Out-Law / Your Daily Need-To-Know

Out-Law Analysis 5 min. read

How HR can shape and deliver the ESG agenda


Environmental, social and corporate governance (ESG) issues are rising up the boardroom agenda in response to increasing global regulation

Climate change, high profile corporate scandals and issues of inequality continue to concern investors and the workforce. Organisations must position themselves in tomorrow’s world of work as a business with a strong commitment to ESG matters.

HR professionals can play a critical role in shaping and delivering their organisations’ ESG strategy – and help those companies address their skills gap in the process.

Environment

The growing number and severity of climate change events has spurred international commitments to curb the rise in global temperatures. Those commitments by governments are increasingly being reflected in policy, law and regulation, and further influencing the attitudes and actions of lenders and investors. These factors, together with the widespread adoption of hybrid working practices and reputational issues arising from the green agenda, give cause to employers to consider environmental and sustainability issues afresh.

HR and Reward teams can play a pivotal role in facilitating and enabling behavioural and cultural change.

HR professionals can lead on developing practical environmental policies for employees to help cut a business’ carbon footprint. HR is well-placed to link such policies to a business’ purpose and values.

Corden Helen

Helen Corden

Partner

HR and Reward teams can play a pivotal role in facilitating and enabling behavioural and cultural change

One example is the travel policy. Different individuals and departments are likely to have different needs – sales teams may need to be routinely meeting clients in other cities; operations staff will have a need to travel into the office or manufacturing plants; back-office teams and product developers may be able to work remotely from home. A one-size-fits-all approach to travel to and from the office and in relation to business trips may not be appropriate, but HR teams are well placed to appreciate the different needs and disseminate the policies effectively so that employees understand them.

HR are also well-placed to identify and implement appropriate training on sustainability issues that complement the policies set, while environmental considerations can also be fed into appropriate reward, development and recruitment strategies. One emerging trend is the linking of pay incentives to the achievement of carbon reduction or other ‘green’ targets by employees.

With environmental issues becoming an increasing emotive issue, HR professionals will need support from legal teams on managing issues such as employee activism and environmental whistleblowing.

Social

The ‘S’ of ESG encompasses a wide range of considerations concerned with how an organisation manages relationships with is customers, suppliers, employees and the communities in which it operates.

Equality, diversity and inclusion are strong components, but modern slavery and health and safety management are also important considerations.

HR professionals can support with the collection and analysis of diversity data and use the information to inform the setting of appropriate, stretching targets gender and ethnic minority representation.

Legal teams can support HR on managing data protection issues inherent in the collection of diversity data and with ensuring the terminology used in onboarding documentation, contracts and HR policies is inclusive and meets legislative requirements. They can support with pay equity and transparency initiatives, such as equal pay audits and pay gap reporting too.

HR and legal may also have to work together to ensure tough action is taken against discriminatory practices in the workplace: it is vital that employees feel able to be themselves. Happy people are typically more productive and more likely to share their ideas. Bringing people together from different backgrounds will improve diversity of thought and help challenge traditional conventions and ways of operating.

HR teams can support D&I networks and employee resource groups, which with the right purpose and governance can drive real change in an organisation.

HR can also develop and deliver development programmes, reciprocal mentoring schemes, executive coaching, leadership and sponsorship programmes that provide opportunities to upskill workers and give opportunities to minority ethnic individuals at the same time.

Governance

Governance encompasses the various mechanisms within an organisation relating to its management and decision-making, generally led by its board and executive team. It is the system of processes in place to provide decision-makers with useful information, permitting them to have regard to the interests of relevant stakeholders – employees, suppliers, shareholders, customers, and the communities in which they operate – and to take advantage of the opportunities and manage risk.

HR has an important role to play by driving accountability and transparency and aligning the business with its purpose and values. Impactful organisational structure and leadership can lead to better investor and employee relations, reduce risks and regulatory pressure and increase government support.

Many businesses taking leading action in response to the ESG agenda have HR representation in the boardroom where the function is able to directly influence strategy and culture.

Working with legal advisers, HR can support the board in pay reporting and audits, and with modelling to inform recruitment and succession planning around company, industry and regulatory targets.

They can also advise on expectations and voting guidelines in areas of corporate governance, help companies navigate issues around executive remuneration, and help businesses set ESG metrics that can be linked to performance conditions and bonus and longer-term incentive arrangements in turn.

HR can also guide companies on ethical use of new technologies in an employment context, such as where artificial intelligence (AI) systems may be deployed in recruitment decisions, such as where AI is used in processing CVs from applicants. HR involvement can help with stress testing the technology, gain an understanding of what underpins the decisions that are made, and identify and address risks of bias or discrimination that may be embedded in how the system operates before it is put into use.

Supporting organisations in selecting pension providers and investment portfolios that match their ESG strategy, and managing risks from discrepancies between sustainability objectives of the business and pension provision for employees, is something HR can also help with.

ESG and the skills gap

There is a widespread recognition that there is a digital skills gap in the UK, with the government recently highlighting how this is estimated to cost the UK economy £63 billion a year in lost GDP.

In tomorrow’s world of work, businesses will have a need for people who have skills in using the latest technology, such as AI, and in understanding and using data. The government’s recently published digital strategy outlines the most recent steps the government is taking to address the problem and improve the pipeline of talent, but in a competitive labour market it is important that businesses do all they can to attract and retain the best people.

An organisation’s approach to the ESG agenda can be a differentiator in this regard. If employees have a choice over which organisation to join and the salary and benefits packages are comparable, then the deciding factor may be driven by the ESG agenda – an increasing number of employees are scrutinising prospective employers’ environmental measures and approach to hybrid working, the working practices and ethical issues in their supply chain, their aspirations around pay equality and their approach to diversity and inclusion, when deciding career options.

Environmental and social responsibility and robust corporate governance is already embedded into the culture and operations of many successful organisations. The involvement of HR professionals and legal teams can ensure these businesses remain at the forefront of the ESG agenda and are best placed to attract and retain the people they need to drive growth and innovation.

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