ESG’s Blind Spot: Addressing Social Inequality in the Informal Workforce

Following the first blog on India’s Environmental, Social, and Governance (ESG) journey, this second piece by Pooja Verma and Dr Meenakshi Srivastava shifts focus to the human side of sustainability, addressing social inequality within the country’s vast informal workforce. It explores how fair pay, social protection, and inclusive growth can turn ESG from a corporate commitment into a catalyst for upliftment and resilience at the grassroots level.

The ‘E’ and ‘G’ of ESG get all the headlines, but the momentum has been building in the middle—the ‘S’ factor of the ESG. Originally designed around shareholder interests, the ESG framework is now evolving toward stakeholder capitalism. This approach anchors the social pillar of ESG, emphasising diversity, equity, inclusion, human and labour rights, and meaningful stakeholder relationships as core business values that foster safe and fair workplaces. By expanding responsibility beyond profit-making, this evolution recognises that lasting value is co-created with employees, customers, suppliers, communities, and society at large, driving both ethical impact and sustainable growth.

But this commitment cannot be limited to those formally associated with a company; it must extend beyond corporate walls to include the informal sector. Informal workers, forming nearly 90% of all workers, often fall through the cracks because they are not part of regulated supply chains and thus remain invisible in corporate sustainability narratives.

Between 2018 and 2020, approximately 3,331 deaths caused by a lack of safety in the working premises of construction sites were reported in India. The Rana Plaza tragedy in Bangladesh, killing more than 1,100 garment workers, stands as another stark example of sheer negligence towards informal workers. Despite being an integral part of the industry, these workers frequently lack social safety nets, face weak enforcement of labour rights, and are rarely considered in corporate responsibility frameworks. Beyond the denial of labour protections, many workers also experience caste-based discrimination in India, limiting their access to fair wages and equal opportunities. For instance, in Bengaluru, 40%–50% of complaints about unpaid wages come from workers from lower social strata, many of whom hail from backward districts of Karnataka such as Kalaburagi, Koppal, Raichur, Bidar, Bellary, and Yadgir.

Over half of India’s gross domestic product is generated by the informal labour, which makes up around 85% of the workforce, yet these workers often lack basic human and labour rights.

Excluding the informal sector from social and economic policy hampers sustainable development: workers have limited access to education and skill development, lack formal contracts, and have minimal social protection. This traps them in cycles of poverty and slows economic growth in countries with a large informal workforce.

Why inclusion matters?

There is growing recognition of the need to include informal workers as key stakeholders in development and climate strategies. The informal sector plays a vital role in national development, supporting waste management, strengthening rural-urban linkages, and sustaining resilient urban food systems that contribute to both climate mitigation and adaptation. Yet, these workers are often most vulnerable to climate-related risks and the employment impacts of the net-zero transition. For instance, informal coal mine workers are disproportionately impacted when mines are phased out.

Addressing these vulnerabilities requires measures that enhance their security and inclusion. Providing formal contracts to informal workers can help secure fair wages, ensure occupational health and safety as well as access to welfare and social security schemes, and create pathways for growth. This not only reduces poverty and inequality but also promotes sustainable livelihoods.

The benefits extend to companies as well. Recognising informal workers fosters workforce diversity, innovation, and productivity. Informal workers often bring unique skills and perspectives that foster inclusive financial growth, broaden the talent pool, and promote participatory decision-making, enhancing workplace culture and business resilience. Such inclusion helps companies remain competitive, strengthen their corporate reputation, ensure ethical ESG compliance, and meet investor expectations for holistic social impact. It also advances progress toward several Sustainable Development Goals (see Image 1).

From filling gaps to creating opportunities

Many companies treat the social dimension as a mere obligation, often limiting it to CSR programs. As highlighted in our previous article, systemic gaps in ESG frameworks and the lack of standardised metrics can mask ongoing exploitation within supply chains, leaving such risks invisible in ESG disclosures.

There are, however, successful examples of integrating informal workers into mainstream systems. Pune Municipal Corporation signed a Memorandum of Understanding with the SWaCH Cooperative, bringing informal waste pickers into the formal waste management system while providing safety equipment, office space, identity cards, social security, and medical insurance. Similarly, Anand Milk Union Limited (AMUL) demonstrates how local farmers, often working informally, can be empowered within a successful business model. These cases—from municipal initiatives to large corporations—show that mainstreaming the informal sector is both feasible and essential.

A collaborative approach—through stronger policies, standardised metrics, and genuine industry–government partnerships—can turn the ‘S’ dimension in ESG from obligation to opportunity. Embedding equity and inclusion at the core of ESG will strengthen trust, attract responsible investment, and drive sustainable growth.

For ESG to have a real impact on the social pillar, its reach must extend beyond corporate walls to the workforce that keeps economies alive.

Pooja Verma is an Analyst in the Sustainability group at the Center for Study of Science, Technology and Policy (CSTEP), a research-based think tank, while Dr Meenakshi Srivastava is an Academic Associate at the Indian Institute of Management Bangalore.