ESG and the role of HR.

Abbreviated version published in HR Magazine (hrmagazine.co.uk)

The data is starting to show a positive correlation between solid environmental, social and governance (ESG) practice and financial performance. In the UK alone, investors piled £2.9 billion into ESG investment funds in the first three months of 2020, making it the second-best quarter for the sector. Europe saw inflows of €30 billion over the same period and throughout the COVID-19 humanitarian disaster ESG stocks consistently outperformed their traditional counterparts: with inflows into ESG equity and bond funds on track to surpass last year’s record. The UN PRI has galvanised this action on the part of investors by calling for, “engagement on ESG issues which directly and indirectly perpetuate inequality,” with the aim, “to hold corporations and policy-makers to account” and, “push for public disclosure on racial diversity and related metrics by which we can assess progress against concrete outcomes”.

There is no doubt in my mind that solid relationships with employees, stakeholders and suppliers are key to accounting for long term risks, enabling greater corporate resilience and outperform periods of intense volatility. And as we are in an environment where NGOs and institutional investors are setting their racial equity expectations, not just for better representation of minoritised communities at board level, but more importantly in the in-depth corporate plans driving racial equity practice, racial inequity has become a corporate risk.

HR’s role in organisational process, change management and culture stewardship means the focus and skill of HR professionals within ESG considerations are key. And the tools an active ESG plan provides supports understanding of the impact advancing racial equity within your organisation is having.

Table of Contents

Defining ESG

Now my definition of ESG envelops that of a sustainable business, an organisation that is built round specific traits focused on purpose and values. In essence it’s fundamentally about ensuring there is a conscious decision making process concerning an organisation’s impact on the environment, and how it values people: how employees are treated, how the company engages with the inequities within their supply chains, understanding that they operate within a broader society, and how it ensures the correct governance is in place to secure equitable decision making, for example, that there is a diversified view around the board to ensure that the company is mitigating the risk of blind spots. 

This follows a point I’m continuously telling clients that representation is an output on input, and the easiest way for HR to take the lead in setting an agenda that places workforce equity truly at the centre of the business, and reduce corporate risk, is to wrap it around something that the business is already comfortable talking about. This is where insight into an active ESG framework is beneficial.

Make a plan

Because if you don’t have a plan or a mechanism of being able to track issues of racial discrimination, or ability to measure the impact of your proposal to improve racial equity within the organisation, you cannot demonstrate what you’re doing to be part of the solution. Not just from a moralistic perspective but because it is a corporate risk as it cannot be demonstrated in the corporate plan or within external communications to investors. And people struggle to measure impact as they don’t know what measures to pick, also some of the measures aren’t truly about assessing impact, making it hard work for the board of directors, and the company secretary to connect with the advancing of racial equity within the organisation.

So, as an HR professional if you are thinking about how best to ensure that you’re positively influencing the board to give you the resources and support you need to make the decisions that are going to lead to a truly inclusive environment, you need data points and metrics. And an active corporate ESG framework will do just that in a methodology that is already recognised within industry.

Yet in comparison to actual impact, it’s very easy on paper to make progress, on paper. It’s fine to do it, but you’re missing the opportunity to also measure impact, and sometimes impact cannot be quantified in pure data points to fit nicely in a spreadsheet. You need to get the narrative. You need to understand the change in the feedback from your employees from the time you began advancing racial equity in your organisation to have the confidence to say, ‘This is where we started’.

Beyond data.

Therefore the experiences as told by your workforce are equally as important as the data points in terms of understanding whether what you’re doing is positively impacting them and making a difference. For example, if you have a leadership development programme, for example, are you measuring graduate intakes from minoritised populations? This being one of the more traditional metrics to analyse. But measuring that metric alone doesn’t mean anything in terms of being able to demonstrate that it’s dismantling racism or levelling the playing field for Black colleagues.

Real Impact.

There needs to be follow up in terms of the data point in order to measure the impact and understand, ‘Where our employees are going after they’ve done this leadership programme?’, ‘What’s different between their entering the programme and completion?’, “How many promotions have they had?’ ‘Projects they’ve been involved with?’ and ‘Why?’. This involves thinking about how you can continuously mesh the quantifiable data, i.e. how many hours of training an employee has done, with the qualitative, the experience of your organisation’s employees. This makes it easier for your leadership teams and your corporate affairs director, to be able to connect the dots with what you’re doing internally with what they need to communicate externally.

The role of HR professionals in aligning corporate culture and human values to create fairer, more sustainable workplaces is vital to ensuring the success of the organisation’s commitment to their workforce and the outside world. ESG measures support this work ensuring employee equity becomes part of the organisation’s fabric, leading sustainable day-to-day business.