When we talk about ESG, environmental issues often dominate the conversation. But the ‘S’ in ESG (social sustainability) is becoming increasingly important for businesses operating in today’s environment. I would argue that social sustainability used to be seen as the softer side of ESG. It was often treated as secondary to environmental performance. However, it’s not so soft anymore. The reason is social capital.
Social capital is still a little intangible in the sense that it is an asset that allows employees to collaborate and achieve goals together. It boosts productivity, innovation and processes, mostly through improved communication, but also through this intangible sense that we are all in the same boat and working towards the same goals.
That is really what social capital is about. Maintaining it is increasingly important and increasingly linked to the continuity and brand strength of companies – not only obvious consumer brands but any organisation. This is making social sustainability a strategic priority alongside environmental performance, if not quite equal to it, then certainly much closer than it was five or ten years ago.
There are now frameworks and methodologies being used to measure social capital. The Corporate Sustainability Reporting Directive (CSRD) and double materiality assessments include many social elements, and company rating systems increasingly assess these issues too. So the importance of social sustainability is rising.
But so are the risks of not taking action, or of taking action that is not the right one. That brings us to what I describe as a top five of social risks for companies operating in 2026. I should say this is not necessarily a strict ranking. I have grouped these risks in a way that, at least from my perspective, places one as most important, while the others are relatively equal.
5. Corporate reputation and ethics
What I put at number five is corporate reputation and ethics. That is critical and very important, so number five is not a reflection of low importance. This refers to failures by companies in meeting their societal responsibilities, neglecting social standards, ethics issues, deception, executive misconduct, corruption or bribery.
All of these lead to reputational damage, and reputational damage has a significant material impact on a company. A very well-known example is the Volkswagen Dieselgate scandal. The Environmental Protection Agency in the United States found that Volkswagen had intentionally programmed diesel engines to activate emissions controls during lab testing while real-world emissions were dramatically higher.
The impact was substantial. There were fines, lawsuits, damage to trust and major reputational consequences. That is why ethics and reputation remain central social sustainability issues. Failures in this area are not simply moral problems – they are business risks with real financial consequences.
4. Societal polarisation
Number four is societal polarisation. This is becoming a very significant issue for companies. There is real and acknowledged polarisation in society today (political, ideological and cultural) and it inevitably enters the workplace. Social media has accelerated this.
People bring differing beliefs and perspectives to work, and organisations themselves are increasingly expected to take positions on social or political issues. That creates challenges. How do you manage that? How do you mitigate that? You have to find some way to unite employees around the core values of the company rather than taking political stances or sides.
Part of this is actively promoting psychological safety. Diversity, equity and inclusion is part of that, and training on behaviour is part of it too. The question becomes: how do you unite employees rather than isolate them? How do you mitigate the polarisation that exists in society so that, when people are at work, they are working towards the common goal?
That common goal is a critical part of social capital. Social sustainability is not about forcing agreement. It is about creating conditions where employees can work together despite differences.
3. Talent management and labour relations
Number three is talent management and labour relations. The retention and attraction of talent is now one of the critical elements of the ‘S’ in ESG. Turnover, particularly of high performers, is increasing. Turnover in general is increasing because the expectations of younger generations are different from what many companies, still relatively slow to change, are able to provide.
That creates a real business risk. It is not only about younger employees leaving. It is also about high performers who have invested time in an organisation but no longer remain there. Companies spend enormous effort and cost hiring, training and rewarding people. When they cannot retain them, it becomes a major issue. Poor employee relations can also lead to collective issues such as strikes or legal disputes.
And a lot of this ends in the same place – reputational loss, which has a bottom-line impact. Social sustainability therefore includes understanding workforce expectations and recognising that people increasingly make career decisions based on workplace culture, values and experience.
2. Diversity, equity and inclusion
Number two is diversity, equity and inclusion (DEI). There has been a lot of pushback on ESG in recent years, and much of that pushback has actually focused on DEI, particularly in the United States. However, DEI is still critical. What is changing is how organisations approach it.
Failure to build and foster an inclusive workplace clearly leads to poor engagement, high turnover and low morale. That has been proven repeatedly. The older approach was often programme-based. Companies would have a DEI committee or team, perhaps managed through HR or ESG, running awareness campaigns or training.
That is shifting. DEI is increasingly becoming a strategic necessity for companies because it is proven that diverse organisations are more profitable. That is clear in nature – studies of biology and ecosystems show that diversity leads to stronger and more thriving environments.
Organisations are not so different. The challenge now is not whether diversity matters, but how organisations embed inclusion strategically rather than treating it as a standalone programme.
1. Workforce health, safety and wellbeing
The most important social risk, from my perspective, is workforce health, safety and wellbeing. This includes many forms of health but has a lot to do with mental health. Burnout is at an all-time high in companies around the world.
The result is a significant decline in productivity, partly through absenteeism but also through what I would call silent burnout. You may have seen this in large organisations – people coming to work but being completely disengaged or even negatively affecting productivity because they are silently burning out.
That is dangerous for the individual and damaging for the company. One of the issues here is that there is often a gap between what employees and managers experience and believe about mental health. Too often, organisations focus on the individual rather than the environment.
I often use the analogy of the canary in the coal mine. The canary was not weak. It was the environment that killed the canary. Burnout is similar. It is often a response to chronic job stressors. It signals that the environment is unsafe, not necessarily that the worker is weak. So the solution is not simply to make employees more resilient through training or wellbeing programmes alone.
The solution is to change the company – to address root causes and change the environment. I do not think this is fully recognised by many organisations. Yet this may be one of the most important social sustainability challenges businesses face today.
Final thoughts
Social sustainability matters because social capital matters. The ‘S’ in ESG is increasingly tied to productivity, innovation, reputation, resilience and continuity. It is not separate from business performance; it is part of it. That is why the soft side of ESG is not so soft anymore.
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Michael is responsible for implementing Muno’s ESG strategy by focusing on reducing impact along each step of the supply chain. He presents the case of practical solutions to customers & brands, as well as industry associations, NGO’s and universities. Aside from his role in Muno, Michael currently serves on the Board of Directors of the ZDHC foundation and is a member of the LWG Project Board. Michael was a member of the Executive Committee of the Leather Working Group from 2017-2021. His focus is on supporting customers to achieve their sustainability goals while raising awareness throughout the industry on chemical management, Life Cycle Assessment, environmental impact, and ESG reporting.
