Why ESG is important now and why does it matter to HR?
Environmental, social, and governance (ESG) issues are becoming more important for companies in today’s business environment. As consumers, investors and regulators become more aware of the social and environmental impacts of business, companies are under pressure to demonstrate their commitment to sustainability and social responsibility.
The emphasis on ESG factors is driven by the need for organizations to be more socially responsible and sustainable and has gained popularity in recent years as environmental and sustainability issues have received more attention on a global scale.
It takes excellent and flexible leadership to meet the current local and global ESG challenges. ESG considerations are becoming increasingly important. The European Commission has proposed the “Corporate Sustainability Due Diligence Directive” for companies to respect human rights and the environment in their global value chains.
The proposed regulations, known as the “due diligence” framework, would require companies to identify, prevent, and address human rights and environmental risks in their global value chains.
The proposed legislation would require companies to:
- Conduct human rights and environmental due diligence in their global value chains.
- Identify and assess the risks of human rights and environmental abuses in their value chains.
- Implement measures to prevent or mitigate those risks.
- Report publicly on their due diligence activities and progress.
The proposed regulations would also establish a monitoring and enforcement mechanism to ensure compliance with the framework. Companies that do not comply with the requirements could face fines and other penalties.
The role of HR in ESG
A key role is played by HR. Will professionals be prepared to provide quantifiable evidence when the CEO comes knocking on HR’s door asking about ESG-related employee issues like diversity, equality, and inclusion (DE&I), gender pay equity, upskilling and employee development, and workplace culture?
HR plays a critical role in ensuring that a company’s ESG efforts are integrated into its culture and operations and that employees are aware of and engaged in these efforts.
According to Forbes, ethnically diverse companies are 35% more likely to outperform, while companies that are gender diverse are 15% more likely to outperform.
ESG is expected to continue to shape HR in 2023 and beyond as more companies prioritize sustainability and social responsibility in their operations and decision-making. This will likely lead to changes in HR policies and practices such as:
- Identifying areas where the company can improve its diversity, equity, and inclusion efforts, which can be used to guide recruitment and hiring strategies.
- Measuring the engagement and motivation of employees, which can be used to support retention and development strategies.
- Assessing the environmental impact of the company’s operations and identifying opportunities for reduction, which can be used to shape employee development and mobility strategies.
Identifying the company’s reputation and attractiveness to job candidates, which can be used to improve recruitment and branding strategies.
Starting Points for HR Leaders
The development and implementation of an organization’s ESG initiatives can and should be a key responsibility of HR leaders and their teams. To accomplish this, a strong, inclusive culture that fosters a sense of belonging among all employees is needed.
What should be the starting point for the organizations’ HR departments to begin the ESG journey?
- Work with the executive leadership, risk, and investor relations teams to understand what ESG standards and criteria the organization is following and how professionals can support those efforts.
- Analyze workforce data to provide a report on the organization’s efforts to hire and manage a diverse, skilled workforce from around the world. Utilize this data to monitor and assess human resources-related performance indicators for the company.
- Publish an inventory of the efforts to build a diverse and engaged workforce for the benefit of all parties.
According to Forbes, 47% of investors considered the “S” aspect of ESG the most important when making decisions, overtaking “E” at 35%.
Putting the “S” in ESG, HR contributes to the development of an environment where current and potential employees want to work, collaborate, and advance the company.
Including ESG in the longer-term strategy
According to Gartner, 83% of business leaders say their sustainability program activities directly created both short- and long-term value for their organization.
ESG plays a significant role in fostering and sustaining a strong sense of fulfillment and providing purposeful work. A real competitive advantage over rivals who might be prone to greenwashing their public-facing information or ignoring ESG entirely can be gained by adopting and implementing ESG goals in a transparent way.
Incorporating ESG considerations into a company’s long-term strategy can help to ensure that the company is sustainable and responsible in its operations and growth. By considering the impact of their activities on the environment, society, and corporate governance, companies can mitigate risks and create growth opportunities, while also addressing the concerns and expectations of stakeholders. This can include implementing sustainable practices and policies, promoting diversity and inclusion, and being transparent about the company’s actions and impact.
ESG is an important consideration for companies now more than ever, and HR plays a critical role in supporting these efforts and creating a sustainable and responsible workforce. Companies can better understand how their ESG efforts impact their workforce and use this information to inform their talent strategy and workforce planning. This helps companies to attract and retain top talent, and to create a more responsible and sustainable company culture.
EDLIGO Talent Analytics can support HR departments with a constant flow of data to predict and measure the impact of key strategic decisions and determine the future readiness of the organization, supporting HR departments in their strategic role as a foundation for sustainability. EDLIGO helps organizations achieve their sustainability goals by providing data-driven, unbiased insights into workforce diversity, employee career aspirations, and mobility opportunities, and supporting the development of individual career paths and training opportunities.
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