Human resources (HR), diversity, equity, and inclusion (DE&I), and ESG are important enablers of an organisation’s capacity for innovation and agility, as well as ensuring a strong and competent workforce.
However, these functions can often be siloed, with different teams working in isolation from one another. Aligning these three areas can help a company create a more positive and productive work environment, leading to improved performance and competitiveness.
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Without a coordinated strategy across HR, DE&I, and ESG functions, firms can face a number of challenges including:
- Attracting and retaining talent: Companies that have suboptimal HR policies and practices, little focus on ESG issues, or a lack of a comprehensive diversity and inclusion strategy may struggle to attract and retain top talent.
- Reputational damage: An organisation that is perceived as failing in these areas may damage its reputation, which can negatively impact its relationships with a wide range of stakeholders including clients, investors, regulators and future employees.
- Legal and regulatory risks: The failure of organisations to comply with laws and regulations related to HR, ESG, and D&I may result in penalties and fines..
- Poor financial performance: Failing in these areas can lead to a lack of employee engagement and productivity, which can negatively impact a company’s financial performance.
- Risk of social and political pressure: Organisations with a reputation for poor performance in these areas may face increased pressure to improve their practices from clients, activists, and other stakeholders.
- Investor ESG standards: ESG and D&I are increasingly important for investors, therefore companies that fail to perform well in these areas may have difficulty raising capital or see a reduction in valuation.
Tips for firms:
To advance in this area, firms can take five steps to avoid these risks.
- Companies should establish clear and connected HR, DEI and ESG policies and practices. Thereafter, these policies and practices should be assessed holistically, and once finalised, communicated effectively to employees, shareholders, clients, suppliers, board members and other stakeholders.
- Firms should track and report their performance in these areas, setting goals and targets, and regularly reporting on progress to stakeholders. Providing training and resources to help employees understand and assist their company to achieve its goals.
- Employee engagement should be encouraged by creating opportunities for staff to provide feedback and suggestions for improving performance in these areas.
- By collaborating with other companies, organisations, and experts, organisations can stay abreast of best practices and stay up-to-date with the latest developments in HR, ESG, and D&I, all critical to continuing to advance in these areas.
- Continuously review and improve performance by setting new goals, implementing new strategies and practices, and learning from past results – all essential to an organisation’s success.
Having strong HR, DEI and ESG policies aren’t just good things to have, they are the right things to have – to propel business success and employee engagement and protect a firm’s brand and reputation.
Ultimately, for firms to be successful in HR, DE&I, and ESG and mitigate risks in these areas, organisations should take an integrated and holistic approach that acknowledges that D&I fits into the wider ESG framework. In doing so, companies can attract better talent, create a better business culture and improve their overall business performance – all important aspects in today’s competitive environment.
This article was originally published to ESG Clarity on March 15, 2023.