In a continuously evolving regulatory landscape, environmental, social, and governance (ESG) factors are becoming increasingly visible and multifaceted. ESG-related issues are impactful not only to the global population but also to an organization’s employees, as ESG initiatives play a role in helping employees to feel connected to a greater purpose in their work. With human resources (HR) acting as a collaborative partner in an organization’s ESG journey, McLean & Company, the trusted research and advisory partner of HR leaders around the world, has released its Environmental, Social, and Governance (ESG) Primer. The new industry resource has been designed to assist organizational and HR leaders in understanding ESG programs and proactively unlocking the benefits for their organizations.
The external pressures to implement ESG programs continue to surge. Fiduciary duty to shareholders, the visibility of climate change, greater awareness of social issues, and the recent emphasis by regulators on board accountability have driven organizations to adopt ESG programs. Global regulators have moved toward mandated disclosure of ESG-related matters, with over 730 policy revisions supporting, encouraging, or requiring investors to examine long-term factors, including ESG.
“The need for ESG programs continues to grow,” says LynnAnn Brewer, director of HR research and advisory services at McLean & Company. “This means that organizational and HR leaders must have a thorough understanding of ESG, its importance to shareholders, and its impacts on both internal and external stakeholders. ESG programs and initiatives must be implemented deliberately and with purpose or risk appearing as performative or ineffective.”
ESG is often used to understand and measure how an organization impacts society. For example:
- Environmental – Relates to an organization’s positive and negative impacts on the natural world, including policies to reduce organizational effects on the environment. Examples of environmental areas of focus include climate change, carbon emissions, and pollution levels.
- Social – Evaluates the organization’s relationships with and impacts on its employees, contractors, consumers, and the broader community through employee wellbeing initiatives, employee resource groups (ERGs), and community outreach.
- Governance – Encompasses the systems an organization creates to integrate the environmental and social components into its operations, how it interacts with and receives feedback from stakeholders, and how it demonstrates ethical decision making through organizational transparency. For example, board management practices, compensation, regulatory compliance, anti-fraud and corruption policies, data hygiene, and security all fall under governance.
McLean & Company notes in the new primer that approaches to ESG governance differ across industries and locations and depend on the organization’s materiality assessment and goals. ESG programs also impact all organizational stakeholders: the typical scope of stakeholders is expanded, relationships with existing stakeholders are altered, and relationships with external stakeholders must be acknowledged as reciprocal. The firm also reminds HR and organizational leaders that HR is strategically placed to support an ESG program and help advance its goals.
“The role HR plays in the success of ESG programs may look different depending on the organization, but it is always imperative,” explains Brewer. “The responsibility of ensuring alignment with the organization’s core values and socializing the narrative internally rests with HR. Building an intentional narrative creates an interwoven organizational story that establishes values and initiatives, connecting everyone to one purpose.”