Blog

This shift is not rhetorical. Investors are tying capital access to board accountability. Regulators are mandating disclosures on labor practices and pay equity. Employees are re-evaluating employer choices based on inclusion and transparency. And supply chains are being reassessed for human rights compliance and fair labor practices.

This article offers a comprehensive deep dive into why social and governance issues are becoming central to ESG credibility in 2025. It explores the evolving stakeholder expectations, the metrics and disclosures required, the risks of overlooking S&G, and how companies can embed these dimensions structurally into their governance and risk management systems.

1. Why Social and Governance Issues Are Taking Center Stage

1.1 The Limitations of an “E-Only” ESG Strategy

For years, ESG adoption was synonymous with climate action. Carbon disclosures, renewable energy procurement, and Net Zero targets became ESG staples. However, this approach—while essential—failed to capture how a company treats its people, governs its decisions, or manages stakeholder equity. The global shift toward just transitions, stakeholder capitalism, and ethical governance is exposing this imbalance.

In 2025, ESG strategies that fail to address systemic inequality, labor injustice, and governance opacity are increasingly seen as incomplete or performative. Companies are learning that reducing emissions while ignoring supply chain labor abuse or executive misconduct undermines stakeholder trust and long-term sustainability. This realization is pushing organizations toward more integrated and balanced ESG architectures, where S&G are not secondary but foundational.

1.2 ESG Is Now Stakeholder-Centric

The rise of stakeholder capitalism has broadened ESG’s audience and accountability scope. Investors want assurance of governance quality and workforce treatment. Governments are linking public contracts and incentives to social compliance. Consumers, particularly Gen Z and Millennials, are actively boycotting brands that fail social tests. Employees demand mental health resources, inclusive workplaces, and ethical leadership.

This dynamic is reframing social and governance performance not as moral obligations—but as core business risks and strategic value levers. Organizations that demonstrate accountability across their stakeholder ecosystem are better positioned to attract talent, access capital, and build durable reputation.

2. Understanding the Social Dimension: Beyond Corporate Social Responsibility

2.1 Institutionalizing Social Performance

The social dimension of ESG encompasses how an organization manages its impact on people—internally and externally. In 2025, social performance is measured not by charity initiatives or one-time events, but through structured, reportable, and verifiable systems that shape employee experience, labor practices, community impact, and supplier conduct.

Leading companies are now:

• Conducting human rights due diligence across direct operations and supply chains.
• Designing workplace inclusion strategies with KPIs on representation, pay equity, and mobility.
• Integrating health and well-being into enterprise performance planning.
• Reporting social metrics in their annual ESG disclosures with the same rigor as financial data.

These actions are supported by frameworks such as GRI 401–413, the ILO Conventions, and the UN Guiding Principles on Business and Human Rights (UNGPs). They allow companies to move beyond good intentions and into systemic social accountability.

2.2 Social Data Is Now Investment-Grade

Investors and rating agencies are increasingly treating social indicators as proxies for operational stability and risk. Disclosures around gender pay gaps, workforce turnover, and DEI targets now factor into ESG scores, financing terms, and investor voting behavior.

To respond, companies must elevate social data to the same level of auditability and traceability as environmental metrics. This includes:

Table 1: Core Social Metrics for ESG Reporting (2025 Standard Expectations)

Social reporting in 2025 is no longer about storytelling—it’s about structured data, clear metrics, and comparable year-on-year progress.

3. Governance as the Backbone of ESG Integrity

3.1 Governance Failures Undermine ESG Credibility

Governance is the foundational layer that determines whether ESG policies are real or rhetorical. Poor governance—lack of board oversight, non-transparent decision-making, misaligned executive incentives—can nullify even the most robust sustainability plans. In 2025, companies with weak governance structures face:

• Investor divestment due to fiduciary concerns
• Downgrades in ESG ratings and credit risk profiles
• Regulatory scrutiny over lack of ESG accountability
• Loss of public trust and brand equity

Examples from recent years include sustainability-linked fraud cases, greenwashing litigations, and executive misconduct—all highlighting the reputational and legal consequences of ESG governance disconnects.

3.2 ESG Governance Models Are Maturing

To avoid these risks, companies are implementing formal governance mechanisms that embed ESG accountability across the enterprise.

Table 2: Key Elements of Mature ESG Governance Structures (2025)

Governance is no longer an implicit backbone—it must be made explicit, traceable, and accountable.

4. Embedding S&G into ESG Strategy and Reporting

4.1 From Departmental Silos to Enterprise Integration

One of the challenges in operationalizing S&G is organizational fragmentation. HR may own DEI, Legal owns governance, Sustainability owns ESG—but without integration, impact is diluted. The new model involves:

• Cross-functional ESG task forces to coordinate policy and performance across departments.
• Enterprise-wide S&G KPIs tracked on centralized dashboards.
• Board-level oversight committees that engage directly with operational leaders.

Integration ensures that ESG is not a sustainability team project—it is a core business function with shared accountability.

4.2 S&G in Materiality Assessments

Materiality assessments are being restructured to include social and governance risks. Companies are:

• Mapping S&G impacts across the value chain
• Engaging internal and external stakeholders (e.g., employees, unions, NGOs)
• Prioritizing S&G topics with both financial and impact materiality

This is in line with double materiality concepts in CSRD and stakeholder inclusivity principles in GRI.

4.3 Building Disclosure Readiness

Finally, S&G disclosures must meet increasing expectations for standardization and comparability. Leading frameworks include:

• GRI 405 (Diversity), GRI 406 (Non-discrimination), GRI 419 (Socioeconomic Compliance)
• CSRD S1–S4 standards covering equal opportunity, working conditions, social dialogue, and communities
• SASB’s Human Capital and Governance metrics for sector-specific reporting
• World Economic Forum’s IBC Metrics for core and expanded S&G indicators

Disclosure-readiness means building systems to collect, verify, and communicate these metrics with the same level of assurance as environmental data.

The IFRSLAB Perspective

At IFRSLAB, we help companies evolve their ESG strategy from climate-centric to governance-anchored and socially intelligent.

Our S&G services include:

• Designing ESG governance models and integrating board-level ESG oversight
• Conducting human rights risk assessments and labor rights due diligence
• Developing audit-ready DEI metrics and workforce inclusion strategies
• Aligning social and governance reporting with CSRD, GRI, and investor frameworks

As ESG enters a new phase of maturity, companies must be able to demonstrate not just environmental ambition—but ethical leadership and human-centered values. Governance is the scaffolding, and social performance is the signal.

We help you build both—credibly and sustainably.