Why you need to know about Environmental, Social and Governance (ESG) factors

What is ESG?

The term ESG stands for environmental, social and governance factors, all of which are critical to an organisation’s overall strategy.

Investors are increasingly evaluating companies’ compliance with ESG as a way to decide which businesses they want to invest in. But ESG doesn’t just impact the engagement of investors.

Customers, employees, and shareholders are demanding that brands consider the environmental and social impact of their business. Does it make a positive contribution to society? Does it prioritise ESG? Does it provide a positive working environment for its employees?

Environmental, social and governance – ESG explained

Environmental

It’s no secret that some of the world’s largest companies have come under fire for being responsible for over 70% of worldwide emissions. In 2021, Greenpeace and WWF reported that ‘the UK’s finance industry creates 1.8 times more emissions than the whole of the UK’.

When looking to the financial services landscape in Asia, policymakers’ recent pledges to carbon neutrality by 2050 (Malaysia, Japan and South Korea) and 2060 (China) also represent a critical step towards net-zero and have a snowball effect across business that can accelerate climate action among other countries across the region.

Consumers are demanding that organisations reduce their environmental impact, and investors are choosing to factor sustainability issues into their investments.

Environmental issues may include the use of fossil fuels and raw materials, as well as concerns over waste management, biodiversity, deforestation, and greenhouse gas emissions.

Social

Organisations are being called on to implement diversity, equity and inclusion (DE&I) strategies, with research showing that the most diverse companies are ‘more likely than ever to outperform less diverse peers on profitability’.

People are an organisation’s best assets and there is a growing strategic importance on engaging them through learning and development opportunities whilst working in a safe, diverse and inclusive workplace.

Companies also need to consider their social responsibilities: how they can support and ignite positive change in local communities, prioritising employee welfare, and considering the ethics of their supply chains.

Governance

Governance essentially looks at how an organisation polices itself – making sure they’re accountable and transparent.

Concerns around governance also look into the ethics of the business, shareholder rights, employee relations and retention, employee compensation, and management structure.

Why is ESG important for HR professionals?

At BPP we carried out skills research amongst professionals working in the Financial Services sector in January 2022 to find out more about their views on their company’s ESG strategy.

What we found is a lack of awareness and understanding of ESG. Of those we surveyed, just over half said they understood ESG factors, and 71% felt only ‘some’ of their organisation understood ESG factors. 52% of our respondents think shareholders pay attention to ESG factors, yet only 11% of businesses surveyed say all their senior leaders have ESG responsibility.

It’s clear that a business’s ESG strategy is becoming more and more significant when it comes to securing investors and ensuring engagement from customers. Not only this, Millennials and Gen Z in particular are seeking value-based employers, meaning an understanding of ESG is vital to employing the brightest talent.   

It’s therefore crucial that leaders and HR professionals understand the importance of ESG and its impact on stocks, brand value and long-term business viability.

Diversity, equity, and inclusion: attracting the best talent

Perhaps one of the most significant ways that HR leaders can strengthen ESG criteria is to continue to create and implement strategies to recruit a diverse range of talent.

Incorporating diverse perspectives across gender, ethnicity, age, disability, and the LGBTQ+ spectrum enables organisations to innovate through learning from and understanding different experiences. HR leaders must be actively recruiting in a way that engages and recognises candidates from diverse pools.

While DE&I will have a positive impact on a business’s success, it can be one of the most difficult ESG issues to measure. PwC has outlined 3 ways to measure and report on DE&I: through emphasising a company’s values, aligning leaders on reporting, and using a data driven approach.

How can HR leaders build understanding of ESG?

The need for upskilling is now. In roles that are client facing, having the confidence to understand and advise on ESG criteria will add more credibility to a business, as well as providing the best possible client service.

However, there’s an argument that HR should be first in line to get basic ESG training, with almost 80% of the professionals we surveyed believing that HR roles required this fundamental training in order to embed these principles within the organisation and when attracting future talent.

Your strategic talent partner

At BPP we pride ourselves on understanding the needs of your business and finding solutions that plug that all-important skills gap.

We offer a wide range of ESG courses from awareness courses to professional qualifications, which are recognised by global bodies such as CFA. Each course is designed to build your organisations’ understanding of ESG and the ways in which it can positively impact the future of your business.

Speak to us today to find out more about how we can support your HR goals in 2022.

1 BPP surveyed 169 professionals across the Financial Services sector between December 2021 and January 2022