Latest in Employment Law>Articles>Why HR are Key to Environmental, Social, and Governance (ESG) Success
Why HR are Key to Environmental, Social, and Governance (ESG) Success
Published on: 17/02/2023
Article Authors The main content of this article was provided by the following authors.
Seamus McGranaghan
Seamus McGranaghan

Christine:  So, Seamus, do you want to tell us what exactly ESG is?

Seamus:  Yeah. So I suppose that the first point is ESG and the mind boggles as to what we're referring to, but it is something that has been around for a long time, and it has been around for a long time in different guises, I suppose.

But essentially, what we're looking at is it's the broad range of environmental, social, and governance criteria in which organisations will run themselves and how they run themselves responsibly. And that's where the focus has come on.

It generates really going back to sort of investors and what investors were looking for in organisations when they were coming to invest monies in them. And these three aspects of the environmental, social, and governance gave really strong pointers for investors, if their investment was going to be good, whether the organisation was going to be sustainable, whether it was going to continue to be profitable, or whether there were serious cracks in the foundations that could result in the company going bad, if I put it that way. That's where ESG is generated from.

But it has very much moved on now into . . . I think what we can clearly say after coming out of the pandemic is that there's a very real expectation from across the board relating to whether it is your customer base, your client base, your staff, whether you're going for funding through banks, through investment rounds, whatever it is. These are the clear indicators that all of those different avenues will look to assess your organisation.

We'll get into it further, I suppose, in relation to the social aspect and the various HR processes. But really, what you're looking at . . . I mean, I think that if any of the listeners are familiar with the likes of investors and people, ISO, those sort of benchmarks in relation to the operation of organisations, they'll be familiar with the requirements in order to get those benchmarks.

ISO changes, I think, every year. There's a new version of the accreditation. And we do something similar in our office. We have ISO and we have . . . Lexcel is the branded benchmark for law firms, which is operated, and it's promoted through the Law Society.

And it may well be that if we in my office are tendering for work or if we're invited to partake in the possibility of obtaining new work, some of the aspects of those tender processes may well say that you have to have some of those benchmarks before you'll even be considered as a candidate for that type of new work.

So if you're doing banking work, if you're doing any kind of investment work . . . If you're doing insurance work, the insurance companies will require an automatic standard of how your business operates. And this all really feeds in and around this idea of ESG.

And it's the movement of your organisation. Whether you're brand new to it or whether it's something that you have been working on . . . And if we take Legal-Island as an example, Legal-Island is an excellent example of ESG, I think. But whether you're new or whether you're old to it, it is continually developing and it is the way that things are moving forward.

So if I maybe try to bring this bang up to date, as any business or any organisation is looking to attract customers and clients, if you're looking to attract staff, it's very important for customers and clients now to say, "Well, I would like my business to work with this organisation", or, "I'd like to bring my business to this organisation because I know that they are a responsible organisation. They treat their staff well. They have policies and procedures, and clear. They're well governed. They have a board of directors. And I really like their board of directors' makeup, the compilation of it. Looking at the diversity side, the inclusion side, all of that sort of stuff".

So it's clear now that there's a benchmark and there's an expectation, and it's been reinforced and almost generated and pushed on. And sometimes I'm not sure who's the pulling force and who's the following force, whether it's the law or whether it is society.

But if we think about all of the new legislation that we have, we have all of the equality legislation that is in place, the family-friendly legislation, right up to very recently the introduction of the bereavement leave here in Northern Ireland as well, the Bribery Act in 2010, the gender pay gap information of 2017. I know we are not there yet in relation to it, but it's on the way and it is there in the Republic of Ireland. The Modern Slavery Act of 2015.

All of the legislation is pushing organisations in a direction to be more . . . Environmentally, socially, and good governance are the three main threads that all that leads into.

And ultimately, you have a number of these companies that provide professional services, a lot of the big accountancy firms that provide professional services. And what they will tell you is that if your organisation has a strong mandate, is strong in relation to ESG, you will have an organisation that is sustainable, is profitable, and will be able to recruit and retain its talent within its organisations.

It's really important around ESG to think about things like your organisation's reputation. We all thrive in the brand that we work for and that we have at times developed through.

The productivity element, the happy staff, happy workforce, a lot of that feeds in. We think about all the strike action at the minute and how prevalent all of that is, and how it's so focussed on media, and that a lot of those employers are getting really bad damaged reputations because they have staff complaining about their terms and conditions.

Value as well is a really important one. If you are strong in your ESG, that you're bringing value to your product or to your business or to your organisation, whatever it is. And then it's also defining the legal compliance with it.

So, at times, it really does come across that this is some sort of great buzzword for the likes of huge companies like Apple and big banking corporations to follow into. But in actual fact, when you break it down, all organisations, small, medium, large, are all doing some form of this, and that is the movement. It's the movement of the traffic.

And ultimately, what the ESG will do, it's a wraparound approach and it's a joined-up approach within your organisation. And if you are presenting your organisation as being a good organisation or a good place to work as we know it, these are the things that will push you in the right direction.

Christine:  Yeah, and I think it's really important to bear in mind that you don't have to be Google to be doing this. And I think HR are doing the social aspects already without knowing that they're doing something trendy. They're just doing their day job.

I mean, Legal-Island has less than 30 employees. So anyone would describe us as a small business, but really it comes down from the top in Legal-Island. And I think that's really important to walk the walk and not just have the pretty sign up saying that you want to do it.

So our CEO, Barry, our MD, Jayne, they are very open about their lives. They have small children who get sick and who they need to rush off and collect from school. All of that stuff is very openly talked about.

So then I know, as an employee, it's definitely not a problem that I have children and may need to pop off to get one of them when they're sick or whatever. So it comes from the top.

And I think it's also very much like looking . . . You've got to look at your demographic. So who are your employees? There's no point in kind of starting a marathon team for your company if everybody is working mums, or in their 60s, or not into sport, or whatever. Not to say people in their 60s can't do marathons, of course. I don't want to discriminate.

But I suppose Legal-Island looks at who they employ. So we have a health champions group that does small things that don't cost money. World Mental Health Day, we all got a lovely message to say specifically about why we were valued in the company, which was really lovely. It's just an email. It doesn't cost anything. We've had outside companies coming in to do health checks once a year. Again, that doesn't cost a lot.

And then just looking at the demographic of Legal-Island, you can take from this what you will, but we've got a menopause support group called COCO, Cardigans On, Cardigans Off, and they meet once every couple of months. And it's just really a support and chat group. None of those things cost a lot of money.

It's not about, as you say, being Google and having loads of bells and whistles around it. You can do small things. And I can tell you, as an employee benefitting from that, it does really help. There are some great initiatives that don't cost any money.

Seamus:  Yeah, absolutely. And I suppose just as a bit of a breakdown there, on the environmental side of things, it is what it says on the tin, but it's not just about climate change and climate activism.

Most organisations, as a result of the pandemic, have really had to push on through the various different ways that we work. If you've gone paper light in your office, and that is your policy and that is your mission, you're reducing your amount of paper that you're using.

If your employees are working from home part of the week or full-time, or whether it's hybrid, there's a saving there in relation to travel. It's a reduction in respect of cars, use of fuel.

There are all those different aspects that organisations are already doing, and it isn't difficult for them to promote that and to let other people know that they're doing it.

Lots of other things have happened. I mean, some organisations have got rid of all of their cardboard disposable utensils, their drinking cups, their cutlery, and replaced them with glass, sustainable items that are better for the environment.

Those sorts of things are really small things, and you might think, "Oh, we wouldn't be wanting to tell anybody about that". But that's an important part of the environmental side when it comes to ESG. It's about your footprint and the amendments that you've made within your organisation around the environment.

The social side of it is really important when it comes to HR. HR put the S, as you say, in ESG. But HR will no doubt have a fundamental role. And again, it's threading the needle through the three principles of it that they will have the role in relation to it.

But the social stuff is looking at . . . it's the diversity, the equity, the inclusion, the DEI aspects, pay transparency, whistleblowing, employee engagement, workers' activism, if that's going to happen in the workplace, health and safety issues, what the HR policies and procedures are, issues around remote working.

And then really importantly, which is the one that seems to have developed a lot recently, is the mental health and wellbeing aspect of it. And again, Legal-Island is ahead of the game on that.

And then when we look at the governance side of it, we're really looking at how is the organisation managed and what are the policies and procedures that are in place? How are decisions made? And if they're made by boards or they're made by directors, how are those made up? Is there diversity on them? Are there women included within them? What is the percentage of it?

And a lot of the larger organisations now have put thresholds in place to say that a certain percentage of the board has to be women, and the age groups, and people with disabilities. Trying to make everything as inclusive as possible, so that from top down, your board is providing and making representations on behalf of your entire workforce.

And those aspects are really important to us as society, but really want to sort of, I suppose, drill down and look at the HR aspect and why that's important for HR, and particularly in and around when it comes to the workforce.

Christine:  Yeah. Again, I suppose it's coming back down to it's not just for the big companies. Northern Ireland is a small country. Everybody knows everybody. You can guarantee you'll bump into somebody who knows your cousin at some point. It is a small place.

So it's not just about Google being embarrassed by a failing on their part. People will kind of learn about your failings, so it's about maintaining your reputation and avoiding reputational damage.

There was a great example on International Women's Day last year. There was a bot on Twitter that every time a big company published kind of a shiny picture about International Women's Day and how supportive they are of women, it published their gender pay gap results, which resulted in a lot of posts being taken down very quickly.

Now, obviously, that's a fairly extreme example. But if you get a reputation for not looking after your employees, or not really caring about diversity on your boards, or environmental problems don't bother you, that gets out. And in a small country, it does matter, doesn't it? And it will affect your recruitment and retention.

Seamus:  Absolutely. I mean, local examples of that really are . . . With the Equality Commission, if they bring legal proceedings in relation to equality issues within the workplace or goods or services that are provided, they promote that. If they are successful, if the case resolves settlement-wise, or alternatively, if there's a judgement provided by a tribunal or a hearing, they will promote that. And there will be media often.

We heard just during the week there in relation to there was a family with a young child and a disability issue that the Equality Commission had assisted. The purpose of the Equality Commission is to promote and to safeguard legislation essentially. But that will no doubt have a reputational impact upon some of the organisations where there has been failings and where that has been highlighted.

But it also affords an opportunity for those organisations to do things better, to learn from their mistakes, and to . . . One of the key things organisations like the Law Centre here and the Equality Commission will do is they will offer to assist those organisations with their policies and procedures after the event.

So reputation is a big aspect of it. And whenever we're looking at the HR involvement, we are coming back to . . . I think the key aspects are probably the equality, diversity, and inclusion aspect for human resources. Often they're dealing with it at the coalface and the issues that arise of trying to navigate around those really difficult issues.

But again, if you have a good policy and procedure, if everyone is clear about what the culture and what the expectations are in the workplace, that makes the job so much easier if it has been communicated.

Definitely the big one is recruitment, retention, and training. We've had the great resignation and employers are more focussed on "What are the desires of their employees? How can they retain? How can they attract?"

And again, if you have really good social policies and procedures within your organisation, and you make it a good place to work, you will attract the right people that want to work there.

Health and wellbeing, really important. Making sure that there are good working practices.

What I hear a lot about is employees in organisations that they don't feel are run properly, where people have said to me, "I've left that organisation", or, "I felt that I couldn't stay any longer because there were just so many issues going on that weren't under control".

Whether they were financial issues, whether they were health and safety issues, people have said to me, "Look, I just couldn't be responsible any longer in the role because there were no good working practices in place and I couldn't change it, because from the top up, they didn't want to change".

And often, they've got these great policies and procedures in place, but there's no demonstration of how those policies and procedures are actually put into effect in the workplace.

Pay is another one that's really important for people. And the transparency around pay is something that has become really important.

In my day, I remember whenever I started as an apprentice solicitor, everybody knew what apprentices earned because we all earned the same money. It was just a figure that the Law Society, I think, ultimately told. But once you qualified, you didn't tell anybody how much you were earning because it was the fear that you were earning too much or too little. People kept that really safe.

And now, even if you look at a lot of the public sector jobs, they're all banded. Everybody knows what they . . . in and around what the figure might be in terms of salary and stuff like that as well.

And the question is, "Is there anything wrong with that?" Does it make it more open or transparent? Will it make people feel more comfortable in the sense that they're maybe sitting beside somebody else in their workplace . . . or maybe not so much as sitting beside them anymore, but they're doing the same job, but they're getting paid differently or they're getting paid less?

That breeds the aspect of, "I don't want to be here anymore. I'm going to move out and move on". So it really is a key aspect.

I think, for me, the other side of it is this accountability aspect. It's not just good enough to have up on your website what your corporate responsibility position is. I think your customers, your clients, your staff that you're trying to recruit, people will dig deeper.

There's so much available information on the internet. And if you're holding yourself out on your website through your mission statement to say that you are a good place to work, yet if somebody goes on to one of the . . . Is it Glass Hour or Glass . . .

Christine:  Glassdoor?

Seamus:  Glassdoor. That's it there. You can find out that they're not a great employer, and that in actual fact, they're a bad employer, they pay badly, and they discriminate, they don't allow people to have flexibility in their roles. You're not going to attract the talent.

So I thought out the accountability point. As you say, you have to walk the walk and talk the talk. You can't just have the sign up.

And when you think about all of the different movements that have happened recently, #MeToo, Black Lives Matters, now all of the striking action, these are important issues for people. They're not going to go and work for someone . . . If they go and work for an organisation that they don't feel is supportive of their beliefs, they'll either leave or they'll just not be motivated to do any work. They'll become a bad employee.

So I think across the board, whether you're looking from a regulatory function, from investment and banking, from your employees, and even just from a societal position, we're all paying closer attention to what an organisation's ESG is.

And we might never have called it that before, we might not have known that that's what it is, but we're all doing it across all the platforms that we can do it on.

Christine:  Yeah. And I think younger employees, the millennials and the Gen Zers that are coming behind them, it is so important for them. They do not see it as strange to ask their employer about wellbeing policies, or to expect mental health support, or to almost outline their political views on veganism or whatever it may be. They want their whole personality in work and it to be respected. So if we think ESG is big now, it's only going to get bigger, isn't it?

Seamus:  Yeah, absolutely. When I was having a look just to see what sort of resources I could look at, I did see that Deloitte Legal . . . This was available on the internet, so I hope I'm not saying anything wrong here.

But there was sort of a presentation that had been done. And it was really interesting to me that some of the stuff that they were talking about in this was about pay and working practices, about reward at work and executive reward, and how that is managed and how they look forward with it all.

But some of the other stuff that they had in was environmentally-friendly terms and engagement, these sorts of things, where they talk about paid leave, sustainable travel, garden leave, return of property, all the stuff in HR and employment law that we know and are familiar, but we've never really thought about it in that capacity, in that way.

But yet there's no doubt the younger folk that are coming through are thinking of them in that way, and they are the new generation. And when you talk about sustainability of your business, that's where you have to be looking at in terms of legacy and your ability to continue on.

One of the other ones was on workforce engagement. And then specifically they had posed a question, which I thought was really interesting. They said, "Is belief in climate change a philosophical belief?" And I thought, "All right, here we go". That could be the . . . We've moved on from the recent case there in relation to the leather goods and the employee and the organisation.

This is another potential one. I'm just flagging it up there. They've done a slide now. It's done under the Equality Act, but it's really interesting.

And they say, "Why should this issue be on your HR agenda?" And they say that managing climate change is a protected belief. Managing conflicting views and opinions on climate change in the workplace. And that really is important because everybody doesn't agree. And attracting and retaining future workforce.

So you can see where you have someone like Deloitte that is giving those sorts of professional management services, exactly whether they're looking at for how things are going to go in the future when we come to ESG.

Christine:  And what would be your kind of . . . How would you sum it up, Seamus? What would be your takeaways?

Seamus:  I think that the key is not to panic about it. I think that all organisations will be doing ESG in some shape and form. It maybe is that you just have to pull it together and look at it from a policy and procedure point of view.

I think it's really key that you can't just focus on one aspect of it. You can't just think about the governance. It has to be intertwined. It has to be a holistic approach with it all.

That aspect of accountability, you're not going to be able to kid people. If you're holding yourself out as being this great organisation, have it up on your website, and you have a few photographs even on Twitter of doing a litter pick at the beach or something like that, people are going to delve into this. They're going to ask questions. The information that they want about your organisation is going to be available not necessarily on the internet, but back to even good old word-of-mouth in relation to it.

I think in terms of sustainability of your business, I think we're all still having problems in relation to recruitment and retention of staff. These are the issues that are important, and particularly trying to bring through the younger folk, whether it's just people coming out of school or people coming out of university. These are really important interests, as you said, to them, and that has to be part of the mission statement of the organisation.

I think just from a regulatory approach, and particularly even in sort of commercial transactions that I've worked in recently, you can see more of the due diligence process is now focussed on these types of matters. So if somebody's buying a business, they want to know how the business has catered for those matters.

I was doing a lease for a client last week and the landlord's covenants in the lease for the tenant were that the tenant will operate the premises in an environmentally friendly way.

Christine:  Unusual.

Seamus:  Society is moving in that direction, and I think they absolutely have to get on board with it. You will be doing a lot of it anyway, but it's about just compiling and pushing that together.

And anybody that is working with investors or people, ISO, they'll be familiar with this as it is. But I think that definitely for an assessment of an organisation, ESG is the way that people will view the company or the organisation as to whether it's healthy or not. And that applies whether you're in the public sector, the private sector, or third sector.

Christine:  Yeah. Brilliant. Thanks very much, Seamus.

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Disclaimer The information in this article is provided as part of Legal Island's Employment Law Hub. We regret we are not able to respond to requests for specific legal or HR queries and recommend that professional advice is obtained before relying on information supplied anywhere within this article. This article is correct at 17/02/2023