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The rise of ESG

Managing the impact organisations have on society and communities is high on the business agenda right now. What role should HR play?

The need for businesses to provide better environmental, social and corporate governance (ESG) – or in other words, take issues like climate change and diversity more seriously – is a red-hot topic right now. It’s also a massive opportunity for HR to increase its value to the business and provide a better, more equitable working environment for us all.

The key drivers

For a long time now, the debate around ESG has focused largely on environmental issues. This is perfectly understandable. To attract investment these days, organisations need to demonstrate that they are climate change-conscious and on track to meet targets like the UK government’s aim to cut carbon emissions to net-zero by 2050.

 

This issue is going to remain on the table for decades to come. In recent years, the biggest mass climate change protests in history have continued to drive the views of consumers and legislators worldwide. Investors, spurred on by the pandemic, are applying their own pressure. At the start of 2018, global sustainable investment reached $30.7 trillion globally.   By the first quarter of 2020, when the pandemic hit and most markets were rattled, sustainability-focused funds attracted inflows of $45.7 billion.

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Recently, however, the ESG spotlight has also fallen increasingly on areas like gender equality, diversity and equal pay – not least because of the PR and financial impact of underperforming in these areas can be catastrophic. Recently, the gaming company, Activision Blizzard, famous for making Call of Duty, made global headlines when staff walked out and it was sued by the State of California after a two-year investigation into claims of sexual harassment and discrimination against female employees.

 

Over 2,000 employees also signed an open letter calling for an end to mandatory arbitration in harassment cases, improvements in recruiting practices and the creation of a diversity and equity task force. Many gamers also joined the debate and said they would not be logging into the firm’s games while the walk out was being staged – providing a clear indication that consumer activism is also a key factor in the need to get ESG policies of all forms right.

 

There have also been many other recent examples of activism and lawsuits from employees on the issue of gender pay – including at Google. Put all these factors and this adverse publicity together and there’s no doubt: ESG practices are under more scrutiny than ever before.

The importance of HR 

There’s also no doubt that there is scope for HR teams to play a leading role in shaping the way organisations respond to ESG concerns.

 

As examples like the Activision Blizzard protest show, poor ESG policies don’t just have a negative impact on reputation – they will also have a knock-on impact on an organisation’s ability to get the right people on board in the future. HR needs to bring its influence to bear to make sure all employees feel valued and fairly rewarded.

 

Getting recruitment and gender balance right is also increasingly important to the financial success of businesses and their ability to win new contracts.  In the legal sector, for instance, it’s now common for clients to appoint a law firm only if it can prove it has sufficient gender balance, including among partners. On an investment level, most investment managers will now only direct funds into businesses if they can show they have a gender balance of at least 30%.

 

From an environmental perspective, it’s also incumbent on HR teams to review working policies carefully – especially as we all continue to manage the return to physical workplaces. In particular, it’s important to ensure that carbon emission reductions achieved during lockdowns continue and don’t just become a limited, historical reaction to a pandemic.

All this means that HR is central to improving ESG performance. The time to make sure that happens with thoroughness and clear planning is now.  

[1] Global Sustainable Investment Alliance, 2018

[2] Morningstar Direct, 2020

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What HR professionals can do 

While it would be unfair to suggest that HR can solve all the challenges that need to be overcome to do ESG well, there are several actions that HR teams can take to make sure they are playing their part to the fullest extent possible. Here are some key areas where you can make a difference:

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Alisdair Seenan 
HRD, Edenred