The ‘S’ In ESG: What HR Leaders Need To Know

Over the past two years, the Great Resignation has put a spotlight on human resources (HR) leaders and the critical role they play within an organization. They define the people strategy of an enterprise, which is vital in attracting and retaining top talent, driving value and ensuring long-term success and sustainability. When talent is in short supply, as it has been for some time now, the importance of skilled and savvy HR leaders increases exponentially.

But that’s not the only reason HR executives are taking center stage. As more organizations focus on improving environmental, social and governance metrics—more commonly known as ESG—HR has a leading role to play, particularly as it relates to the “S."


Defining The ‘S’

If your organization isn’t talking about ESG, it will be soon. As Gartner points out, the interest in and importance of ESG has increased dramatically in recent years. Key stakeholders, from investors and customers to employees, prioritize organizations with concrete strategies that increase sustainability, profitability and impact over time. Gartner found that "media mentions of ESG data, ratings or scores grew by 303% year over year in 2020," and that "67% of banks screen their loan portfolios for ESG risks."

Much early attention has been paid to the “E” in ESG as companies implement strategies to reduce carbon footprints and emissions. The “E” is a critical aspect of long-term organizational sustainability. It’s also relatively easy to measure. Companies can put hard numbers around their environmental commitments. A side bonus: Their public-facing brand gets a boost as a result.

The social aspect of the ESG overlay is more challenging to define. At its most basic level, the “S” relates to how an organization supports its various stakeholders. To date, many companies have focused on the diversity, equity and inclusion aspects of the “S,” as they should. Now, they are expanding their “S”-focused work further to support employee well-being overall.

At my organization, E4E Relief, many of our conversations with HR leaders focus on how employee relief can help support a “well” workforce. HR leaders can implement employee relief programs that support employees and other stakeholders during times of hardship. This provides critical impact data on employees’ well-being and can affect metrics related to the “S” in ESG.


Why The ‘S’ Matters Now

The current job market is driving some of the shift toward the “S” in ESG. The pandemic has put greater focus on how companies support their employees’ well-being, and recent research highlights a profound disconnect between what HR leaders think their companies provide and the actual experience of their workers.

A recent survey from the Achievers Workforce Institute found that while nearly half (47%) of HR leaders said their company supports worker well-being, only 24% of employees believe that to be the case. Another survey from Gallup earlier this year reinforced those findings and put them in striking historical context: "Fewer than one in four U.S. employees feel strongly that their organization cares about their well-being, which is the lowest percentage in nearly a decade."

This data point has powerful repercussions for companies across all industries. As Gallup goes on to note, employees who believe their employers care about their well-being are 69% less likely to actively search for a new job, 71% less likely to experience burnout and three times more likely to be engaged at work.

In addition to changing cultural demands, companies are also facing new directives and regulations that make the “S” in ESG a top priority. For example, the U.S. Securities and Exchange Commission recently amended its rules regarding human capital disclosures for the first time in more than 30 years. Now, public companies must disclose more human capital metrics than ever before, in recognition of the role people play in driving the value of a business. Those metrics could provide a window into how companies are investing in their people, and HR leaders will likely be charged with improving those metrics over time.


The Role Of HR In ESG

For HR leaders, the focus on the “S” in ESG provides significant opportunities. While people and culture initiatives may have once been a nice-to-have, they have become a business imperative. The C-suite and board leaders are watching and waiting for innovative ideas to transform how your organization supports its most valuable asset.

The key question is, once you implement strategies to enhance your company’s “S," how can you measure their impact?

Tracking the “S” isn’t as quantitatively cut and dry as monitoring carbon emissions, so it’s important to set goals from the start. You don’t have to predict all the effects of your social investments, but you should have a clear sense of what you’ll be watching, measuring and studying. For example, gauging the impact of employee relief requires more than an understanding of dollars distributed to employees in need. Employers need to illustrate what happens as a result, in terms of increased employee engagement, better financial and mental outputs, and greater loyalty or increased productivity. It's a way of proving what we all know to be true: Doing good is good for business.

While we know ESG hasn’t been fully embraced by all, it appears that it is here to stay and may ultimately transform companies as we know them. When it comes to the “S," HR leaders will play a critical role in helping organizations invest in their people and, in the process, support the long-term success and sustainability of their organizations.


This article was originally published on Forbes. To read the original article, click here.

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