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ESG and the role of HR

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.

Inflows into ESG equity and bond funds are on track to surpass last year’s record, and the UN PRI has galvanised this action on the part of investors by calling for engagement in issues which directly and indirectly perpetuate inequality with the aim of holding corporations and policy-makers to account and pushing for disclosure on racial diversity and related metrics so it can assess progress.

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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 outperforming periods of intense volatility.

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.


Defining ESG

My definition of ESG is an organisation that is 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, from employees to supply chain, and its role in wider society. 

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

If you don't have a plan to track issues of racial discrimination or the 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. 

People struggle to measure impact as they don't know what measures to pick.

Some measures aren't truly about assessing impact either, making it hard work for the board of directors, and the company secretary to connect with the advancing of racial equity within the organisation.

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 around inclusivity, you need data points and metrics.

Now, it’s very easy on paper to make progress on paper. By relying on metrics alone you're missing the opportunity to also measure impact, and sometimes impact cannot be quantified in pure data points that 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.


Real impact

There needs to be follow up in terms of the data in order to measure the impact and understand, questions such as: Where our employees are going after they've done this leadership programme? What's different between their entering the programme and completion? And, how many promotions have they had? 

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 experience.

Doing so makes it easier for leadership teams and corporate affairs directors to be able to connect the dots between what you're doing internally and 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.


Shereen Daniels is managing director at HR Rewired