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In the realm of corporate strategy, few concepts have garnered as much attention and investment as environmental and social governance (ESG) principles.
Initially hailed as the solution for businesses seeking to marry profit with purpose, ESG has undergone a seismic shift in perception, raising questions about its efficacy and longevity. Against a backdrop of political polarization, investor skepticism and operational challenges, HR professionals find themselves grappling with the complexities of ESG's evolving narrative.
ESG, once perceived as a business imperative
The meteoric rise of ESG initiatives was fueled by lofty promises of sustainability, social responsibility and long-term value creation. However, recent developments have cast a shadow over ESG's once-solid reputation, raising doubts about its efficacy.
Statistics paint a sobering picture of ESG's shifting fortunes. A NAVEX Global report reveals that while 88% of publicly traded companies had ESG initiatives in place by 2020, concerns about greenwashing and superficial commitments have eroded trust among stakeholders.
Similarly, Edelman's findings underscore widespread skepticism, with nearly three-quarters of institutional investors doubting businesses' ability to fulfill ESG commitments.
ESG has gone from the buzzword that every investment advisor, company and government official had to be familiar with to becoming the latest dirty word in corporate America
Political pressures have further muddied the waters, as evidenced by BlackRock CEO Larry Fink's retreat from the term due to perceived toxicity.
"ESG has gone from the buzzword that every investment advisor, company and government official had to be familiar with and append to every single piece of business they were involved with - to becoming the latest dirty word in corporate America," he recently told the Fox News.
“[ESG is a term that has been] weaponized by the far left and weaponized by the far right. And we lose the conversation,” he added.
HR’s role in managing the shifting perception of ESG
However, whilst ESG may be considered a divisive issue within the corporate world, the majority of negative rhetoric surrounds not the positive actions undertaken by businesses to drive social and environmental change, but instead the concept of using ESG as, essentially, a PR initiative and nothing more.
Rather than denouncing the concept of ESG, many organizations are so-called ‘reframing’ environmental and social governance into terms such as ‘responsible business’. According to the Wall Street Journal’s findings, the likes of Coca-Cola are spearheading this change, renaming corporate reports and committees to exclude ESG.
Yet it’s also a key business imperative in 2024. ESG strategies can affect operating profits by as much as 60%, according to McKinsey data, whilst organizations with the highest employee satisfaction had ESG scores 14% higher than the global average, likely due to their strong environmental performance, research from Marsh & McLennan concludes.
What does this mean for HR? Terminology quibbling aside, HR teams are still very much the custodians of organizational integrity and employee engagement. Regardless of how these efforts are phrased, it’s still the function’s mission to navigate the complexities of this rapidly evolving landscape.
How can HR manage this divisive issue
The current backlash against ESG both changes the perception of sustainability within the corporate world, and HR’s own mission of ensuring that ethics play a central role in purpose and engagement. The challenge, then, is ensuring that both internally and externally, stakeholders are aware that environmental and social governance are still very much on the table as key issues.
To effectively manage ESG's transition from buzzword to taboo, HR must embrace a multifaceted approach that encompasses transparent communication, employee education, strategic alignment, agile adaptation and stakeholder collaboration.
At the heart of HR's mandate lies the need for transparent communication. Employees seek clarity amidst a current discord of conflicting narratives surrounding ESG. In short, the issue is complex, and this leaves workers craving authentic engagement and honest dialogue.
HR must serve as a function built on transparency, clarifying the organization's stance on ESG, addressing concerns and fostering a culture of trust and accountability. This makes education and information dissemination vital.
The role of education and strategic alignment
Education is the bedrock upon which current ESG literacy is built. By this, we mean not just basic information on positive actions being undertaken, but also terminology. It’s possible that organisations like Coca-Cola may lose engagement with staff who believe ethics are a primary concern, due to a lapse in education. The same is true of customers.
PWC research states that 83% of consumers think companies should be actively shaping ESG best practices and 86% of employees prefer to support or work for companies that care about the same issues they do.
What’s more, 91% of business leaders say they believe their company has a responsibility to act on ESG issues. This aligns with the ethos of customers, 76% of whom responded to PWC’s research stating that they will discontinue relations with companies that treat employees, communities and the environment poorly.
83% of consumers think companies should be actively shaping ESG best practices and 86% of employees prefer to support or work for companies that care about the same issues they do.
It’s clear that a true understanding of these issues is fundamental not just for employees, but leadership, too. For HR, this means empowering them with the knowledge and tools to navigate the complexities of ESG, demystifying jargon and clarifying the tangible impact of sustainability initiatives.
By fostering a culture of continuous learning and engagement, HR can cultivate a cohort of ESG advocates who champion the organization's commitment to societal and environmental stewardship, instead of perceiving their employer as bowing to societal rhetoric over affirmative action.
It’s important to note that ESG initiatives must not exist in isolation, but rather as integral components of the organization's broader mission and values. HR plays a pivotal role in aligning ESG efforts with core principles, ensuring coherence and authenticity in implementation.
By embedding sustainability and social responsibility into the organizational DNA, HR fosters a culture of purpose-driven leadership that resonates with employees and stakeholders alike.
The need for greater alignment with all stakeholders
As the above statistics prove, ESG is not a solitary effort, but a collaborative journey that transcends organizational boundaries and very much extends to customers. Whilst the ESG agenda may be clouded by divisive rhetoric, HR’s mission shouldn’t be sent off course by this.
It’s clear that the majority of stakeholders believe in environmental sustainability, and believe in the organizational mission to drive change within communities, both internal and external.
With this knowledge, the function should be focused on forging alliances and amplifying these collective voices, rather than simply setting agendas and expecting staff to comply. Understanding the fundamentals of true advocacy will allow HR to push for meaningful change and impact at all levels, not just among the C-suite.
Maintaining faith in the mission
Ultimately, it’s impossible for HR to set the agenda for the public perception of ESG as a business imperative. As with other such issues in the past, rhetoric around business ethics will of course shift and change depending on the global climate.
However, this doesn’t change HR’s mission to ensure that social and environmental change are key on the agenda. And nor should it, as data from McKinsey, PwC and Marsh & McLennan (among innumerable others) shows, these principles are fundamental for overall business success and sustainability.
Instead of getting bogged down in this debate, HR should see an opportunity to right-side both these initiatives, and fundamentally understand the role that true communication and education can play in effective initiatives. By focusing on these areas, HR can ensure that stakeholders understand the ethic and purpose of their businesses.
The debate may shift, but HR’s mandate will not. In a world more affected by societal and environmental change than perhaps ever before, these issues will continue to rise up the corporate agenda.
