How HR Can Lead ESG Value Creation for Business Growth

Environmental, Social, and Governance (ESG) initiatives are no longer optional for businesses, they’re a must. Today, almost all S&P 500 companies (99%) share their ESG progress, showing how critical these factors are for success. Business leaders know ESG value boosts financial performance, with 79% seeing it as a key driver. Yet less than half have a clear ESG strategy. This gap often leads to greenwashing, false claims about ESG efforts, risking reputation damage, penalties, and disengagement from employees and investors. For years, HR has taken a backseat in ESG value creation, but that’s changing. This article explores how HR can turn ESG goals into real business value through practices, policies, and people, moving from passive participation to transformative impact.

What Is ESG Value Creation?

ESG value creation means aligning a business’s strategies with sustainability to deliver benefits in environmental, social, and governance areas. For HR, it’s about weaving ESG into the workforce agenda to drive business success. This includes:

• Reducing Risk: Following labor laws, ethical hiring, and sustainable workplace practices.
• Enhancing Reputation: Building a business image as a responsible employer.
• Strengthening Relationships: Boosting trust with employees, customers, and investors.
• Driving Performance: Improving wellbeing, diversity, and efficiency.

Unlike ESG participation, which focuses on compliance and reporting, ESG value creation is proactive. It embeds ESG into HR’s core, talent management, employee engagement, and policies, creating measurable impact. For example, participation might mean filing an ESG report, while value creation aligns HR strategies with business goals to attract talent and cut costs.

The ESG Value Creation Model for HR

To shift from participation to value, HR needs a clear plan. The ESG value creation framework offers a roadmap with four levers: risk, reputation, relationships, and returns. It starts with an ESG value statement, a guide for HR’s role in HR ESG strategy.

1. The ESG Value Statement

This statement has three parts:

• Why: Why HR commits to ESG.
• What: Focus areas like diversity or wellbeing.
• How: Steps to achieve outcomes.

Example:

• Why: “HR is committed to driving sustainable, inclusive, and ethical workforce practices that create a fair, thriving business environment.”
• What: “Through responsible talent management, diversity, employee wellbeing, and ethical governance, we ensure a resilient, purpose-driven organization.”
• How: “Our HR strategies foster trust, mitigate risks, enhance reputation, and create long-term value.”

This statement aligns HR with the business’s HR ESG strategy, setting the stage for action.

2. Four Levers of Value

Unlocking ESG value in business hinges on four key areas where HR plays a pivotal role.

• Risk: ESG non-compliance, especially on the social side (e.g., labor practices), poses risks. HR can reduce these by ensuring ethical hiring and sustainable workplaces. For instance, avoiding labor law violations prevents fines and scandals.
• Reputation: Greenwashing hurts credibility. HR can build a strong ESG value by embedding sustainability into policies, like sustainable travel, showing the business means what it says.
• Relationships: Stakeholders, employees, investors, and communities expect ESG commitment. HR strengthens these ties through employee engagement and community programs, fostering trust.
• Returns: ESG value boosts profits through better talent management and efficiency. Companies linking executive pay to ESG goals, like Apple or Danone, see improved market performance.

How HR Can Implement ESG Value

HR creates ESG value through practices, policies, and people, aligning them with the four levers.

1. HR Practices

HR practices turn ESG into daily actions. This includes:

• Hiring and Onboarding: Use sustainable practices and DEI principles to attract diverse talent, reducing risk and enhancing reputation.
• Training and Development: Teach employee engagement in ESG goals, building trust and loyalty.
• Performance Management: Add ESG metrics to reviews, encouraging accountability that boosts returns.

Example: Starbucks integrates ESG into training, educating employees on sustainability, and ties it to performance reviews, reinforcing its ethical image.

2. HR Policies

HR policies set guidelines for ESG value creation. Examples include:

• Sustainable Travel: Deloitte’s policy encourages virtual meetings and offsets emissions for essential trips.
• Remote Work: Shopify’s remote model cuts carbon emissions and supports inclusivity.
• DEI and Wellbeing: Policies ensuring fair pay and mental health support strengthen relationships and reputation.

These policies align HR with business goals, creating measurable ESG value.

3. People

People are the heart of ESG strategy. HR fosters an ESG-aligned culture by connecting work to purpose. Research from Great Place to Work shows employees finding meaning in their work are 11 times more likely to stay and 14 times more likely to enjoy their jobs. Engaged employees enhance reputation and drive returns.

Example: Patagonia recruits mission-driven staff and offers paid activism time, building a purpose-driven workforce that boosts its ESG value.

Measuring ESG Value

To track progress, HR uses operational metrics tied to people, practices, and policies, contributing to returns. Examples include:

• Employee Engagement: Measure participation in ESG initiatives.
• Diversity Retention: Track retention of diverse talent.
• Sustainability Goals: Monitor energy use or emissions reductions.

Companies like Chipotle link executive pay to ESG outcomes, proving the financial impact of HR efforts.

Five Steps for HR Leaders to Get Started

• Understand the ESG Strategy:
  Assess the business’s ESG strategy, reviewing reports and risks where HR can help. This sets a foundation for impact.
• Define an ESG Value Statement:
  Create a statement outlining HR’s ESG role, aligning with business goals. Use the template as a starting point.
• Set Value Levers:
  Choose risk, reputation, relationships, and returns as focus areas. Define metrics like engagement rates or cost savings.
• Evaluate Current Strategy:
  Check HR practices and policies for ESG gaps. Adjust priorities based on the value statement.
• Incorporate into Branding:
  Add ESG to the employer brand and employee engagement efforts. Use recruitment messaging and leadership advocacy to spread the word.

HR’s Role in ESG Across Environment, Social and Governance

HR drives ESG value creation in specific ways:

• Environment:
  • Green Policies: Promote paperless processes and remote work to cut carbon footprints.
  • Training: Educate employees on sustainability.
  • Benefits: Offer eco-friendly perks like remote options.
• Social:
  • DEI Programs: Set goals for diversity and fair hiring.
  • Wellbeing: Provide mental health support and flexible work.
  • Community: Encourage volunteering and ethical supply chains.
• Governance:
  • Ethical Training: Develop leaders focused on integrity.
  • Whistleblower Policies: Ensure safe reporting of issues.
  • Compliance: Follow labor and data protection laws.

By embedding these into HR strategies, businesses see improved culture, retention, and investor trust.

HR as a Leader in ESG and Social Impact

The push for ESG comes from consumers, employees, and job seekers who value sustainability. Egon Zehnder’s roundtables highlight HR’s new role in communicating these values. Employees now assess businesses for ESG fit, flipping the traditional talent selection process. HR must:

• Adapt to Change: Integrate DEI and sustainability under one HR umbrella.
• Foster Culture: Build work-life balance and community ties.
• Mediating Dynamics: Bridge executives and employees during shifts like post-pandemic changes.

This leadership ensures ESG value resonates internally and externally, avoiding greenwashing.

Benefits of HR-Led ESG Value Creation

• Reputation Boost: A strong HR ESG strategy attracts talent and customers.
• Risk Reduction: Compliance avoids penalties.
• Better Relationships: Engaged employees and investors build trust.
• Financial Returns: Efficient operations and retention improve profits.

Companies like Patagonia and Starbucks show how HR-driven ESG enhances business outcomes.

Challenges and Solutions

• Lack of Strategy: Less than half of businesses have an HR ESG strategy. HR can lead by defining clear goals.
• Greenwashing Risk: False claims hurt credibility. Transparent HR practices and metrics prevent this.
• Resistance: Employees may resist change. Employee engagement through training and incentives helps.

Solution: Start small with pilot programs, use data to show ESG value, and involve leadership.

Conclusion

ESG value creation is a game-changer for business, and HR is key to making it work. By moving beyond participation to embed ESG into talent management, employee engagement, and policies, HR reduces risks, boosts reputation, strengthens relationships, and drives returns. The ESG value creation framework, starting with a value statement and leveraging four levers, offers a practical path.

As employees and stakeholders demand more, HR’s role in ESG strategy will grow, shaping a sustainable, profitable future. Start today to lead this transformation in your business.