As Human Capital Management (HCM) leaders forge their way into the boardroom, we are also seeing ESG (Environmental, Social and Governance) factors increasingly influence organisations in rethinking corporate decision making and risk evaluation. Just like human capital, utilising and understanding ESG in its many forms is crucial for organisations looking to brace the future of work and the rewards it can deliver.
It took industries and governments decades to come up with globally agreed-upon standards for accounting and finance. To reach the same level of maturity for human capital and ESG, do we need to wait out decades? That would be unacceptable. Key stakeholders, mainly employees can no longer afford to waste their time and expertise working for organisations that consider them as a cost rather than their greatest asset.
The ESG talent agenda is now one of the key priorities among global leaders. With the election of Joe Biden as President of the United States and Kamala Harris as Vice President, the first female and bi-racial appointee, ESG analysts are positive that the duo will usher in the newfound value for ESG that will greatly impact human capital. Biden and Harris during their campaign championed diversity, human rights, social justice and corporate responsibility and transparency, all key tenants of human capital and ESG.
There is clear and building evidence that human capital and ESG strategies enable organisations to be more equipped and ready for uncertainties in the future. Further, the evidence is telling us that businesses with proactive ESG talent strategies outperform their peers financially as well. The biggest issues organisations face in the future are how to maximise talent management and to remain agile for market and business changes. While human capital targets talent solutions, ESG takes care of business sustainability.
Some experts believe human capital is a gateway into ESG – this is possible, or perhaps it’s the other way around. There are many reports saying organisations embracing ESG integration outperform their peers financially and culturally. This is similar to what we are seeing among organisations taking HR and human capital to the boardroom table. These organisations invest time, money and resources in key aspects including human capital development, opportunities in cleantech, privacy and data security, workforce diversity and inclusion, and more.
A great example of this is Salesforce.com who received a AAA score or leader status from MSCI (Morgan Stanley Capital International) – ESG ratings for their outstanding human development practices through attracting, developing and retaining top employees. From there, we see a clear synergy between human capital and ESG.
Human capital is mostly connected to ESG through the (S)ocial and the (G)overnance. Social and Governance are of different scope, but they share the same objective in the office – to establish a workplace where both employees and employers are able to find value and provide value in what they do.
Organisations are implementing social and governance elements mostly centred around; diversity, gender equality in the workplace, strong training and apprenticeship programs, responsible data collection, shareholder activism and corporate responsibility. Most items there are also considered human capital metrics for HR.
In addition to these key metrics and concepts, Harvard Law’s 2020 report ‘ESG Matters’ explained that ESG correlates with better profitability and productivity inside the workplace. The report suggests the better the ESG, the higher the profitability of an organisation by creating stronger EVA (economic value added) and lowering volatility. “If employees are productive, revenues will be high. Thus, high ESG companies are associated with firms that create economic value,” the report reads.
Environmental is also connected to human capital with a more focus on employee health, safety and well-being. Natural disasters, for example, the bushfires in Australia and the US showed the vulnerability of organisations to natural events. Chairman and CEO of the Fortune 500 company BlackRock, Larry Fink, said organisations should start recognising ‘climate risk’ as ‘investment risk’ that can impact people and the economy significantly. Of course, the Covid-19 pandemic, one of the biggest health issues across the globe that resulted not only in mortalities but also loss of livelihood and financial security for millions of people all over the globe.
Here at Will, we are in the midst of finding deeper synergy between human capital and ESG that would allow us to better evaluate both concepts. One recent step we took is to implement our Whistleblower Policy to reinforce a culture of open communication, trust and credibility as well as to encourage employees to speak up about illegal, corrupt and dishonest activities that can impact the company.
The global business community and governments are driven to come up with prescriptive and distinct standards on how to utilise, understand and measure human capital and ESG metrics. The dynamic duo of human capital and ESG can and will usher in a better future of work for all stakeholders. Currently, very few organisations track and measure ESG and human capital metrics, yet they espouse to investing and implementing Human Capital ESG focused strategies.
Will International is taking focus, and investing for ourselves, to be able to lead and support our stakeholders to build a thoughtful, informed and sustainable approach to implementing strong metrics for both human capital and ESG. Together we can align to improve and save lives and the environment we depend on.
For our next article, we will discuss ‘HR’s Great Divide’ between HR as a support and service provider and HR as a leader. Follow Will on LinkedIn for more HR insights and updates.
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