What is environmental, social and governance (ESG) and why does it matter?

It is the range of environmental, social and governance factors against which the sustainability credentials of a company may be measured.

Environmental refers to a company’s:

  •  Impact on the natural environment.
  • Carbon footprint.
  • Production of waste.
  • Pollution.

Social refers to how a company manages its:

  •  Relationship with its workforce.
  • Customers.
  • Suppliers.
  • The wider community.

Governance refers to a company’s:

  • Corporate governance record.
  • Leadership.
  • Audits.
  • Internal controls.

What are the main ESG matters for employers and HR?

Equity, diversity and inclusion

Do your policies and practices foster a diverse workforce, ensuring equity in recruitment and progression?

Aim for best practices rather than legal compliance. That will reduce the risk of costly legal claims that damage your reputation. Collect and report diversity data. Consider whether it would be appropriate to set diversity targets but ensure that any such targets are realistic and that managers are accountable for meeting them. Provide regular and targeted training to staff and managers.

Workplace culture

What does your company do to create an open and positive culture?

Draft and implement effective whistleblowing and ‘speak up’ policies to tackle inappropriate behaviour and encourage people to report wrongdoing. Review and update your policies regularly.

Ask staff members how they feel about your company’s culture, its values and its EDI. Identify and act on any areas of concern.

Recruitment, retention and training

What internal policies, procedures and practices ensure you can attract and retain the best talent?

Review your recruitment and promotion practices to ensure that they are fair. Diversify where your company advertises its roles. Review your company’s promotion record to identify groups that appear to be disproportionately disadvantaged.

Health and safety and employee wellbeing

How do you protect your employees’ physical and mental well-being?

Consider developing a well-being programme. Flexible working and family-friendly leave policies are also important in supporting people to blend their personal and work responsibilities.

Pay and pay equity.

How transparent are your pay structure and pay reviews?

Measure pay against industry standards, and use audits to identify and close gaps in pay such as that between genders. Assess whether executive pay is in line with good corporate governance and societal expectations.

Climate-conscious policies:

What policies, benefits and practices does your company have to raise awareness of climate change and encourage sustainable practices?

Provide training on climate change and sustainability. Consider cycle-to-work schemes and e-vehicle schemes with workplace charging points. Review your business travel policies to reduce your company’s carbon footprint.

Human rights and modern slavery:

Carry out due diligence to prevent, identify and resolve any issues in your business or supply chain around human rights or modern slavery. Investors, business partners and employees will not want to be associated with or seen to be benefiting from a company that engages in or turns a blind eye to the exploitation of workers.