As the S in ESG moves up the agenda, the HR department finds itself becoming a key player at the heart of the corporate ESG strategy. HR directors have long focused their attentions on diversity, equality and inclusion, on employee wellbeing, on mental health and on volunteering efforts in the community. But while those efforts used to be made for all the right reasons, they must now come with a level of measurement, accountability and reporting that will satisfy external as well as internal audiences and give a company an edge.
Rebecca McKay, pensions partner at Trowers & Hamlins, says: "ESG used to be something that investors were focused on in the financing world, but now it’s become much more mainstream and relevant for a whole range of different stakeholders. Employees are expecting their employers to be embracing this, so it’s a massive recruitment and retention tool, while at the same time governments, suppliers, customers and the media are also paying much more attention to how businesses are treating their staff."
At an organisational level, it is becoming an imperative that businesses of all sizes have an ESG policy and a comprehensive approach to sustainability and societal impact that permeates the whole organisation. The HR team has a critical role to play, shaping the top-level culture and then putting in place the policies and procedures to align day-to-day practice with that high-level approach.
"In areas like diversity and inclusion, it is about thinking of a way to harness everything together and communicate it as part of your ESG approach," says McKay. "There will be building blocks in place, but to be meaningfully embracing this requires going beyond the letter of the law and instead aspiring to genuine best practice."
HR professionals should have a seat at the table as companies formulate their approaches to ESG, and will certainly be at the forefront of implementing policies to show commitment to ESG principles.
When it comes to the environment, employers might offer incentives to encourage sustainable commuting – such as allowances to buy bikes or use public transport – or they might introduce agile working policies to reduce the carbon footprint caused by commuting. On pensions, a company might offer staff the option of investing their workplace pension contributions in ESG funds that have a positive impact on people and the planet.
The implementation of good governance can also potentially weigh heavily on the HR team, who not only need to be alive to ongoing board diversity, to best-practice codes of conduct, and to clear whistleblowing and remuneration policies, but might also now consider voluntary reporting in areas like the ethnicity pay gap.
But it is often the social considerations of an ESG approach that can be most challenging to implement and measure, and where employers are increasingly leaning on the talents of their human resources directors. Those teams must now ensure equality, diversity and inclusion policies are up-to-date and provide staff training, track staff work/life balance and look to facilitate greater flexibility for those with caring or other commitments, and provide access to health and wellbeing support, including in relation to mental, financial and physical health.
Furthermore, employers should ensure there are appropriate systems in place so that any incidents of discrimination, harassment or bullying are not only identified but dealt with in a timely and effective way. They should encourage staff to get involved in charitable activities or community work, perhaps by rewarding that work or including it in the appraisal process, and they should keep a constant focus on employee engagement.
Nicola Ihnatowicz, an employment partner at Trowers & Hamlins, says:
"There should be constant monitoring of the ESG approach because this is a fast-developing area, and HR has to be involved in that at the top level.
During the pandemic, we have seen how important it is to have a sustainable workforce and the value of employees for keeping business going. People have coped with enormous amounts of challenge and now, as we come out the other side, there’s a lot that employers need to do to support people with that transition and hold on to them."
She adds: "There’s an enormous retention crisis in lots of sectors, the so called "great resignation", and getting ESG right is a key way to distinguish yourself from your competitors."
A recent report published by Marsh & McLennan Advantage, ESG as a Workforce Strategy, highlighted the correlation between employee satisfaction and strong ESG credentials. The study draws on data from 7,500 companies around the world, and found that employers with highly satisfied employees score higher on ESG performance; employers with an attractive image among young talent have better ESG performance; and ESG performance will become increasingly important to attracting and retaining talent.
McKay says:
"It’s a double win because not only will you keep staff if you show a commitment to ESG, they will also become more engaged. There are a lot of positives in terms of happier people, who in turn are more productive if they feel they are looked after and that their values are listened to.
"People increasingly want to be working for an organisation with which their values align, and customers feel the same."
As a workforce strategy, investing in ESG performance has moved from being a risk mitigation exercise to become a real opportunity to boost the bottom line by engaging today’s employees and attracting tomorrow’s talent.
Every company is at a different stage on the ESG journey right now, but it should be front of mind for HR teams. Ihnatowicz says: "You might be a forward-thinking employer that is already doing really well on diversity and inclusion, with some great things to say, or you might just be doing it for compliance reasons and need to enhance the messaging to move into a more meaningful discussion.
"In areas like gender pay gap reporting, the legal requirements do not go much beyond the need to track data, but the more enlightened employers are taking active steps to address pay gaps because they are under pressure to do so from customers, clients and investors. Those going further still are now also voluntarily reporting their ethnicity pay gaps."
"Voluntary disclosure is a really good way to show genuine engagement with ESG from an HR perspective," says McKay. "HR has this real ability to show engagement and utilise ESG to attract and retain talent and secure a competitive advantage."
