(E) ESG – Why it’s important for employment experts
In our hyper-transparent and increasingly cohesive world, the concepts of corporate social responsibility and socially responsible investing are gaining popularity. Over the past decade, and catalyzed by COVID-19 over the past year, Boards of Directors and General Counsel have focused on the role of ESG in driving responsible and sustainable driving approaches. businesses that recognize that a company’s purpose must be amplified beyond just shareholders to also explicitly include their employees, customers and the communities in which they operate. In fact, the Chief Justice of the Delaware Supreme Court, the Honorable Justice Leo Strine in an article he wrote for the Financial Times, once suggested the acronym for Next Generation – EESG: Employees, Environment, Social and Governance.
So what does this mean and why is it important for employment professionals? Hopefully the first E is a clear clue (it’s not a typo)!
What is ESG?
ESG is the umbrella term for a wide range of Eenvironmental, Ssocial and gsurannance factors against which the stakeholders of a company can globally assess the performance, the value (risk / opportunity), the investment in relation to the company. Many ESG factors contribute to a company’s ‘social license to operate’ and accountability to its stakeholders and to the creation of long-term holistic value for a company – both financial and in terms of its value. reputation.
Even before the pandemic, there was a rise in “responsible investing”, mainly investors looking for companies with an explicit goal of having a positive impact on the environment and society as well as a return. financial. The pandemic, with its unprecedented impact on the workplace and corporate value chains, has clearly underscored the critical importance of the social element of ESG. Statistics show that “millennials,” or emerging investors, are twice as likely as other generations to invest in companies with social or environmental goals. As such, ESG is no longer something companies can ignore – whether as part of their approach to managing risk or creating long-term value.
What is the impact of ESG on companies?
“ESG ”has become a key driver behind:
- pivot and evolve business models and assets to build resilience and improve performance around issues such as climate, deforestation, natural capital, human rights – modern slavery and child labor , corruption, fair taxation and transparent and inclusive governance and executive compensation;
- overhauling and redesigning value / supply chains to achieve greater resilience;
- new “green”, “social” and “sustainable” goods, services and businesses;
- new laws and changes in performance standards, obligations, reports;
- evolve “legal compliance” to include holistic governance of ESG risks; and
- developing and using multi-stakeholder sector collaboration to address complex issues across sectors, such as the 2013 Bangladesh Accord Regarding Safety and Labor Standards in the Textile / Garment Industry.
So what does this mean in practice for internal legal teams and their businesses? Resolving ESG issues and risks requires legal teams (including experts in employment), risk, compliance and ethics, environment and social risk (along with others). stakeholders) to develop an approach and framework for integrated and interdependent legal and risk governance in 3 key areas.
- legal and regulatory compliance;
- governance of risks related to social responsibility; and
- alignment with stakeholder expectations and trust
Why – ESG issues are often complex and arise in situations which are driven by the interdependence between the 3 factors above – such as the collapse of a garment factory in Bangladesh with security conditions and non-existent or poor work and the use of women and children. A single and / or primary focus on legal compliance alone may not fully reflect or provide resilient business decisions / positions when the interests of a company’s stakeholders are also considered – particularly over time, in complex business environments, or where the law is absent or contrary. international standards or a fundamental breach of ethics, public trust or stakeholder confidence has occurred. As a result, local legal compliance may not be sufficient holistic governance of legal risk for the business vis-à-vis its stakeholders and their interests in the business. Using an ESG framework, informed by authoritative international standards, industry best practices and stakeholder engagement (shareholders, investors, employees or the wider community), can provide:
- business resilience, agility and growth
- holistic understanding of value – mitigating risks and maximizing opportunities
- the benefits of regulatory and legal risks – especially where national legislation is unclear, developing or contradictory when assessed against authoritative international standards
- reduce operational disruption and costs
- positive interest from stakeholders and management
- increase employee productivity
- attract and retain employees, customers, business partners, suppliers and customers
As the “social” and “governance” aspects of ESG are particularly important in an HR or labor law context, employment specialists are increasingly at the heart of supporting their companies in managing issues. regulatory compliance in a way that also supports and promotes ESG objectives and standards. .
What are the job-specific ESG aspects
A number of key themes emerge in ESG that concern the relationship of the company and the employer with its workforce and its social capital. These include:
- Diversity and Equality – How diverse is your workforce? How fair are your compensation structures?
- Do you have a human rights policy and a due diligence approach – which goes beyond safety and labor standards? Do you have a structured and dynamic risk management approach to addressing modern slavery and child labor issues associated with your business and your entire value chain?
- Are you paying decent wages and / or fair wages? Do you have approaches to dealing with local and / or indigenous communities that comply with international standards?
- Health and wellness – what is your health and safety record? Do you take care of the physical and mental health of your employees?
- Training – are you investing in people and vocational training?
- How do you undertake stakeholder engagement and diligence to identify social and / or governance issues or risks, including with civil society organizations? Under what circumstances do you use NDAs?
We are already seeing a strong focus on these issues, both to comply with current and developing regulatory obligations and to deal with pressures from investors, consumers, the media and other stakeholders. For example, a lack of diversity at the board level, or a bad reputation for how certain behaviors are handled, could discourage investment or funding. Inclusion and diversity – ingrained in a company’s governance structure, have also become a matter of interest to the FCA and are of increasing importance to regulated companies. As stated in the speech by Sheldon Mills, FCA Managing Director, FCA is encouraging companies to improve in this area and is considering how best to use its supervisory powers, such as requiring companies to explain a lack of diversity or their recruitment strategy. .
As such, the HR approach and relevant policies and procedures (especially on discrimination or equality) will help ensure that companies remain attractive to senior managers and employees, to investment and to business. comply with FCA requirements. It is no longer enough just to have the policies in place – companies need to ensure that there is an aligned approach to strengthen ESG leadership and skills, support multidisciplinary engagement (across key functions, including legal, compliance, risk, sustainability and CSR functions) around developing governance structures, incentives, management systems, procedures, reporting and a culture that promotes the integration of issues and ESG value.
As the company continues to engage in I&D and broader social and governance issues, human resource specialists and home-based employment counselors are key contributors to the successful implementation of its strategy ( E) ESG by the company.
- Think about your recruiting practices. Are you recruiting from a wide variety of people? What can you do to increase the diversity of your workforce?
- Take the time to examine potential issues now to resolve them quickly. Consider conducting employee inclusion, diversity and engagement surveys, and identify potential concerns about the employee experience.
- Take an integrated approach with other internal specialists. What are your broader ESG goals as a business and how can you use employment practices to support them? For example, consider the environmental impact of business travel and whether ESG objectives can be linked to ratings or compensation structures.
- Make sure you have adequate systems to ensure the health and safety of your employees. It’s not just about physical health – it’s increasingly important to focus on healthy work practices, work-life balance, and mental well-being.
Review your existing complaints procedures, including complaints procedures and whistleblowing procedures – make sure they comply with applicable legal requirements, including higher standards imposed at industry level, for example in financial services.