Creating an institution fit for your ESG aspirations

A culture that provides a voice to your ESG aspirations

“The biggest ESG enabler is company culture … and that is also the most difficult one to change,” says the chief HR officer of a financial services company cited in PwC’s recent global survey on ESG-related pay structures. This is where HR teams probably have the potential to make or break the internal ESG agenda. Wherever the strategy comes from - whether it is the chief executive officer, the chief sustainability officer, or even government mandates - it is HR that must provide the delivery framework for incorporating a culture change.

Building an ESG culture is far from easy. HR professionals should recognise that ESG values ought to form the resilient core - the defining doctrine of their organisation – across multiple generations of employees, driving purpose, engagement, and productivity.

Culture change begins with a company’s authentic identity. Their narrative on ESG cannot be based on borrowed cliches. Each company’s response to the ESG agenda should be unique and embedded in its own context of its ambition, regulations, investors, and stakeholders’ expectations. 

Individual organisations themselves should decide how aspirational they want their ESG outcomes to be and what the right strategy is to achieve these. Is their ambition to be an ESG pioneer in their industry with ESG being the litmus test of what they do and how they do it? Or do they wish to be a pragmatist and let regulations drive their response?

Either way, defining and clearly communicating a convincing long-term plan as well as short-term actions and performance expectations is critical. Companies should set the tone at the top – a ‘drumbeat’ to build excitement and communicate the urgency. They can do this by leveraging formal and informal channels of communication – by building communities of interest, facilitating informal networks, and via peer-to-peer interactions on the ESG agenda.

Baker Hughes’ path to decarbonisation, ‘Carbon Out’, a company-wide initiative that was conceptualised in 2021, and PwC’s ‘Acting on Carbon’ program, are both good examples of culture defining programs that include big-bets towards a net zero future, but also connect with employees at a very personal level. These initiatives do this by offering environmental volunteering opportunities and by reducing their own carbon impact by minimising business travel, and other avenues.

To successfully transition to an ESG-centric culture, it’s essential that a few crucial behaviours are ingrained throughout the organisation. This includes adopting characteristics of ‘long term orientation’, a ‘collaborative mindset’ within the company and, externally, a sense of ‘personal ownership’ of actions, as well as ‘agility’ with respect to responding to the evolving priorities. Identifying the behaviours that ring true to an organisation’s transformation and embedding them in leadership attributes, people practices, performance metrics and employee motivators is key.

As an example, Salesforce has endorsed ‘sustainability’ as a core company value, joining its values of trust, customer success, innovation, and equality. This has helped employees appreciate that sustainability is ‘part of everyone’s job’ and incorporates it into the company’s vision, methods, and measures. This change was accompanied by extensive awareness campaigns on how this impacts not only Salesforce services (e.g. Net Zero Cloud 2.0) but also leadership conduct, employee behaviours and decision making.

A company’s corporate culture can be the catalyst for sustainability in their employees’ lives and their communities. As a business, empowering people to make personal commitments to reduce their carbon impact, such as taking public transport or reducing food waste, is important. These are also integral steps towards enabling a company to achieve its ESG goals. Showing support by offering IT gadget recycling programs or providing reusable water bottles are examples of small gestures that will go a long way to foster sustainable practices in day-to-day operations.

Institutional coherence – a ‘fit-for-ESG’ operating model

Companies on their ESG journey will be required to fundamentally rethink their unique value proposition, product and services portfolio, operational footprint, supply chain and partners’ network. This requires discussion on changes to their ‘ways of working’, or in other words, to their operating model itself.

The HR function has a dual role to play in developing a ‘fit-for-ESG’ operating model. HR should be the seasoned organisational architect and change catalyst - a capable thought partner to the chief Executive Officer, chief Operating Officer, or the chief Sustainability Officer.

Firstly, HR should clearly define the governance for a company’s ESG strategic roadmap and ensure that ESG is the standing agenda item at executive committees and leadership meetings. HR can also set up collaborative cross-functional steering groups to review and evaluate ESG performance and programs.

Secondly, it is crucial that HR conducts a comprehensive impact assessment of the ESG strategy on the roles and remits across the organisation.

As the company defines its net zero goals and refreshes its product and services portfolio, and business operations, HR should consider corresponding changes to the organisational architecture. This should map out clear responsibility for how the company plans, innovates, funds, produces, assesses, reports, and communicates any resulting new products and services.

Reinventing the organisational architecture from ESG lens can be particularly challenging because it needs to be developed in consideration with the wider ecosystem. It is likely that the bulk of the carbon footprint is in the supply chain, not within the boundaries of the company itself, and changes to the operations of the company alone may not yield the desired results.

As the HR function goes back to the drawing board to define the new organisational architecture to transition to a more circular business model, companies should think about making a successful ecosystem play. A ‘fit-for-ESG’ business model is the one that will lead to closer, interdependent relationships with suppliers and customers, and forges capability alliances to develop an effective circular ecosystem.

Looking within - building HR's ESG capability   

The ESG agenda for corporates should align economic gains to societal progress; it ought to demand that corporations look beyond traditional financial measures to establish their value and aim to direct focus firmly back into the social, economic and environmental ecosystem.

1. Drive a HR green skills transition - change begins at home, and this could not be truer for the HR function. Build your own capability – educate yourself on ESG agenda and create expertise on ESG driven transformation and policy change. While the HR function is responsible for the green skills transition, it is equally important that HR invests in acquiring green skills itself to be a credible ESG business partner.
   
2. Be a steward of the green agenda – whether HR views itself as a strategic partner or an employee champion, it needs to add another dimension to its traditional role – stewardship of the green agenda. HR’s functional plan should include clear initiatives on green strategy, culture, and capability. Create accountability within the HR function, be an integral and valuable member to the sustainability agenda, create employee engagement and drive execution.
   
3. Adopt a collaborative mindset and an outward focus - look beyond the boundaries of your organisation. Collaborate with your competitors. Forge industry relationships and alliances for coordinated efforts on green upskilling and people practices. Serve as a valuable partner to policy makers so that the transition to a green future is just and inclusive for employees in the region.
   

The green transition requires innovation. Not just innovative products and services, or an agile supply chain, but innovation in ways of working and engaging with a broader ecosystem of partners, suppliers, and academia. HR functions with an innovation mindset, open to reimagining what they do and how they do it will create winners of their organisations in their ESG ambitions.