Skip to content
Contact us

Incorporating Happiness and Well-being Measures into ESG Frameworks

Picture of William Tygart

Introduction

Environmental, Social, and Governance (ESG) frameworks have become increasingly important for companies and investors in recent years. However, there is growing recognition that these frameworks often fall short in capturing the full spectrum of societal well-being, particularly in terms of happiness and overall quality of life. This overview explores the potential for integrating happiness and well-being measures into ESG frameworks, examining existing measures, potential methodologies, challenges, and implications for both companies and investors.

Current State of ESG Frameworks and Their Limitations

ESG frameworks, such as the Global Reporting Initiative (GRI), the Sustainability Accounting Standards Board (SASB), and the Carbon Disclosure Project (CDP), provide guidelines for companies to report on their environmental, social, and governance practices 

. However, these frameworks have several limitations in capturing societal well-being:

  1. Focus on Environmental and Governance Aspects: Many ESG frameworks, particularly those like CDP, prioritize environmental issues such as greenhouse gas emissions and climate-related risks, often at the expense of broader social issues  .
  2. Lack of Standardization: The diversity of ESG frameworks leads to inconsistencies in how social factors are reported, making it difficult to compare societal well-being across companies.
  3. Voluntary Nature and Flexibility: The voluntary nature of many ESG frameworks allows companies to selectively report on positive aspects while potentially neglecting areas needing improvement, particularly in social well-being  .
  4. Complexity and Resource Intensity: Implementing comprehensive ESG reporting can be resource-intensive, potentially deterring smaller companies from fully engaging with social well-being metrics.
  5. Limited Scope: Current frameworks often struggle to capture indirect impacts and broader societal effects of a company's operations.

These limitations highlight the need for a more comprehensive approach that incorporates happiness and well-being measures into ESG frameworks.

Existing Measures of Happiness and Well-being

To address these limitations, we can draw insights from existing measures of happiness and well-being:

World Happiness Report

The World Happiness Report is an annual publication that ranks countries based on the self-reported well-being of their citizens. It uses data from the Gallup World Poll, focusing on three main well-being indicators: life evaluations, positive emotions, and negative emotions 

. The report also considers factors such as GDP per capita, social support, healthy life expectancy, freedom to make life choices, generosity, and perceptions of corruption 

.

OECD Better Life Index

The OECD Better Life Index is an interactive tool that compares well-being across countries based on 11 essential topics: housing, income, jobs, community, education, environment, governance, health, life satisfaction, safety, and work-life balance 

. This index provides a broader perspective by incorporating various dimensions of material living conditions and quality of life 

.

These measures highlight the importance of considering factors beyond economic indicators when assessing societal progress and well-being, providing valuable insights for integrating happiness and well-being metrics into ESG frameworks.

Potential Methodologies for Incorporating Happiness and Well-being into ESG Frameworks

Several methodologies and frameworks can be adapted or integrated into ESG reporting to better capture happiness and well-being:

  1. Triple Bottom Line (TBL): This framework expands the traditional focus on financial performance to include social and environmental dimensions, often referred to as the three Ps: people, planet, and profits  .
  2. Social Return on Investment (SROI): SROI quantifies the social, environmental, and economic outcomes of an organization's activities, assigning monetary values to these outcomes to provide a comprehensive view of impact created per unit of investment  .
  3. Alternative Economic Indicators: Companies can adopt indicators such as the Genuine Progress Indicator (GPI) or the Wellbeing Index, which adjust traditional economic measures to account for social and environmental factors  .
  4. PERMA Framework: The PERMA model, developed by Martin Seligman, includes five elements of well-being: Positive Emotions, Engagement, Relationships, Meaning, and Accomplishment. This has been expanded into the PERMA+4 framework, which includes additional factors such as physical health, mindset, physical work environments, and economic security, making it more applicable to organizational contexts.
  5. Subjective Well-being Measures: These can include self-reported surveys assessing life satisfaction, emotional experiences, and the presence of meaning in work  .
  6. Objective Well-being Indicators: These can complement subjective measures by providing data on factors such as absenteeism, turnover rates, and productivity levels.
  7. Workplace Happiness Surveys: These surveys can gather data on employees' perceptions of their work environment, relationships with colleagues, and overall job satisfaction.

Challenges in Implementation

Incorporating happiness and well-being measures into ESG frameworks presents several challenges:

  1. Measurement and Standardization: Developing standardized metrics and benchmarks for happiness and well-being is complex, requiring clear KPIs and reporting frameworks to track progress and demonstrate value  .
  2. Cultural and Ethical Considerations: Companies must address cultural differences and ethical considerations, such as overcoming stigma associated with mental health issues and adapting initiatives to fit different cultural contexts  .
  3. Data Collection and Privacy: Gathering data on employee well-being raises privacy concerns and requires careful handling of sensitive information.
  4. Integration with Existing Frameworks: Incorporating new metrics into established ESG frameworks may require significant adjustments and potential resistance from companies and investors accustomed to current reporting standards.
  5. Long-term vs. Short-term Focus: Balancing the long-term benefits of well-being initiatives with short-term financial pressures can be challenging for companies.

Implications for Companies and Investors

For Companies

  1. Enhanced Employee Well-being and Productivity: Companies that prioritize mental health and well-being as part of their ESG strategy often see reduced absenteeism and higher employee engagement. For example, Unilever's global mental health program resulted in a 33% reduction in employee absence due to mental health issues  .
  2. Strategic Advantage and Corporate Performance: Addressing mental health and well-being within ESG strategies can enhance corporate performance and drive long-term success  .
  3. Financial Benefits: Studies have shown that for every $1 spent on mental health treatment, there is a $4 return in improved health and productivity  .
  4. Improved Reputation and Stakeholder Trust: Companies that effectively integrate well-being measures into their ESG reporting can enhance their reputation and build stronger relationships with stakeholders  .

For Investors

  1. Comprehensive Risk Assessment: Incorporating happiness and well-being metrics into ESG analysis provides investors with a more holistic view of a company's long-term sustainability and potential risks.
  2. Identification of Market Opportunities: Companies that prioritize employee well-being may be better positioned for long-term success, presenting potential investment opportunities.
  3. Alignment with Sustainable Development Goals: Investors focused on impact investing can better align their portfolios with broader societal goals by considering happiness and well-being metrics.

Case Studies and Best Practices

Several companies have already begun incorporating happiness and well-being measures into their ESG reporting and strategies:

  1. Hasbro: Hasbro has embedded its purpose of creating joy and community into its ESG strategy, implementing a pilot program to help employees discover their individual purpose in connection with the company's purpose  .
  2. YuLife: This lifestyle insurance company integrates well-being into its business model by providing life insurance, well-being, and rewards through a simple app  .
  3. Google: Google offers a wide range of mental health resources, contributing to high employee satisfaction and retention rates  .
  4. Tata Steel: The company has adapted its mental health initiatives to fit the cultural context of India, resulting in reduced absenteeism and higher employee morale  .

Conclusion

Incorporating happiness and well-being measures into ESG frameworks represents a significant opportunity to enhance corporate sustainability practices and provide a more comprehensive view of a company's impact on society. While challenges exist in measurement, standardization, and implementation, the potential benefits for companies, investors, and society at large are substantial.As ESG frameworks continue to evolve, integrating happiness and well-being metrics will be crucial for fostering sustainable development, enhancing corporate responsibility, and ultimately contributing to a more equitable and thriving global society. Companies and investors that embrace this holistic approach to ESG reporting are likely to be better positioned for long-term success in an increasingly conscious and interconnected world.