Over the last few years, the combination of a global pandemic, great resignation, and an increased awareness of social issues have put human resource leaders centre stage. They have played a critical role in advising their organisations on how to navigate these uncertainties by defining the entire people strategy, which is vital in attracting and retaining top talent, driving value, and ensuring long-term success.
But that’s not the only reason people leaders have been in the limelight lately.
This unprecedented level of change has given way to a whole new level of global connectivity and with it, a renewed sense of urgency to focus on sustainability. Specifically, through improving environmental, social and governance initiatives —more commonly known as ESG. And there’s no question – it’s time for HR leaders and their teams to play a greater role in this space, specifically when it comes to the ‘S’ in ESG.
What is ESG?
If your organisation isn’t talking about ESG yet, it is just a matter of time, as the interest in and importance of it has increased dramatically in recent years. For example, in 2020, Gartner found that media mentions of ESG data, ratings or scores grew by 303% year over year in 2020,” and that “67% of banks screen their loan portfolios for ESG risks.”
Focusing on ESG metrics is an opportunity for companies to have a positive impact on their people, customers, suppliers, and communities. And by prioritizing ESG, companies can improve their reputation, attract and retain top talent, and contribute to the well-being of society and the planet.
What is the ‘S’ in ESG?
Much of the earlier focus of ESG has revolved around the ‘E’ or environmental piece, which is a crucial aspect of long-term sustainability, but is also relatively easy to measure and allows companies to assign cold hard numbers to their sustainability commitments. The ‘S’ in ESG on the other hand, is a whole other beast.
The Social aspect of the ESG landscape is a crucial but often overlooked aspect of ESG and at its most basic level relates to how an organisation supports its various stakeholders. To date, many companies have focused on the diversity, equity, and inclusion aspects of the “S,” but now, they are expanding their “S”- focused work further, to support people’s well-being overall. But because the ‘S’ in ESG is extremely complex and multifaceted, they are finding it challenging to identify what they should consider.
Why does the ‘S’ matter now?
Your stakeholders demand it. According to U.K. firm Berenberg’s ESG survey, 47% of investors considered the “S” aspect of ESG the most important consideration when making investor decisions, overtaking “E” at 35% which is only further highlighted by the demand for societal change and greater organisational transparency.
And if that’s not enough to make the case for how critical it is for organisations to focus on the ‘S’, we can think about the different factors that have highlighted this need. For example, the pandemic placed a greater focus on what organisations should be doing to support the overall health and wellbeing of their people and alongside this the current job market, driven by the Great Resignation, is driving the shift in focus towards the ‘S’ as well. But in addition to this, the U.S. Securities and Exchange Commission recently amended its rules regarding human capital disclosures for the first time in more than 30 years, now requiring that public companies disclose more human capital metrics than ever before, in recognition of the role people play in driving the value of a business.
What is the role of your people leaders in your ESG strategy?
Unlike previous disruptors such as digital technologies which were a work enabler, sustainability falls right into the remit of the people function where values and behaviours are the core drivers. This means that as the gatekeepers of corporate values and behaviours, HR leaders will play a critical role in defining the sustainability strategy.
How can your people function further the organisation’s sustainability strategy?
Understand what sustainability means for each of your stakeholders – Understanding what sustainability means for each of your stakeholders is a critical step in developing an effective sustainability strategy. From current employees, future employees, customers, supply chain members, investors and the wider community, each group has unique expectations and priorities when it comes to sustainability, and understanding these can help you tailor your sustainability initiatives to meet their needs.
Build sustainability into your corporate purpose – The human resources function plays a crucial role in shaping organisational culture, fostering a sense of ownership for that culture, and maintaining accountability throughout all levels of the company. To build sustainability into your organisation’s corporate culture, define a purpose that aligns with sustainability principles and values that allows you to develop a long-term sustainability strategy that sets specific goals and targets for increasing your focus on the social aspect of ESG.
Go beyond a single function for sustainability – Furthering your sustainability agenda is a team effort and managing ESG metrics to properly tell the story of your organisation requires collaboration, especially between leaders and CHROs. Leaders must work closely with CHROs to understand how ESG factors impact your people, gather their feedback, and develop ESG initiatives that align with the company’s mission and values.
Determine what ‘S’ metrics best work for you – The ‘S’ encompasses many different things, commentators and investors have described these as, labour standards, human rights, pay equity, workplace diversity, access to health care, racial justice, data security, supply-chain issues, organisational health and wellbeing, sustainable products and services, and culture. But depending on your organisation and your industry, certain ‘S’ metrics might be more or less relevant for your organisation. For example, if you have a large supply chain, human rights and health and safety metrics might be more of a focus than in a professional services firm where the focus might be placed more on organisational culture.
ESG is here to stay and may ultimately transform companies as we know them, but when it comes to ‘S’, people leaders will continue to play a critical role in navigating its complexities. It is time for Better understand their role in helping their organisations rethink business as usual to shape the future of our organisations.