Where does HR fit into ESG?

New Year’s resolutions.?Whatever they may be, the common theme is that we want to be better:?fitter, thinner, more organised, richer.?

Deciding to embrace an ESG strategy may be the corporate world’s equivalent of a new year’s resolution, so I thought that I would take a look at what this means for the HR community and people-related strategies and policies in particular.

ESG has gathered pace and profile over the past ten years.?For those of you not in know, the initials stand for Environment, Social and Governance.?It has increasingly become a shorthand way for a business to demonstrate that they are sustainable and responsible.?My prediction is that, over the next five to ten years, ESG will become mainstream for all businesses, and that human resources teams will be essential to drive forward the sustainable and ethical policies and practices that are essential to an ESG strategy.?

A focus on ESG increasingly makes business sense.?Institutional investors now routinely take into account a high ESG score in investment decisions; multi-nationals expect to see a focus on it in their supply chains; and both consumers and employees increasingly favour companies with good ESG credentials.?Here are some key examples to assist with that business case:

• Companies that appear most attractive to students and young professionals have ESG scores 25% higher than the global average.?This trend will increase, as Millennials and Gen Z-ers will make up 72% of the global workforce by 2029 (1)?This does not mean that younger people are specifically researching ESG scores, simply that companies that prioritise sustainability are more attractive.
• Nearly 8 in 10 employees expect their company to act on societal issues, such as climate change and racism, and also expect CEOs to prioritise these issues (2)
• Employee activism is most pronounced when ESG issues are involved: Employees at Edelman rebelled against the PR company’s policy of continuing to provide services to Exxon Mobil and Shell, and Wayfair employees protested when the company began to sell its furniture to migrant detention centres;
• Poor employee practices significantly affect a businesses’ value.?The 2020 revelations of poor working conditions at a Boohoo supplier in Leicester led to 15% fall in Boohoo’s share price, and saw Next, Zalando and Amazon all cut their business relationships with it.

How does this translate into action??What can HR teams do?

Environmental concerns have very much led the ESG movement.?They sit at the heart of any ESG strategy, and are the most obvious focus for a company that wants to be sustainable.?It will not be for HR to assess what practices of the company damage the environment, and where these can be mitigated.?However, HR needs a good understanding of these factors, because a true focus on the environment, and reducing the environmental impact of a company’s activities must be embedded in its policies and procedures.?This could include the following:

1. Ensuring that performance bonuses are not based purely on productivity being achieved, but are consistent with the company’s sustainability and environmental targets;
2. An L&D strategy that ensures that all employees are aware of the major environmental concerns of the company and educates them accordingly;
3. A whistleblowing policy that specifically includes the prospect of environmental harm, and what employees should do to call it out;
4. Travel and expenses policies that are mindful of the need to minimise the environmental impact of travel.

Social concerns are perhaps the easiest to see where HR can make a contribution, given that it explicitly addresses how businesses manage their relationships with employees and workers.?Over recent years HR teams have become better and better at producing and implementing policies that are aimed at taking care of employees, and the Pandemic forced a focus onto wellbeing that had never been seen before.?The legacy of the Pandemic, and the importance of well-being strategies is alive and well, and we can expect many organisations to continue to want to be seen as employers of choice in the approaches that it takes.?However, a menopause policy, or the introduction of financial well-being coaches, is not enough.?Here are some of the things that need a focus:

1. Supply chains: do your suppliers also have acceptable workplace practices?
2. Are there groups of workers who are not benefitting from your well-being policies, or where their other terms and conditions/working environment cancel out any benefits that they may provide?
3. Are your Diversity Equality and Inclusion policies embedded within the organisation?
4. Do we take a holistic approach to health, safety and well-being?

Good corporate governance is the sign of a sustainable company, and again an area where human resource professionals can make a significant contribution to an ESG strategy.?ESG – friendly companies prioritise people, particularly employees.?This means that boards need to have extensive relevant data about people-related matters of they are to be able to guide their companies and hold executive directors to account.?Sustainability – a hallmark of ESG – focuses on the long-term, often at the expense of short-term results, and this means that boards must be guided as to what the long-term future people strategy is for the organisation.?Another key part of governance is regulation and compliance, and HR teams need to ensure that boards have an understanding of what that compliance regime looks like in terms of employment.?Some questions to ask might be:

• Do we have a deep understanding of our people-related issues??Do we understand long-term employment trends, and have a strategy to deal with these?
• Have we developed KPIs that align with what we are trying to achieve??Can we provide these to the Board in a useful and meaningful way??Does the Board agenda give sufficient time for discussion and scrutiny of these issues?
• Do we understand the regulatory framework applicable to our people (both in the UK and overseas)??Are we compliant??Can we spot problem areas ahead of time? Can we have honest conversations about compliance and risk?

I hope that this provides some food for thought as we move into 2023, but a few words of warning.?There is no one-size-fits-all approach to ESG: every company is unique and needs its own strategy.?Also, whilst HR has a central role to play in making ESG a success, the HR team cannot do it all.?A successful commitment to ESG requires engagement from all business functions, and a commitment from all senior managers.?Finally, implementing an ESG strategy can seem like a long, hard road, with no clear destination: ESG is still in its early days, and understanding and awareness can be limited; there are few standard metrics by which to measure process, and like all long-term benefits it can sometimes seem as if nothing changes in the short-term.?However, like anything worthwhile, it will be possible to look back in the future and see how far we have come.

Happy New Year to all HR professionals and business owners in my network. It would be great to hear from anyone already knee deep in the implementation of an ESG strategy within their organisation – what are the challenges and how you are overcoming them.???????????????

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(1) ESG as a workforce strategy, Marsh & McLennan Advantage

(2) Edelman Trust Barometer, 2021