Connecting the S to the G in ESG


We recently hosted an event where we were delighted to welcome Victoria Hartley and Charlie Hodkinson-Ashford of Corporate Citizenship, to talk about how HR directors can enhance their organisation's ESG (Environment, Social and Governance) strategy. 

One of the interesting insights they shared was that HR teams are almost always doing a lot of work around social impact (the "S") - from diversity to employee health and well-being, gender pay gap reporting and Modern Slavery Act compliance.   But a big challenge for employers is connecting positive social impact with their corporate governance structures, rather than having these initiatives regarded as purely an HR responsibility. 

One key 'connector' is ensuring that the Board has ultimately responsibility for implementing these initiatives and for the organisation's overall ESG plan.   Depending on the size and complexity of the organisation, it may be appropriate for these responsibilities to lie with one director, a separate committee of directors or the Board as a whole (but with a particular member of the Board tasked with providing regular reports on progress).   Having clear lines of responsibility is an essential part of implementing the ESG agenda, so it's important to ensure that responsibilities are clearly understood and documented. 

Another is linking Board and senior management incentives to achieving ESG targets, in the same way that financial targets are used.   This requires careful thought, to ensure that the targets set are suitable and achievable, do not create perverse incentives, are not mutually incompatible and that it will be possible to determine which targets have been met.   Of course, it's also essential to ensure that the targets can be lawfully achieved, e.g. that any positive action measures satisfy Equality Act requirements. 

The need to have realistic and measurable targets also highlights the need for reliable data.  If you are linking Board incentives to achievement of equality and diversity targets (e.g. attracting more disabled applicants) you will need reliable data on the business' current performance so that improvement can be assessed accurately.  

There also needs to be consistency across the organisation.   There is little point making Board members responsible for, say, improving diversity,  if the parts of the business which they manage are set KPIs which militate against those aims.  ESG plans need to be implemented in a holistic way to be effective. 

We are increasingly being asked by businesses of all sizes to advise on the implementation of their ESG strategy - if you would like to discuss this, please do get in touch with your usual HK Employment team contact. 

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