Environmental, Social, and Governance (ESG) Analytics Lab

How Can Managers Design Socially Inclusive Strategies?

Managers are increasingly challenged by issues as diverse as climate change, globalization, pandemic response, and inclusive development. However, a key complication in addressing these challenges effectively is that they impact different groups across racial, ethnic, cultural, economic, and other socially constructed boundaries unequally.

Across the globe, ethnic minorities and the global poor are more vulnerable to climate-related hazards. In advanced economies, people of color are more likely to die from a COVID-19 related cause compared to white citizens. In some emerging markets, rural elites with access to credit have capitalized on the world’s growing demand for vegetable oils while smallholders without such access are often forced to sell their lands and turn to low-wage labor.

These differential outcomes restrict intergroup dialogue and cooperation and lead to grievances and competition that can escalate into destructive conflicts, undermining our ability to address collective challenges. Therefore, managers who seek to advance a sustainable society must contend with how firm strategies might exacerbate or mitigate intergroup divides.

In a recent article“Us” and “them”: Corporate strategic activism, horizontal inequalities, and society’s capacity to address its grand challenges—the authors explain how firms can impact intergroup divisions whether positively or negatively, intentionally or not. Firms choose not only how to allocate resources such as jobs, infrastructure investments, and contracts but also how to manage the relationships with and between stakeholders. If these choices increase social, economic, or political inequalities between identity groups, they can exacerbate intergroup conflicts and lower the potential for dialogue and consensus.

We, therefore, provide a set of recommendations for managers on how to design socially inclusive strategies in both the nonmarket and market realms.

Socially Inclusive Strategies in the Market Realm

Good Practice

  • Hire and source from members of disadvantaged groups

Best Practices

  • Reshape relationships that allow group members to connect with better opportunities
  • Leverage the diversity that group members bring to add value to other stakeholders
  • Forge richer intra- and inter-organizational networks

Industry Application

CVS’s Pathways to Health Care Career programs extend beyond its efforts to promote a diverse workforce. These programs deepen relationships and pathways to employment not only between CVS and members of disadvantaged groups but also between these group members and other CVS stakeholders. Specifically, CVS works in partnership with government, civil society, and academic institutions to enhance the diversity of talent into careers not only in which CVS is an employer but also, more broadly, in the entire health care sector.

Socially Inclusive Strategies in the Nonmarket Realm

Good Practice

  • Make political contributions to support inclusive policies

Best Practices

  • Engage with preexisting organizations working to address horizontal inequalities rather than supplanting them with corporate-led coalitions or initiatives
  • Add legitimacy and support to efforts that reshape the conversation around progressive taxation and public infrastructure from a debate over “government interference in capitalism” or “the provision of unfair handouts” to a conversation around “government policies and programs in support of justice”

Addressing Economic Inclusion

The NinetyToZero campaign is a collective effort between corporations and civil society organizations to reduce the 90% wealth gap between White and Black Americans. Firms such as American Express and Goldman Sachs are partnering with groups such as the American Civil Liberties Union (ACLU) and United Way to increase access to capital for Black-owned and Black-led businesses.

Addressing Social/Political Inclusion

Firms can join and support coalitions to ensure equal access to, and participation in, political processes from national to community elections. Firms that have joined Fair Fight in Georgia, The Black Economic Alliance’s “Stand for Democracy”, or Fair Elections Texas are highlighting the importance of both greater equality in economic resources and political voice and participation.

As calls to address collective social challenges increase in urgency, managers with an understanding of the resulting responsibility, opportunity, and risks to firms and to the broader society of their corporate strategic activism not only gain a competitive advantage over market rivals but also can help advance intergroup cooperation on issues that concern us all. This requires, however, an engaged and inclusive strategy-setting process centered on the building of sufficient coalitions for positive change, which itself becomes a form of, and forum for, positive corporate activism.

Wharton ESG Analytics Lab

Within the last five years, the share of total global assets under management actively weighting Environmental, Social and Governance (ESG) factors has doubled as has the share of executives, board members, and investment managers who consider ESG issues to be material. At the same time, however, the confidence of executives, board members, and investment managers in the data available to evaluate the materiality of ESG factors has halved. ESG scores across proprietary data providers have been demonstrated to be unreliable and often lean on outdated information around relevant ESG factors—others omit pertinent factors in their scoring altogether.

The ESG Analytics Lab seeks to solve these problems by leveraging Wharton’s demonstrated expertise in analytics. We focus on developing high-quality, replicable academic research and pedagogy resulting in insights that can help current and future investors, asset managers, and other ESG integrators make informed decisions.