When Kraft Heinz released Together at the Table, its 2022 environmental social governance (ESG) report in October, readers were met by a barrage of data: progress on and pledges for achieving a swathe of targets; everything from goals to be net zero (by 2050), reducing waste to landfill (by 20%), using 100% reusable packaging (by 2025) and more.
HR and ESG:
“ESG is the new face of CSR,” asserts Matt Farnsworth, global director of ESG and sustainability at professional services company RPS Group.
“If CSR was traditionally centred around philanthropy and voluntary/charitable giving, ESG is the next stage on. It’s arisen as a function of investors needing a framework they can adopt to better evaluate and quantify aspects of company performance, risk and opportunities.” As Gartner now notes, 85% of investors now consider ESG when investing.
For HR directors used to leading CSR (or what’s also been labeled ‘corporate sustainability’), this drift to ESG reporting has a distinctly financial narrative to it.
In fact it was precisely because investors increasingly demanded a more global measure for ESG that COP26 saw the creation of the International Sustainability Standards Board, which was itself set up by the International Financial Reporting Standards Foundation (IFRSF).
Earlier this year the IFRSF also pledged to work with the Global Reporting Initiative to coordinate the creation of global baselines for investor-focused sustainability disclosures.
“There’s undoubtedly a perception the finance tail is wagging the dog now,” suggests David Fatscher, director, ESG strategic advisory, at Corporate Citizenship and former head of ESG, at the British Standards Institute.
“International standards have probably been long overdue,” he adds. The question this asks, however, is exactly where HR now sits in this CSR-replacing, much more investor-relations presentation of social responsibility.
“As finance departments take on greater responsibility for ensuring compliance – and as reporting requirements for CSR and ESG programmes become ever-more complex, it’s likely finance departments could well assume greater responsibility for ESG,” argues Kim-Adele Randall, CEO of Authentic Achievements.
Farnsworth, who is one of the few dedicated ESG heads in the UK, adds: “While HR has an important role to play with the social, welfare and diversity elements of ESG, the skillset required to navigate the strategic and cross-divisional nature of ESG has increasingly broadened.”
He suggests that it’s precisely because ESG involves all areas of the business that the job falls to someone like him, in a dedicated role, to be a “sense-maker in the organisation, for ensuring we’re all aligned when it comes to integrating and reporting on ESG".
He adds: “Chief sustainability officers have been a fairly recent introduction, yet they demonstrate the rising importance of these issues at the board level; it’s a specialised and increasingly complex field.”
So does this really mean HRDs’ new CSR-turned-ESG role is merely to act as data givers? Many think not. “Where I think HR teams can elevate ESG is not just in collecting data, but reporting credibly on it, and really saying what the company stands for and giving evidence of it,” says Fatscher.
Adds Roisin Sharkey, co-head of corporate responsibility at KPMG UK: “The wider elements of being a responsible business, and the need for firms to address their own material issues, has meant that additional ESG metrics such as wellbeing, training, culture, diversity and inclusion are rising up the agenda.
“Environmental aspects of ESG require that arm’s leadership is competent and trained, and that environmental risks are embedded in executive-level decision-making – all HR’s area.”
Fatscher concedes that it’s the “soft stuff that’s the hard stuff,” and that HR’s role is much more about putting people metrics into quantifiable metrics. But others suggest their role is far greater than this.
“A danger is that ESG simply becomes all about reporting – a tick-box for demonstrating policies not because they want to but have to,” asserts Richard Burton, global managing partner at consultancy, Forty1.
“HR’s role should be about creating a network of ESG advocates that see change as important.”
Adds Helen Corden, UK head of employment and reward at Pinsent Masons: “The worst thing for ESG is that it becomes a formulaic compliance area. The issue that’s still key is how to bring it to life as a people and culture issue.”
What’s certainly the case is that many elements of ESG do have a strong people aspect – whether it’s diversity, equity and inclusion impacting talent attraction and retention, or values/culture driving outcomes and reducing risks. This should, say experts, be something HR pushes more.
“Intuitively ESG has far more potential to be transformative for HR than CSR because HR has a bigger footprint in it,” observes Tracey Groves, author of new report Are you ready for ESG as a critical business imperative?.
But, she adds: “In my experience, HR tends to be more involved in the ‘S’, while the ‘E’ side of things [being carbon neutral, reducing emissions, etc], tends to dominate ESG reporting. Where HR needs to position itself is in messaging that says you can’t achieve environmental targets without values-based intentions.”
"A danger is that ESG becomes all about reporting – a tick-box"
Adds Jenelle Sams, consultant, ESG advisory services, Antea Group: “It’s about being the person that red-flags, and understands why. It’s also about HR getting involved in other areas that touch their remit – such as whether forced labour is occurring in their supply chains, and what issues could come to the fore without good HR.”
Sams and others argue the investment community ESG reports are aimed at is now starting to understand that the people agenda is crucial to a company’s sustainability.
“HR is fundamental to people meeting common values. The trick is the ability to convert this into a financial measure,” says Chris Bennett, managing director of sustainability consultancy Evora Global.
So how might this work in practice? At Kraft Heinz Alessandra de Dreuille, people and performance director (Northern Europe), says it’s about not being in competition with other departments to present data, but simply to present what is meaningful from HR into the overall pot.
She says: “The ESG report is between 20-30% HR’s contribution, but we’re led by reporting standards [it reports to the GRI Standard] and also the way we break our report down – we have three reporting pillars: Healthy Living & Community Support, Environmental Stewardship and Responsible Sourcing.”
Within the former are Kraft Heinz’s diversity, inclusion and belonging aspirations – including for the first time an aspiration to have 31% of staff identify as ethnic minority. De Drueille says: “The investment community increasingly understands that talent makes the difference in companies.”
She also thinks HR professionals, by their nature, are incredibly well suited to presenting ESG metrics: “We have data collection in our remit. I think this sort of stuff is well within our team’s current capability. We find we have less of a need for external help.”
"The goal will be for ESG to be embedded in all areas of a company"
This could be a good thing. ESG responsibility at Heinz currently sits with its food services leader (it used to be the chief of operations), but some suggest it could just as easily be HR. “Lots of financial directors I speak to don’t want ESG as yet another thing on their plate,” explains Sams.
“They just want to get the numbers and pull in what other departments have been doing.”
So, could this leave an opportunity for HRDs to emerge from a CSR void and step back up? “ESG reporting ‘is’ very different – it comes from finance, and so that makes it very investor relations-heavy,” admits Kirsty Green-Mann, head of corporate responsibility at law firm Burgess Salmon.
“But so many facets involve HR. The trick is not seeing this as like CSR anymore – i.e. as ‘nice to have’. It’s now expected and needs ingraining in organisational purpose.”
KPMG’s Sharkey argues: “Ultimately the goal will be for ESG to be embedded in all areas of a company – from HR to finance – with the governance of this being part of a ‘business as usual’ approach.”
Vikita Patel, head of HR for Apex Group, suggests: “Rather than viewing CSR and ESG as the sole responsibility of an HR department it requires buy-in from all.
“As clichéd as it sounds, a truly collaborative effort is required with a clear tone from the top that ESG should be part of a company’s DNA rather than an initiative or branding exercise.”
Carol Adams is currently chair of the Institute of Chartered Accountants of Scotland’s (ICAS) Sustainability Panel and Policy Leadership Board. She echoes Patel and Sharkey’s statements: “Organisations should take a whole of organisation approach to this.
"One function should not seek to own it. ESG is bigger than HR, and accounting and finance professionals can help ensure that appropriate data controls are in place.”
That said, supporters say HR is at least uniquely placed to improve reporting and promotion of ESG values. “As ESG beds down, organisational performance in ESG has made HR teams more accountable for their metrics,” says Farnsworth.
Green-Mann concludes: “CSR was philanthropy not necessarily connected to the business. ESG is the next evolution. It’s driven by finance, but we in HR need to demonstrate that it’s integrated into the business too.”
The full article of the above first appeared in the November/December 2022 print issue. Subscribe today to have all our latest articles delivered right to your desk.