levers to drive sustainable growth, operational resilience, and risk mitigation. At Inrate, we emphasize that robust social data is not a compliance checkbox, it is foundational to credible ESG integration and long-term value creation.

The “S” in ESG encompasses broad and complex issues: labor practices, diversity and inclusion, human rights, community impact, health and safety, employee engagement, and supply chain standards, among others. These are inherently social and often qualitative aspects but have undeniably material financial and reputational consequences.

Ignoring or underestimating social data leaves blind spots that can result in:

• Operational Disruptions due to labor disputes or poor workplace conditions
• Reputational Damage related to human rights violations or community conflicts
• Regulatory Fines and legal challenges stemming from labor laws or ethical breaches
• Loss of Talent and Productivity caused by low employee satisfaction or weak inclusion efforts

In contrast, companies demonstrating strong social performance typically enjoy higher employee retention, better innovation, enhanced stakeholder trust, and improved customer loyalty, key drivers of sustainable competitive advantage.Shape

Read more: The Rise of the EU Social Taxonomy: What It Means for Investors

Measuring social impact is more challenging than environmental factors, which benefit from standardized metrics like carbon footprints. Social factors are often context-specific, qualitative, and dynamic, making consistent data collection and interpretation complex.

For example, how does one quantify a “fair living wage” across different countries with varying living costs and labor standards? Or capture the nuanced effects of community engagement programs on local development over time? These are open questions requiring thoughtful frameworks and adaptable metrics.

Despite these challenges, advances in social data analytics, stakeholder surveys, and third-party assessments are improving measurement rigor. Leading organizations now prioritize social KPIs that are:

• Material and Relevant to their specific sector and geographic footprint
• Quantifiable Where Possible (e.g., diversity percentages, injury rates, training hours)
• Actionable and Linked to Business Outcomes (e.g., turnover rates tied to engagement programs)
• Integrated Into Core Reporting and Governance rather than siloed initiatives

While the social dimension covers a wide spectrum, several key indicators serve as foundational pillars of social performance in ESG:

• Labor Practices and Worker Rights: Including fair wages, safe working conditions, collective bargaining rights, and freedom from forced labor or child labor.
• Diversity, Equity & Inclusion (DEI): Gender, ethnicity, age diversity across workforce and leadership, pay equity, inclusive culture indicators.
• Health and Safety: Workplace injury rates, absenteeism, wellness programs, and mental health initiatives.
• Community Impact: Corporate philanthropy, local employment, stakeholder engagement, and impact on indigenous or vulnerable populations.
• Employee Engagement and Satisfaction: Survey results on belonging, morale, career development, and alignment with company values.
• Supply Chain Social Standards: Ethical sourcing audits, supplier labor condition assessments, and conflict mineral policies.

These metrics not only assess compliance but act as signals of operational integrity and resilience. Measurable progress across these areas correlates strongly with superior risk management and brand reputation.Shape

Read more: The Future of DEI Programs: A Cross-Atlantic Perspective

Integrating social metrics strengthens ESG strategies in multiple ways:

• Risk Identification and Mitigation: Early detection of labor risks, supply chain vulnerabilities, or local conflicts that might escalate into costly controversies.
• Enhanced Stakeholder Trust: Transparent reporting on social performance builds trust with investors, employees, customers, and regulators, reducing skepticism and accusations of “social washing.”
• Improved Resource Allocation: Data-driven insights enable companies to focus social investments on high-impact programs tailored to stakeholder needs.
• Regulatory Alignment and Preparedness: As governments propose more social impact reporting requirements, robust social data collection ensures compliance and readiness.

A growing body of evidence links strong social performance with tangible financial benefits. For instance, companies with diverse and inclusive workforces frequently report better innovation, improved decision-making, and higher profitability. Organizations that invest in employee wellbeing and community relations see lower turnover and enhanced customer loyalty.

Institutional investors are increasingly pressing companies on these metrics because they foresee social factors as predictors of resilience and growth. Funds integrating social data into investment decisions often achieve better risk-adjusted returns, especially in volatile or emerging markets where social issues can trigger abrupt operational disruptions.Shape.

To harness the power of social metrics within ESG, institutions should:

• Develop Materiality-Focused Social KPIs: Concentrate on social issues most relevant to business model and stakeholder impact.
• Leverage Advanced Data Sources: Utilize third-party audits, employee surveys, community feedback platforms, and AI-driven sentiment analysis to complement traditional disclosures.
• Embed Social Data in Risk and Investment Processes: Social metrics must inform due diligence, portfolio monitoring, and stewardship activities continuously.
• Engage Actively with Companies: Encourage transparency and improvement by integrating social performance criteria into engagement dialogues.
• Align with Emerging Standards: Adopt frameworks such as SASB, GRI, and the UN Guiding Principles for Business and Human Rights for consistency and comparability.

Read more: What Is ESG Data? — A Practical Guide for Investors and Companies

Social metrics are not just qualitative nice-to-haves; they are critical indicators of how companies create value through their people, communities, and relationships. As ESG evolves, social data will play a pivotal role in identifying risks, uncovering opportunities, and driving sustainable impact.

Institutional investors and corporates who elevate social metrics from peripheral considerations to core levers within their ESG frameworks will be better positioned to build resilient businesses, foster inclusive growth, and meet shifting regulatory and stakeholder expectations.

At Inrate, we recognize the central role social data plays in the ESG equation. We advocate for rigorous, transparent and impact-based social measurement that moves beyond rhetoric, delivering insights that fuel responsible investment and social progress alike.