Every so often, a new white-hot theme emerges in the human capital management/HR space. Consider topics such as “artificial intelligence/machine learning” or “the employee experience.” After much debate, we start to see frameworks from the analyst and thought leader communities, as well as examples from organisations, that help us reach a place where common understandings prevail around these complex concepts.
Today, the big idea emerging in organisations—and HR/HCM circles in particular—is the concept of ESG, which stands for environmental, social, and governance. It’s too early to determine how ESG will apply to business imperatives, best practice considerations, and technology tools to help the cause, but themes are beginning to appear. The biggest takeaway: ESG is here to stay and organisations that are slow to react will find it hard to remain relevant.
What is ESG and how does it intersect with HR?
The origins of the use of ESG as a phrase are rooted in a report by the United Nations Environment Program Initiative (UNEP) in 2005. Interestingly, it was initially coined “GES” due to a belief that governance superseded environmental and social considerations, arguably due to the “investor prism.” However, today, each component holds equal weight in terms of business priorities. Broadly speaking, ESG represents the commitment to environmental responsibility (the “E”), commitment to people and social issues (the “S”), and commitment to responsible corporate governance and accountability (“the G”).
In a matter of a few years, ESG has become a top-tier boardroom topic, and not just because the investor community is interested in the integral role it plays in ensuring business sustainability. Rather, it’s a leading topic because of how it intersects with HR and HCM initiatives and strategic priorities, such as recruiting and retaining top talent. Securing the engagement and commitment of employees will be linked to it for the foreseeable future. Leaders in this space see ESG as a lens for decision making through which organisations can build trust, reduce risk, and create value over the long term in ways that benefit all stakeholders.
The many faces of ESG
We know that climate change is now a concern for anyone paying attention. It’s impacting everyone’s lives in significant ways: from unprecedented flooding, wildfires, and large swaths of draught-stricken land to new legislation to curb carbon emissions across the globe. Additionally, renewable energy and related business practices extend to waste management as well as employee, vendor, and partner awareness programs. The latter might be represented in codes of conduct for different stakeholder and constituent groups, as an example.
The “S” component of ESG relates to corporate responsibilities of a different ilk, specifically in the form of the values and culture an organisation wants to be identified with or have as hallmarks of their employer brand. These include value manifestations such as diversity, equity, inclusion, and belonging (DEI&B), promoting volunteerism, and other ways of simply prioritising doing good for society. It spans areas such as ensuring a minimally acceptable level of health and safety for all, and whatever it takes for a very heterogeneous society to live and work together in relative peace.
Lastly, while the “G” or governance part of the equation often connotes compliance considerations to many, it’s more than legal and regulatory concerns. Other core elements of this ESG pillar include business ethics and accountabilities—and not just to shareholders of public companies, but to all who have any relationship with that business. And although the data security and privacy topics get a disproportionate share of the attention within this pillar, there are signs that organisations are endeavoring to make ethical business practices just as tangible, to the point where businesses can lead with relevant examples.
Taken as a whole, the goal of ESG is to make environmental, social, and governance systems sustainable. This relates to everything from health and welfare, to values, behaviour, and conduct (of businesses), and even the future of the planet. It’s hard to overstate the importance of ESG in that context, but there’s even more to consider here.
Taken as a whole, the goal of ESG is to make environmental, social, and governance systems sustainable. This relates to everything from health and welfare, to values, to behavior and conduct (of businesses), and even the future of the planet. It’s hard to overstate the importance of ESG in that context.
Why HR leaders should make ESG a strategic priority
Circling back to the employee experience topic, it’s safe to assume that talent in the market who are deciding which employers to engage with, and potentially spend years of their life working for, will include some sort of “sustainability lens” in their process. Moreover, an increasing number of employers are leading with “values and culture” in their compelling proposition to candidates. Leading with people-centric values and the virtues and benefits of an employee-centered corporate culture is, of course, more than words and messaging. It’s very tangible, auditable, and relatable programs that translate into better workforce-related outcomes. These range from a noticeably improved ability to recruit and retain top talent, to having employees function as if they are true owners of the business, arguably the pinnacle of employee engagement and commitment. This is exactly why organisations should prioritise ESG and instantiate its elements into strategic HR agendas and related priorities.
And let’s also shine an appropriately bright light on the role HCM technology platforms and tools can play in enabling and strengthening an organisation’s ESG foundation. We tend to think about leveraging tools for surveying workforce attitudes and perceptions in this context, or even using AI-powered sentiment analysis for the same purpose but perhaps with greater ease or speed of analysing results and patterns. Technology is also at the heart of delivering a great employee experience. Indeed, technology plays a pivotal role in the ability to demonstrate fairness and equity in terms of compensation and learning and career growth opportunities. It also helps organisations takes steps to correct anomalies and mistakes.
Simply stated, it is technology that allows the aspirational culture, values, and behaviours to scale within the organisation and beyond—and embracing ESG is a leading driver of that success.