Workplace ESG: What is ESG and why should it matter to HR?
Environmental, Social, and Governance (ESG) issues are no longer considered an afterthought by businesses. Instead, these issues are considered critical to the financial performance and reputation of an enterprise, and various stakeholders will be scrutinising them, including employees, clients and investors. And HR are more than aware of how ESG impacts employee performance, attraction and retention.
What is ESG?
By definition, environmental, social, and governance is an umbrella term for responsible and sustainable finance components. It is a framework that considers environmental, social, and governance elements alongside monetary factors, and can be thought of as ‘Planet’, ‘People’ and ‘Processes’. It is also a process to evaluate how businesses perform on the three factors – E, S & G – and to determine if an investment is a viable one.
- Environmental (E) evaluates how activities impact the environment, and manages environmental risks.
- Social criteria (S) assesses the weaknesses and strengths of how a business manages relationships with customers, suppliers, employees, and the communities where it operates.
- Governance (G) deals with a business’s leadership, shareholder rights, internal controls, audits, and executive pay.
Why Does ESG Matter?
According to the European Green Deal, all member states need to achieve net-zero emissions and have circular economies by 2050. Businesses are already encountering the monetary consequences of failing to act on sustainability, as a lot of countries have implemented different regulations, for example, carbon taxes. We have also seen ESG rules being integrated into funding criteria in banking and financial sectors.
Many of us are thinking about steps we can take to bring about change. What is perhaps less widely known, is that implementing ESG employee benefits such as Net Zero pensions, measuring employee carbon footprints and reducing or offsetting this, can have a significant impact on the company carbon footprint.
ESG employee benefits echo the values of Generation Z and Millennials, who now make up over 50% of the workforce. Labelled as the sustainability generation, this has a huge effect on attracting and retaining talent.
For business leaders, it’s important to note that investors are increasingly thinking about ESG issues to help investment risks be managed properly. ESG performance reports and ratings show investors a business’s efforts to mitigate risks and generate financial returns that are sustainable over the long-term.
In addition to this, businesses that have effectively implemented ESG strategies and sustainability tend to outperform the other leading global businesses.
- E – More customers and employees are attracted to sustainable practices. It also impacts the bottom line, as productivity increases and operational costs can be lowered.
- S – Sustainable practices build stronger community relations, boost employee morale, attract and retain talent, and result in improved social credibility.
- G – You can expect better investor and employee relations, the ability to overcome increasing regulatory pressure, and government support.
How do you start?
Implementing ESG practices and processes can be a daunting step. Our advice is, start at the beginning – click here to read about 4 simple ways that HR can make a start on the ‘E’ of ESG.
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