Although ESG (Environmental, Social, and Governance) practices has been present in organisations for decades, the concept only gained significance during the past 25 years. A heightened sense of environmental and social responsibility has stemmed from national pledges and consumer demand. Over the years, government guidelines have expanded to encompass everything from carbon footprint and labour rights to codes of conduct and anti-corruption policies, and corporations looking to modernise reporting on their global footprints followed suit. Today, a robust – and transparent – corporate ESG policy is considered a necessity rather than just added value. And it is often HR that is at the forefront of these efforts.
Transparency builds credibility
For listed corporations, it has become evident that failing to implement a clear ESG reporting strategy can expose them to external risk factors, affecting credibility among stakeholders. A recent PwC survey found that 76% of consumers would discontinue relationships with organisations that treat employees, communities, or the environment poorly.
Transparency in disclosing ESG strategies can strengthen a corporation’s relationship with investors and consumers – particularly younger ones – and engage new stakeholders. It helps to build trust in a brand and reinforce reputation, which can impact on financial performance.
Nowadays, central banks have made mandatory disclosures around areas such as human capital. And many stock exchanges have introduced ESG ratings to measure the exposure of long-term environmental, social, and governance risks. It is unsurprising that nearly all S&P 500 companies now publish some form of sustainability disclosure.
Not only can the absence of ESG policies see companies fall behind rapid regulatory changes, but it can also negatively impact a corporation’s performance and value. Both closed and limited liability companies must embed ESG goals within their business strategies. But they must also actively update investors on their targets and achievements periodically.
Ultimately, for organisations to become credible champions of the environment and community, they must set appropriate and achievable short- and long-term goals aligned with their capacity, budget, and resources. In this sense, ESG policies cannot be uniform and will differ between organisations and industries.
One of the most effective ways of enhancing transparency is to improve reporting by leveraging emerging technologies. For instance, IoT and artificial intelligence can be deployed to gather and analyse huge amounts of data which can both shape policymaking and attribute to the progress of goals. Technology empowers HR teams to report, inform and identify gaps in ESG policies and should not be overlooked as an investment.
Banks face extra scrutiny
Financial institutions face particularly close scrutiny when it comes to ESG. The regulations and monitoring banks are already subjected to means that their policies naturally must be more public facing than other corporates. This means that any ESG failures in banking are amplified in a public relations sense.
One way in which some banks aim to demonstrate their ESG leadership is by aligning their policies with the UN’s 17 Social Development Goals (SDGs), which are considered benchmark targets for both governments and corporations.
For instance, we use the SDGs as a basis for our policies, including climate action, good health, and reduced inequalities. Corporations across sectors vary in terms of their ESG priorities. For example, manufacturing companies may focus their efforts on reducing carbon emissions. Whereas financial institutions, whose carbon footprint is naturally lower, may instead concentrate on human capital and community outreach. In 2021 we achieved 91% of our ESG goals. This included increasing the number of women hires by 150% and achieving 92% of our Internal Audit Plan, as well as setting out a target to boost our community investments as a percentage of company revenue to %1.
HR has an important role in assessing business lines to identify which approaches are most appropriate for a company. Financial institutions may find that replacing plastic bottles in the office makes a smaller tangible difference than changing hiring practices and overhauling community outreach and sponsorships.
ESG priorities even differ between countries. Bloomberg Media’s Sustainable Future Study suggests that by 2030, investors in the UAE value will a company’s social strategy more than its environmental approach. Whereas in the US, UK, and China, more than half of investors will value environmental impact ahead of social when selecting their investments.
“While employees at all levels must contribute to ESG strategy formulation and execution, HR is often the starting point for shaping companywide ESG policy and overseeing its implementation.”
HR is a key driver in ESG success
While employees at all levels must contribute to ESG strategy formulation and execution, HR is often the starting point for shaping companywide ESG policy and overseeing its implementation. HR managers are largely responsible for setting a company’s tone and motivating employees to champion ESG efforts. They are mandated to translate a brand’s vision and mission into daily activities and real action on a granular level, giving them the necessary positioning to shift company culture for the better.
Acting as the bridge between the higher and lower tiers of the workforce, HR can work with business units to set individual ESG objectives in alignment with the company’s overall strategy, while assuring appropriate training within teams is provided. Enshrining the company’s social and environmental ethos within policies can certainly help actualize ESG frameworks in a tangible way.
Companies’ HR units have a direct hand in:
- Championing inclusion and diversity across functions
- Promoting the ethical use of business practices and technologies
- Supporting pay equity and transparency initiatives
- Delivering development programmes
- Leading in community outreach
- Ensuring audit transparency– all of which can help in moving the ESG needle toward a more globally conscious organization.
The importance of a robust ESG strategy extends beyond serving consumer and shareholder expectations. With 49% of employees preferring organisations that actively manage workforce health and financial wellbeing, and 37% preferring companies committed to environmental protection and social justice, according to Mercer, HR can use ESG to help win the talent war and become an employer of choice.
The necessity of a multi-pronged approach
HR is undoubtedly a vital component in devising and implementing ESG policies. However, the most robust strategies require a multi-pronged approach that combines a clear vision, expertise, technology, proactive reporting, intelligent goal setting, and a galvanised workforce.
Corporations today, particularly financial institutions, must be dynamic and adapt quickly to consumer demands and regulations that are continuously changing according to global trends and standards. Businesses must deploy the appropriate tools and resources to collect and analyse data while ensuring a strong system for disclosure and reporting.
Organisations are certainly becoming more aware of the importance of impactful, transparent ESG strategies as evidence on the link between ESG and financial performance grows. It is also clear, however, that real investment is needed in the right areas if ESG policies are to have a tangible impact on communities and the environment while also generating value for shareholders.
Fast Facts
76%
consumers who would discontinue relationships with companies over poor ESG
49%
employees prefer companies that value workforce health & financial well-being
37%
workers who prefer companies committed to environmental & social justice
