HR & Sustainability – Shaping the ‘S’ of ESG

Intro  

Our newsletter is focused on company building for the future, and one area where we can effect immense change is HR and ESG.  

 When we consider ESG, we often concentrate on the E – Environment, and the G – Governance, and yet particularly in HR, the S – Social, is the space where we can have the most impact. And provide the most value.  

 We want to take a look at the social aspect of ESG, identify the key focus areas of sustainability in HR, and provide insight into how companies can leverage this knowledge to make impactful decisions for the future. 

What is ESG and why is Social important for HR?

ESG topics deal with some of the most challenging, complex, and daunting issues facing humanity. They are globally systemic in nature, and can only be addressed when the private sector joins forces with governments, non-profit entities, and other stakeholders. And they require something that humankind has generally not managed well in the past – speed.  

A lot of attention is (naturally) paid to climate change, resource scarcity, and the loss of biodiversity, with the “S” in ESG receiving less systemic attention but this is changing. 

Social Elements of ESG

 “Social” comprises a range of different topics that partially lack hard scientific backing and are therefore subjected to a greater degree of local, cultural, and ideological interpretation. These topics include, for instance, Employee Engagement & Skill Development, Supply Chain (incl. Bribery, Corruption & Modern Slavery) and Health and safety, Diversity, Equity, and Inclusion, Business Culture, Data Protection, Working Conditions (e.g., hybrid working, well-being, family-friendly workplaces) but also Executive Pay and Reward. Regulatory efforts have begun to change the dynamic debates, by forcing stakeholders to go beyond specifics and adopt a systemic view. Add the rising inequality to the mix and “social” takes on a different importance. 

HR is fundamental in shaping the “S” of ESG – both within organisations and in the larger stakeholder context. While there are increasing HR Compliance risks to be managed due to increasing regulation (e.g., Act on Corporate Due Diligence Obligations for the Prevention of Human Rights Violations in Supply Chains in Germany or CSRD), there is a huge opportunity for HR to create value. 

Key HR sustainability focus areas

 The most pressing (and interconnected) mega-trends facing humanity are climate change, changing demographics, and rising inequality. These mega-trends, alongside the continued effect of the COVID-19 pandemic, fundamentally affect the way organisations must organise work, how they employ people, how they think about and develop skills, and how they want to position themselves in a larger, systemic context.

These mega-trends, therefore, shape the key focus areas for HR of the future. We have identified four key focus areas:

1.     The Systemic Design of Work

2.     Diversity, Equity, and Inclusion

3.     Sustainability Culture Development

4.     Social Impact

 In this newsletter, we’ll take a close look at the first key focus area, but we have to keep in mind that these topics cannot be considered in isolation. These topics are closely interlocked and affect a multitude of stakeholders. HR is ideally placed to address, measure, and assess the social impact of the company on these issues.

Systemic Design of Work

Engaging your workforce, ensuring health, safety & well-being

 As a society, we are reconsidering the nature and value of work. This change was partly caused by the COVID-19 pandemic, but also by the growing realisation that the premise of maximising profit and consumption leads to unsustainable scenarios for humanity. Health, safety & well-being are topics that are not just mentioned in passing but are being heavily regulated by a number of different regions and countries.   

 While the pandemic was the catalyst, remote or hybrid working is here to stay. The realisation during the pandemic that global companies can be run “remotely” quite effectively, has generated an unforeseen demand for flexibility, a trend that has been around for some time as agile ways of working and portfolio careers.

 In addition, managing (future) skill sets is becoming increasingly complex. Not only is there a large demand for specialised skills, but the availability of some skill profiles is also sinking dramatically. Additionally, with the development of increasingly capable AI software and robotics, no one quite knows which of the existing skills will be needed in the next years and which human skills are going to be needed in the future. One thing that seems to be clear for now is that the diversity of human perspectives and the resulting creativity and innovativeness will be needed for the foreseeable future. This need, however, can only be met systemically and requires HR and company leaders to rethink the entire question of skill definition, development, retention, and acquisition. But more of that in one of our next newsletters on Diversity, Equity, and Inclusion.

Finally, in the coming years, HR will increasingly be at the forefront of defining and negotiating human-machine relations, i.e., the interaction with robots, AI, and work in the Metaverse. Machines are to some degree already an integral part of the workforce, even though this is hardly acknowledged yet. How we interact with them and which decisions we let them make is one of the tough questions companies and society need to answer.

Hygiene

‘Hygiene topics’ are those that must be done, regardless if they are noticed by anyone actively. If they are not done, the organisation gets into trouble. For HR work, this means making sure that the salaries are paid on time, but also that HR is compliant with regulatory rules, and that the company invests in organisational development and learning.

 Regulatory requirements on human rights, working conditions, and engagement with the workforce have become more stringent, with more to come. These requirements don’t just affect large corporations, but even organisations with more than 250 employees (CSRD). Companies must actively and swiftly address potential issues to avoid reputational damage. That said, the requirements for health and well-being, for example, vary widely globally. While in the “Western” world, we increasingly see discussions around mental health issues in connection with work, other regions battle with human rights issues, violence caused by unconscious bias, and other forms of danger to body and soul. Companies must pay attention to all those issues and take them seriously. They also need to take a systemic look – and potentially safeguard – not just the immediate work environment but potentially also influence the environment their employees live in. And, given stricter regulations and public pressure, they must pay attention to how their partners treat these issues as well.

 Many organisations are currently struggling to find the balance between remote and office work, not least because we still don’t have conclusive data on the economic effects. Instead, work design becomes a much more complex issue, when we consider the social consequences of work, and its impact on well-being and mental health, as well as the differences between different types of work and individual differences.

It’s not enough to provide a high-level recommendation. We must look at these issues with a wide scope in mind to address them in a user- or employee-centric way, taking into consideration career path definitions and promotions to include portfolio careers, and the definition of work where physical presence is and isn’t required.

 A significant issue is the digitalisation of HR departments, focusing not just on the IT side but also on the skill sets to use the data that HR collects as a value driver. Reporting demands and forecasting need both these aspects covered.

Additionally, HR departments need to engage with different stakeholders outside their immediate realm in solution-oriented conversations around AI governance, ethics involved in human-machine relationships and, generally, the inclusion of machines in the workforce. Shaping this part of digitalisation is a necessary strategic effort HR needs to make.

Opportunity: Professionalised Workforce Relationship Management (WRM)

It’s becoming more unusual for a person to work for one employer for an extended period, or even for one employer for their entire professional life. Highly-skilled workers no longer always seek full-time employment, but as the borders between employees and freelancers erode, they still want to be treated equally.

Organisations need to think about the work they need, and the people who do the job—and how they manage and interact with them. This includes managing interactions with potentials globally and systematically, both while people are on board and when they are off-board.

There are many opportunities for organisations to be more attractive to the skilled workforce they need, including professional digital workforce planning, skills forecasting and development, engagement via a WRM platform (automated and AI-driven), and smart systemic design of regulatory requirements. Additionally, the user-friendly quality of processes and the quality of interactions at interfaces, both within a company and at the fringes, is decisive for retaining talent at different stages. Wasting one’s time with inefficient and cumbersome touchpoints is not tolerated anymore.

An organisation that is more attractive to skilled workers might not always be seen as an employer for life, but as a decent place to work for a while and at different stages of one’s professional life. And this is all companies can expect. They can benefit from this model if they do their homework.

The Metamorphosis Newsletter will dive deeper into these topics and discuss how you can approach the challenges you face, and help you find solutions that suit your organisation.  

The Metamorphosis Newsletter is written by Dr Theresa Semler, Managing Partner and Executive Coach, Semler Company. Theresa and her team support businesses on their transformation journey. 

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