Sustainability in the boardroom: How CHROs are contributing to the board’s ESG decision making

Authored by Susie Clements and Claudia D.G. Schneider

Changing expectations for the role of business in society means that organisations in every industry are facing increasing – and competing – stakeholder demands to function in a more sustainable way. At an invitational Hedrick & Struggles breakfast event for CHROs in Zurich, Human Resources leaders gathered to explore their part in meeting the resulting sustainability goals and challenges?

The multi-stakeholder environment in which employees, customers and shareholders are scrutinising corporate ESG behaviours means CHROs must also pass their people strategy through this lens. Purpose and authenticity are key to attracting and retaining talent, while HR policy also needs to meet the social and environmental requirements of investors and consumers.

The Zurich discussion was driven by findings from a recent collaborative study by Heidrick, BCG and INSEAD, The Role of the Board in the Sustainability Era, which reveals how the growing integration of sustainability within organisations is driving increased board involvement in ESG policy – with the CHRO needed to guide the board on how sustainability should addressed with regards to the organisation’s talent agenda.?

Business motivators for addressing sustainability

According to The Role of the Board in the Sustainability Era, which sourced responses from 900 long-serving directors representing 19 industries across 45-plus countries, the top three drivers for a company to address sustainability are: that it’s the right thing to do (52%); increasing legislative and regulatory requirements (51%); and expectations from providers of capital (41%). Of greater significance to CHROs, however, is the joint third-place motivator: the impact of sustainability on attracting and retaining talent (41%).

There is an expectation among current and potential employees for businesses to have a clear, actionable, effective policy on sustainability. Their readiness to seek employment elsewhere if a company falls short means that failure to focus on sustainability impacts both the company’s ability to do business, and its long-term survival. This needs to be a priority in the organisation’s purpose and value set and should seep through into all recruitment processes.

While the research found that the priority placed on specific ESG issues varies by industry, one or more of employee engagement, health and safety and DE&I featured among the top three concerns for almost every sector surveyed. All CHROs should therefore ensure these issues are addressed in their people agenda.

The CHRO’s place in implementing sustainability strategy

Beyond talent recruitment, CHROs are positioned to enhance corporate sustainability practices in a range of areas. Almost 90% of respondents to the joint Heidrick, BCG and INSEAD research cited updates from management as the most important source of information in forming ESG strategy. This includes the CHRO reporting to the board on how sustainability goals, metrics and regulation impact the people function.

The event attendees agreed that making sustainability part of the HR agenda and co-leading with other executives in the business is a key lever in driving sustainable practices. Spending time outside the organisation talking to investors and customers about their expectations for sustainability is also a valuable exercise.

Directly linking executive performance metrics and associated compensation to sustainability criteria is a powerful way for CHROs to impact corporate sustainability. Ensuring that sustainability experience is a key competence in executive recruitment is another primary ESG development tool.

CHROs can also influence the ESG agenda around how employees are supported and treated. As HR leaders, they are the custodians of business culture – how HR operates is an indication of wider attitudes to sustainability and business values. Attendees discussed how specific policies can contribute towards more sustainable working practices, such as nearshoring jobs, bringing roles in-house rather than using external consultants, and supporting flexibility around working locations and schedules.

The CHRO can also push for employees to be directly involved in designing and enacting sustainability initiatives, giving current employees a sense of purpose, pride and investment in the company. This includes supporting opportunities for training on the climate agenda and how it impacts the business, and serves as attractive employee branding for future colleagues.

Conclusion

In every sector, businesses should be looking at ESG with a wider perspective than its financial implications. By bringing the people dimension into the discussion, the CHRO will help drive authentic action that talent can invest in. The CHRO needs to act as a prompter to the board that there is a broader context in which they make ESG decisions, that of culture and values, organisational brand reputation, and corporate affairs.

The HR agenda has had to pivot to incorporate the ESG agenda, because it impacts not only how businesses attract and retain people and how hiring decisions are made, but also how they encourage learning and ongoing development, reskilling and upskilling, and how they enable people to think about their careers.

The people function is reorientating the existing workforce to meet new challenges, and hiring to help overcome them. CHROs are in a powerful position to create an employer value proposition that makes life better for their people internally and externally, helping them take responsibility for the state of the world and its future.

For more insight on the role of the board in the sustainability era and how boards are adapting to multi-stakeholder expectations, see Heidrick’s global sustainability report.