Why HR is critical in improving ESG performance

What is ESG?

When it comes to discussing and analyzing sustainability you will often hear the term ESG, which stands for environmental, social & governance. ESG is a broad set of factors used to assess a company's financial viability and sustainability. Stakeholders and investors use the ESG framework to understand the following:

Environmental

How much does the business care for the environment around them? This includes efforts to become net-zero, use of clean energy, limiting waste etc.

Social

How well do they support their workforce and the wider community? This includes equal and fair opportunity to get hired and succeed at the organization regardless of background, job security, employee safety, social responsibility and impact etc.

Governance

How well run is the company? This includes having a clear mission and embedding that mission internally and externally in everyday business practices.

As we continue to speak with organizations, whether they are mature in their ESG efforts or just getting started, one thing is clear: improving an organization's ESG credentials is a top-level strategic effort, with HR playing a critical role.

Why is ESG important to HR?

Many factors of ESG influence the employee experience. However, the ‘S’ in particular is intrinsically linked to the role of HR. These key areas of focus include but are not limited to:

• Promoting organizational diversity so that it is a true reflection of society
• Creating a culture in which all employees are treated equally and fairly
• Creating a work environment that is safe for employees and promotes a healthy level of well-being.
• Ensuring that employees feel secure in their roles and understand their long-term prospects with the organization.

In particular, younger generations are increasingly seeking employers that share their ideals of being inclusive and responsible. Being a sustainable organization now has a considerable edge over the competition when it comes to hiring talent, as well as engaging and growing the commitment of current employees.

 5 Ways HR can support ESG efforts

Here are some of the ways that HR professionals are instrumental in improving how employees perceive the company in their ESG efforts.

1. Understanding the Employee Experience

Running feedback programs generally comes from the HR team in one way or another. HR can help organizations understand how their employees perceive their ESG credentials. HR can also help the company understand how their ESG efforts are influencing the employee experience and identify areas for improvement.

2. Executing on policy change

HR professionals play a critical role in policy implementation. DEI, whistleblowing, discrimination, exploitation, and safety policies are all critical tools required in the workplace to help employees feel safe, secure and engaged.

3. Enabling flexible working

Supporting flexible working is an important way to help reduce the environmental impact of people not traveling, while also assisting employees in achieving work-life balance and therefore looking after their health.

4. Delivering ESG training

A key role of HR is to organize training for all employees, but especially senior leaders, on key factors that influence the organization's ESG credentials. Training could be educational in terms of assisting employees in understanding the impact of climate change and their role in combating it. Training can also be provided on important topics such as safety, DEI, bias, health, and well-being to help reinforce policies in place and how the organization is set up to support employees.

5. Setting up social responsibility

Employees prefer to work for companies that do good in the world. HR plays a critical role in establishing initiatives and opportunities for employees to volunteer and fundraise for local charities. Devoting time to this type of work not only benefits communities, but it also improves employees' perceptions of the organization, and therefore their engagement and well-being.

5 Pitfalls HR should avoid with their ESG efforts

Along with the ways HR can help the organization build its ESG credentials and engage employees, there are some common pitfalls that HR professionals should avoid.

1. Not working as one with other leaders

HR is critical in supporting an organization to become more sustainable. However,  improving the organization's ESG credentials is a strategic effort that involves everyone.

2. Not tracking the right ESG metrics

ESG can be a confusing and ambiguous subject. It is important to have a consistent approach and methodology to track against when working to understand and improve ESG credentials.

3. Failing to embed ESG in the company culture

ESG factors affect every aspect of a business, from how it innovates environmentally friendly solutions to how it supports its employees and the community around it. If this is not implemented, an organization may miss out on opportunities to engage current and prospective employees.

4. Misunderstanding what matters most to your employees

ESG is a broad topic, and many aspects have a direct impact on the employee experience. Taking the time to fully understand how your employees feel about those key aspects of ESG and what is most important to them can assist an organization in ensuring that their efforts have the greatest impact.

5. Do not greenwash!

As the world changes in front of our eyes, your employees are becoming increasingly concerned about doing the right thing. It is critical to be authentic and honest about your efforts, what you are attempting to accomplish, and how the organization is performing in relation to their goals. It is acceptable to admit that you are falling short, as long as everyone understands what the organization will do to correct course and achieve their long-term objectives. Being discovered to be covering up failures will only result in a loss of trust and a disconnect with key stakeholder groups.

3 key takeaways HR leaders need to know

There are three key messages that emerged from Qualtrics research that HR professionals need to be aware of when working with their organization to improve their ESG credentials:

1. Organizations are generally getting the fundamentals for employee support right. They must, however, do more to support the community and take action on climate change.
2. Improving ESG factors directly improves employee engagement, well-being, and sense of inclusion.
3. Senior leaders are disconnected from the rest of the organization, believing that their ESG credentials are far superior to those of the general population, particularly individual contributors.

Final Note

For years, if not decades, ESG has been integrated into the day-to-day operations of some organizations. For many other organizations, however, this is an uncharted ground in which they must learn how to operate. HR professionals remain a central point of the company, making them an important part of the overall process of creating an organization that is sustainable and responsible.