HR’s Role in ESG Practices: Your First Steps

Companies are serious about sustainability these days, focusing on eco-friendly practices and reducing their environmental impact. But it’s not just about the environment or pleasing investors. HR can play a key role in these efforts, creating a win-win for employees, the company, and society as a whole. This article explores how environmental, social, and governance (ESG) factors are transforming HR and the exciting opportunities for HR professionals in this new era of sustainability.

In this article, we’ll cover:

• The Importance of ESG: This section explains the concept of ESG and its relevance to HR practices.
• HR’s Role in Sustainability: This section explores how HR contributes to a company’s environmental, social, and governance goals.
• Building an ESG-focused HR Strategy: This section dives into how to integrate ESG principles into your HR approach.
• Taking Action: This section provides practical steps HR departments can take to drive ESG initiatives within their organizations.

1. ESG 101: 

• ESG stands for Environmental, Social, and Governance. It’s a framework used to assess a company’s performance beyond just its financial results. Here’s a breakdown of each factor:Environmental: This considers a company’s impact on the planet. Key aspects include:
  • Carbon footprint: How much greenhouse gas does the company emit?
  • Resource use: Does the company use resources efficiently? Are they looking for sustainable alternatives?
  • Environmental practices: Does the company invest in renewable energy or implement pollution control measures?

  Case-study: BMW on the Road to Renewables:

  • The BMW Group is making a big shift towards renewable energy sources to power their factories.
  • In Germany’s Leipzig plant, wind turbines provide electricity for production. They’re also testing a cutting-edge hydrogen burner technology in their paint shop, with hydrogen powering over 130 floor conveyors.
  • The San Luis Potosi plant in Mexico takes an entirely sustainable approach, using solar panels to generate all the electricity needed for its operations, leaving no carbon footprint.
  • At their Munich facility, they leverage hydroelectric power from nearby rivers, the Lech and Isar, to meet their production electricity needs

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BMW Green Car Manufacturer in Leizig (MayorEU, 2023)

Social: This looks at how a company treats its employees, customers, and the community. Important factors include:

• Labor practices: Does the company offer fair wages, safe working conditions, and equal opportunities?
• Diversity and inclusion: Does the company have a diverse workforce and inclusive practices?
• Community engagement: Does the company give back to the communities it operates in?

Case-study: Big Chocolate vs. Ethical Alternative:

• Major chocolate companies like Nestle, Mars, and Hershey source cocoa from West Africa, a region notorious for child and forced labor. Facing public pressure, these brands are being called upon to improve their supply chain practices and ensure fair labor conditions.
• Tony’s Chocolonely stands out as a brand dedicated to ethical sourcing. They pay fair prices to their suppliers and actively fight against child and forced labor within their supply chain. While acknowledging they haven’t completely eliminated the issue, they are transparent and committed to tackling it head-on.

Tony’s Chololonely Program to reduce child labor in Chocolate Industry

Governance: This assesses how a company is managed. Key areas include:

• Leadership: Does the company have a strong and ethical leadership team?
• Transparency: Does the company disclose its ESG performance openly and honestly?
• Risk management: Does the company proactively manage risks related to environmental and social issues?

Case-study: Social Media vs. Reality: Exposing the Gender Pay Gap

Companies flooded social media in 2023 with messages promoting female leadership for International Women’s Day. However, a data-driven approach by Francesca Lawsome and Ali Fensome exposed a potential gap between these claims and reality. Their gender pay gap chatbot analyzed publicly available data from companies celebrating the occasion. The results were concerning:

• Heathrow Airport, despite highlighting female employees, paid women 14% less per hour than men.
• Refuge, a domestic violence charity, had a shocking 23.9% pay gap favoring men.
• Scottish Widows, promoting services to close the pension gap, itself paid women 14% less than men.

An example of Pay Gap App that survey the truth behind social media “nice words”

2. Why ESG?

A study by McKinsey and NielsenIQ that investigated the correlation between Consumer Packaged Goods (CPG) featuring Environmental, Social, and Governance (ESG) claims and their sales growth. Here are the key takeaways:

Consumers are spending more on products with ESG claims: Products with ESG claims grew at a 28% rate over the past five years, compared to 20% for those without. This suggests a shift in consumer preference towards sustainable and socially responsible products. The effect varies by category: Growth wasn’t uniform across all categories. For instance, ESG claims had a bigger impact on sales in food and personal care compared to beverages.

Not all claims are equal: Less common claims like “vegan” or “carbon zero” led to higher growth compared to generic claims like “environmentally sustainable.” This suggests that specific claims can be a way for brands to differentiate themselves.

Combining claims might be beneficial: Products with multiple ESG claims from different categories (e.g., animal welfare and sustainable packaging) tended to grow faster than those with single claims. This might signal greater authenticity to consumers.

ESG is good for brand loyalty:

Brands that generate a higher proportion of sales from ESG-labelled products enjoy higher repeat purchase rates, suggesting stronger customer loyalty.

The Challenge:  Consumerism has fueled economic growth, but also raised environmental and social concerns.  HR plays a part in ensuring companies address these issues ethically.

The Opportunity:  Companies can differentiate themselves and attract top talent by demonstrating Environmental, Social, and Governance (ESG) commitment.  Honest product labels about these efforts can be a key tool.

3. HR plays a key role in making ESG a reality

Many HR professionals might not realize it, but they are already dealing with ESG issues as part of their everyday work. Even though ESG stands for environmental, social, and governance, HR practices actually touch on all these areas. We’ll explore how HR is involved with ESG in more detail in the next section.

How HR contributes to the ESG Agenda

4. HR: Spearheading the Drive Towards ESG Guidance

For HR to become champions of ESG, they first need to build a strong knowledge base. This includes understanding the major frameworks and standards that guide ESG practices.

Here are some key resources to explore:

• UN Sustainable Development Goals (UNSDG): A global framework outlining 17 interconnected goals for sustainable development by 2030. (https://sdgs.un.org/goals)
• MSCI ESG Ratings: A set of indexes that consider environmental, social, and governance factors to influence investment decisions. (https://www.msci.com/eqb/pressreleases/archive/pr199811a.html)
• Global Reporting Initiative (GRI): Provides guidelines for transparent and standardized reporting on ESG matters. (https://www.globalreporting.org/)
• Task Force on Climate-related Financial Disclosures (TCFD): A framework for companies to disclose climate-related risks in their operations. (https://www.fsb-tcfd.org/)
• International Labour Organization (ILO): Sets international labor standards and promotes decent work practices. (http://www.ilo.org/)

With a strong foundation of knowledge, HR can now move towards implementation. Here’s how HR can translate that knowledge into action:

• Self-Assessment: Analyze current HR practices through the lens of ESG frameworks like the GRI, TCFD decent work standards. This will identify strengths and areas for improvement. Data and people analytics can also be used to uncover potential biases and barriers to achieving diversity and fair treatment.
• Collaboration is Key:  ESG is a team effort. Establishing a cross-functional committee is crucial. Representatives from Risk, Finance, HR, Facilities, Legal, and Sustainability would all bring valuable perspectives. This committee can recommend improvements to the executive team. As ESG practices evolve, a dedicated Sustainability Officer and team can be established.
• Clear Direction:  For many, ESG feels abstract.  HR plays a vital role in developing a clear organizational stance on ESG. This includes defining priorities and outlining practical actions that contribute to a better future.  Employees need to understand how ESG principles translate into everyday practices and how their daily contributions help achieve the organization’s ESG goals

The following chart from Gartner illustrates a non-exhaustive list of potential ESG topics, highlighting topics that fall within HR’s remit.

Phòng Nhân sự đóng một vai trò quan trọng trong việc thúc đẩy các sáng kiến ESG của công ty. Bằng cách hiểu các nguyên tắc ESG và hợp tác giữa các phòng ban, các chuyên gia Nhân sự có thể triển khai các hoạt động mang lại lợi ích cho môi trường, xã hội và chính công ty.

HR plays a critical role in driving a company’s ESG initiatives.  By understanding ESG principles and collaborating across departments, HR professionals can implement practices that  benefit the environment, society, and the company itself.

VertZero Carbon Accounting Software can help HR by:

• Analyzing employee commutes to encourage carpooling, remote work, or public transport use.
• Tracking office energy use to identify areas for improvement like turning off lights or using less paper.

Together, HR and VertZero can significantly reduce a company’s environmental impact which is a cornerstone for successful ESG practices in the workplace.