The Inertia & Momentum of the ESG Movement

The Inertia & Momentum of the ESG Movement

Environmental, social, and governance factors (ESG) are on investors’ radar worldwide. Moreover, society is demanding that companies start paying attention to these factors. If it hasn’t already happened in your company, at some point someone will ask how you’re integrating ESG factors into your HR strategy.

The companies who will be the first to respond are those who have fallen under direct scrutiny on safety and environmental issues. Yet, there are still many business leaders who do not perceive it as a top-level priority. Thus, they may approach it simply as the next box to be checked, squeezing ESG metrics into plan designs with their existing TSR and profit focus. Moreover, most HR and compensation people haven’t yet heard about ESG and researchers are concluding that it’s not prevalent.

Nonetheless, the force of momentum surrounding ESG factors is growing stronger, and it’s only a matter of time before it reaches your company. Attention to these factors among investors has moved from a nice practice to a majority practice – it gets the attention of the Board of Directors and there is a growth in number of shareholder proposals. Proxy advisers have incorporated these concepts into their criteria, and companies will begin to add low-weighted ESG metrics to annual and long-term plans, rapidly changing the “prevalence” data. And, like investors, employees are also looking for these factors and including them in their assessment of the value of employers.

It will take many years to integrate broader plan design changes, but because there is convergence with other corporate governance concerns, these shifts may happen than we think. Income inequality and diversity are increasingly being added to ESG criteria and add a socio-political aspect. Thus, ESG is no longer just a fun, buzz-worthy topic, but one that is very real and demands attention from HR.

 

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