ESG is a term used to describe a collection of considerations and issues that fall within 3 main themes: ‘Environment, Social and Governance’. It was originally coined as a set of metrics to quantifiably assess ethical investment practices but has since expanded in scope to form a useful basis from which to frame the narrative around ethical considerations in corporate decision-making more generally. In recognition of this wider definition, many commentators now place a new pillar of sustainability at the start of the ESG acronym. The wider topic of sustainability & ESG is an attempt to encourage a broader discussion on these issues while acknowledging the economic context of businesses and the need to maintain long-term profitability.
This series of articles will cover ESG from a UK employment law perspective, with the theme of sustainability built into our analysis of all three ESG pillars. Sustainability runs across all areas of ESG, which in our view is reflective of the sustainability & ESG narrative generally.
Why is ESG important?
Since its conception in 2006, ESG has become a major talking point for boardrooms around the world. It is now widely recognised that the effective implementation of ESG considerations can help build trust across a company’s stakeholder group, provide access to additional capital and help mitigate potentially significant reputational risk. Accordingly, ESG fluency has become an important skill to help better navigate the increasingly relevant world of responsible business.
In a HR / employment law context, there is a tendency to focus on the ‘S’ pillar given its direct application to people. While the social aspects of ESG are undoubtedly important, there is a risk that they overshadow equally relevant environmental and governance considerations. Through this series of articles we will demystify some of the confusion around ESG generally and provide an insight into the instrumental role that HR professionals have to play across the agenda.
What do we really mean when we say ESG?
E for Environment deals with environmental risks, national resource management and climate change. Historically, the key commercial driver for managing environmental considerations was reputational. Whilst this is still an important factor in today’s environmentally conscious society, the E pillar is becoming increasingly relevant as a core commercial consideration due to legislative developments and a heightened risk profile around climate change.
In this series we will explore several hot topics that sit under the E pillar which will be of interest to HR professionals looking to upskill themselves in this space. In particular we will discuss the concepts of greenwashing, environmental whistleblowing, climate-conscious pension schemes, discrimination on the basis of environmental belief and the introduction of ‘green clauses’.
Greenwashing is the strategy of artificially inflating a business’ green credentials in a manner designed to mislead stakeholders. The dissemination of false information and solutions in this way can be extremely damaging to the public perception of other more environmentally positive approaches.
Environmental whistleblowing relates to workers or employees who raise concerns about wrongdoing, risk or malpractice that poses a threat to the environment. Whistleblowers have a key role to play in preventing environmental damage.
Green clauses have been recognised as a useful means of building green considerations into a corporate framework. For example, in the context of a landlord / tenant relationship green clauses can be implemented to regulate greenhouse gas emissions from a specific property – M&S for example has used this to great effect across its entire retail portfolio. From an HR perspective, green clauses can also be drafted into employment contracts to help reinforce a company’s ESG requirements across the workforce.
S for Social is the social criteria used to evaluate a company’s relationship with its social environment – which will include its employees, local communities and the public in general. This Be Aware Article series will focus on social issues like employment, health and safety, and DEI (diversity, equality and inclusion). A considered corporate strategy that encompasses these different elements can help a company to position itself as an employer of choice, and ultimately develop a more productive working environment as a result. Employee benefits and wellbeing sit firmly under the social pillar and are areas where HR professionals can add real value to the wider ESG agenda.
G for Governance covers corporate policies, stakeholder rights and responsibilities, as well as how a company is managed and its performance metrics. This includes both board-level decision making and how ESG strategies are disseminated across an entire organisation.
In our governance article we have also sought to provide an overview of recent and upcoming legislative developments in the ESG space which all companies will need to be aware of.
Want to know more? Click here to take a look at our article focusing on the ‘Environment’, here for our article on ‘Social’ considerations, and here for our article providing an analysis of the ‘Governance’ pillar, all from an employment law/HR perspective.
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