What is a Social Audit?

A social audit is an examination of the activities of a business that support the public interest. For example, a firm may support a foundation, make donations to non-profit entities, or allocate some staff time to pro bono work. A social audit can also include the environmental impact of a business, such as any negative effects on groundwater pollution or air pollution, or the level of energy use. It may also address such matters as worker compensation and benefits, discriminatory practices, and diversity in the company’s hiring practices. It is initially sent to the firm’s board of directors and senior management team.

Example of a Social Audit

A well-known example of a social audit is Nestlé’s social audit on child labor in its cocoa supply chain. Nestlé, one of the world’s largest food and beverage companies, has faced scrutiny over child labor and unethical sourcing in its cocoa supply chain, particularly in West Africa. To address these concerns, Nestlé commissioned a third-party social audit in 2019, conducted by the Fair Labor Association (FLA). The FLA audit examined working conditions, child labor practices, and Nestlé’s efforts to combat exploitation in Côte d'Ivoire and Ghana. Key findings included the following:

Child labor issues. Despite Nestlé’s monitoring program, the audit found over 18,000 children working in hazardous conditions on cocoa farms supplying Nestlé.
Lack of education access. Many child laborers were unable to attend school due to financial hardship.
Need for better monitoring. The report recommended stronger supply chain oversight to prevent child labor.

Following the audit, Nestlé took the following remedial steps:

Expanded its Child Labor Monitoring and Remediation System (CLMRS) to reach more farmers.
Partnered with NGOs and local governments to improve education and community programs.
Increased direct payments to farmers to reduce economic reliance on child labor.

Advantages of a Social Audit

There are several advantages to conducting a social audit. They are as follows:

Image improvement. A social audit is usually initiated by a business that wants to improve its image with the general public or the local community.
Enhanced customer loyalty. A favorable outcome to a social audit might convince more customers to make repeat purchases from the company, on the grounds that it is engaged in activities of which they approve.
Opportunities for improvement. The resulting report is used to identify opportunities for improvement within the company.
Public relations tool. A favorable social audit report might be released to the public to enhance the entity's public relations.