HR's role in managing risks, opportunities and expectations on ESG: A primer

Dealing with environmental, social, and governance issues is no longer a nice-to-have option for businesses. It is an urgent need that companies must address. Consider the following: 

• 87% of investment managers say that the focus on ESG issues will increase over the next twelve months. 
• 64% of millennials say they would not take a job if their employer did not have a strong corporate social responsibility policy. 

To compete in the current and future talent market, organisations need a strategy that engages employees, customers, investors and regulators. Increasingly, ESG initiatives are also being monitored by the investor community, where a shift is taking place from shareholder capitalism to stakeholder capitalism, putting more pressure on businesses and leadership to deliver. 

"A lot of focus on ESG is on the board and c-suite, which are under scrutiny from regulators and investors. However, there is also growing interest in pushing the ESG agenda across the entire organisation, which means tackling the issue at a cultural level - and that’s the mandate of HR," said Boon Chong Na, Advisory Partner for Human Capital Solutions at Aon.

Companies must look at wide-ranging risks, including environmental, supply chain, materials and human capital. 

The Asia-Pacific Outlook

In Asia-Pacific, different countries are on different trajectories when it comes to ESG maturity, depending on their regulatory regime and business readiness. While Australia is more aligned with ESG approaches in the West, Singapore and Hong Kong's regulatory regimes are more demanding than in other Asian locations. 

"Regionally, governance issues have been improving since the 1997 Asian Financial Crisis since 2000," said Boon. "That's close to twenty years of work on governance. Although there are still issues around board diversity, independence and so on," he added.

"Environmental issues have been at the forefront of the business agenda for about eight to ten years, but it has picked up in post-pandemic years. The social dimension in ESG is still emerging. The importance of the community, people, gig workers, well-being and mental health, are conversations still animating the workplace." he said.

The human capital dimensions 

Diversity, equity and inclusion are already top-of-the-mind priorities for HR leaders worldwide. In Asia, this has meant a focus on skills and nationalities, apart from gender, age, and disabilities.

"In Singapore, companies are advised to report on metrics, including women in leadership, gender, age and disability depending on the different segments of diversity," Boon said. Gender pay equity has been a big focus area in the West. And now, some companies have started to provide those reporting requirements even in Asia. Companies are also engaging experts to train employees on ESG. To not just the management and senior executives but also middle management and the employees under them.

Increasingly, younger workers are conscientious about ESG goals. This means employers should not just think about ESG from a talent attraction and retention perspective but actively engage in workforce planning. So, if your goal is to have 50:50 female and male leaders in senior leadership positions within five years, what is the progression rate to achieve that?

Changing skills and jobs markets

Not long ago, companies looked at digitalisation when it came to thinking about changing skills and jobs. Now, there's a need to start thinking about weaving ESG into job design and reskilling. And that could mean several different things in different sectors. For example, property development could mean designing green buildings and a green supply chain. 

There's also a need to approach ESG priorities with a sustainability mindset, and it is not just the responsibility of the ESG team.

The future of responsibilities

Just like digitalisation, sustainability calls for cross-functional collaboration. While some companies are assigning Chief Sustainability Officers, others are still looking at leaders with a background in finance, HR and marketing.

Despite current macroeconomic concerns, governance needs to be prioritised. It's only going to get more challenging and may directly impact financial performance. There's recognition that companies can't grow at all costs. Companies will need to balance business performance and stakeholder interests. 

Here are the key questions most HR leaders are grappling with:

- How do you embed ESG into your people strategy?

- How do you deliver a positive impact at scale?

- Of the many focus areas and impact measures, which ones should we tackle in the short and long term?

To receive a free report on the latest Asia Pacific corporate governance and ESG trends, take part in Aon’s ESG Survey.