Why Leaders Should Partner With CHROs in ESG Reporting

Investments in environmental, social and governance (ESG) strategies rose 42% between 2018 to 2020, according to Nasdaq.¹ Experts predict global ESG assets under management will top $50 trillion by 2025.²

That's a lot of money. So much money that regulators are increasingly alert to greenwashing, the nefarious practice of reporting ESG strategies but not actually complying with them. And in many companies, HR is responsible for staying on the right side of the law.

So say the members of the Gallup CHRO Roundtable, the world's largest group of enterprise CHROs.³ Of them, just 4% play no part in ESG reporting, 34% are accountable only for the social component of ESG, 53% partner with a sustainability/CSR committee and 9% have sole responsibility for ESG reporting.

Their reporting can cover a great deal of ground, everything from product safety to board diversity to raw material sourcing. Unfortunately, only 26% of Roundtable members strongly agree their function has the resources it needs to meet its ESG responsibilities -- probably because so few, just 16%, strongly agree the function has the necessary expertise and capability. No wonder "staying relevant and prepared for shareholders' shifting expectations," as one CHRO put it, is a top concern.

ESG perception gaps

It would probably help CHROs to have help from employees, yet only 40% of companies measure employee attitudes or perceptions about ESG. Considering how employee behaviors influence ESG activities, word from the rank-and-file might accelerate strategies. It would alert leaders to ESG-related aspects of the employee experience they wouldn't otherwise see.

For example, Gallup finds that employees have a much dimmer view than do CHROs on several searing issues, such as perceptions of respect, discrimination and commitment to employees' strengths. And the perception gap can be extreme. When Gallup asked CHROs if their organization "would do what is right" if someone raised a concern about ethics and integrity, 86% of CHROs strongly agreed their company would do the right thing versus 35% of employees who said the same -- a 51-percentage-point difference.

Perceptions diverge the other way, too. For example, employees are significantly more likely than CHROs to strongly agree that employees feel comfortable being themselves or that all employees have the same opportunities for advancement. And managers feel far more equipped to talk about race and equality than CHROs think they are: 41% of managers vs. 8% of CHROs strongly agree managers are prepared to have meaningful conversations on those topics with their team.

It should be noted that as significant as ESG measures are, employees don't have much impact on the most important ones. Eighty-eight percent of Roundtable CHROs report carbon emissions, for example, but buildings and transportation have a much bigger impact on carbon emissions than employees do. Eighty-three percent report on board diversity, but employees rarely have a hand in board selection. Workers shouldn't be accountable for issues beyond their control.

Still, CHROs' and employees' differing perceptions of ESG outcomes may indicate where ESG initiatives are less effective than they could be and greenwashing more probable than it should be. Insight from the front line may be crucial to successful ESG strategies. And changes in the employee experience -- if leaders communicate them well -- can motivate more of the behaviors that achieve the aspirations of ESG policies.

Leadership's role

Ultimately, ESG comes down to leadership. Leaders set the tone for all things, including ESG initiatives. Leaders who push for change get it.

In fact, CHROs' primary strategy to increase HR's capability to meet ESG responsibilities is to create shared accountability with leaders. "ESG isn't really a one-department responsibility," said one CHRO. Many CHROs are working to involve midlevel management by providing inclusive training so that those managers can take greater accountability for ESG. CHROs are also working hard on realigning rewards and recognition for leaders to "help the purpose-driven behaviors" they are looking to drive.

Nonetheless, CHROs will probably continue to -- at least in part -- facilitate ESG initiatives. They're a natural fit: ESG factors are often dynamic and interlinked with human asset performance and compliance issues. Plus, HR business partners are frequently conduits for ESG initiatives and direct observers (and sometimes the engines) of ESG outcomes. And it's often the CHRO's teams that keep companies on the right side of regulation.

It's not an easy job. And fluctuating energy prices, record-high temperatures, "The Great Reshuffle" and political polarization make the job tougher.

The job is, nonetheless, integral to $50 trillion of shareholder value.

So, despite the headwinds, leaders should take note of the stats reported at the top: 26% of Roundtable CHROs strongly agree their function has the resources it needs to meet their organization's ESG responsibilities, and 16% strongly agree the function has the necessary expertise and capability.

Leaders who push for change get it. Pushing toward resources, expertise and capability might improve ESG outcomes. That's what regulators and investors want. It's what CHROs want, too.