ESG reporting mandates have grown by a whopping 74% in the past four years.
As companies face mounting pressure to prioritize environmental, social, and governance factors, a hyper-focused ESG workforce planning strategy can be the key to success. A strong ESG workforce planning strategy will boost the company’s ESG ratings, drive innovation, reduce regulatory risks, and increase enterprise profitability.
By fostering a culture that values sustainability and ESG, companies can differentiate themselves from competitors, attract socially responsible investors, and access new markets.
What Does ESG Stand For?
Environmental, Social, and Governance or ESG is a set of criteria investors use to assess a company’s sustainability and ethical practices. ESG takes into account a company’s impact on the environment, society, and governance structure.
Environmental criteria in ESG refer to how a company performs as a steward of nature. It may include a company’s energy use, waste, pollution, and natural resource conservation. Social criteria assess how it manages relationships with employees, customers, suppliers, and the community where it operates. And Governance criteria deal with the company’s executive pay, leadership, audits, internal controls, and shareholder rights.
According to research, high ESG scores positively impact the financial returns of large firms worldwide.
Companies that prioritize ESG are often seen as more responsible and better long-term investments.
Key Factors Driving ESG Momentum in 2023
80% of investors worldwide believe that ESG ratings are important when choosing investments, making ESG ratings a crucial parameter for long-term business & ESG strategy.
Here are three key factors driving this trend in 2023:
- Customers prefer businesses with high ESG ratings.
- Companies with higher ESG ratings have long-term potential toward net-zero strategies.
- Government and PE firms are also increasingly interested in businesses with high ESG ratings.
Increased Demand for ESG Talent Across Industry
Demand for ESG Talent with specific skillsets is growing rapidly. Some of the critical skills in demand for ESG are sustainability reporting, ESG communications, ESG data analysis, financial modeling for ESG, etc.
The demand for ESG talent is projected to grow significantly higher. However, the talent pool for ESG roles is limited, making talent acquisition challenging.
According to Draup’s analysis, more than 72% of ~2,800 companies plan to increase their investment in ESG, of which 50% are having difficulty finding ESG talent.
To overcome this challenge, companies need to assess the specific needs of the organization and develop an effective ESG team structure aligned with the organization’s goal.
Challenges Faced by Companies in Understanding, Structuring, and Building ESG Team
76% of corporate directors are integrating ESG ratings into their business goals and ESG strategy. But only 10% of companies in the MSCI ACWI Index have an “AAA” ESG rating.
This suggests that a significant percentage of industry leaders are not properly able to align their ESG strategy with business goals.
Companies like Swiss Re AG, Intel, Honda Motor, and Credit Suisse Group are leading the way in ESG ratings. However, leading enterprises with high market capitalization, including JP Morgan, Apple Inc, and Alphabet, have lower ESG ratings than their peers.
Some companies have even faced substantial fines for failing to comply with ESG regulations imposed by the US government.
Workforce planning leaders are facing numerous bottlenecks while developing ESG talent strategy, including:
- Identification of ESG team structure in line with the organization’s goal
- Geographical constraints on ESG roles subject to specific regulations of the region
- Limited inter-industry and inter-geography talent movement of ESG roles
- High demand & fierce competition from peers acquiring & retaining ESG talent
- Hyperinflated hiring cost of ESG-specific talent
- Limited pool of ESG talent & lack of proper Learning and Development Module
ESG Workforce Planning Strategies to Consider in 2023
Developing a successful ESG talent strategy will help companies improve their ESG performance. An ESG-focused workforce strategy can also give companies a competitive edge in addressing emerging issues like climate change, diversity and inclusion, and human rights.
Here are six strategies to help firms build efficient ESG teams:
- Identify and understand the critical job roles required based on specific ESG focus areas to help build efficient teams with defined workloads.
- Globalize ESG teams at different experience levels and functions to leverage specific talent from mature and niche ESG locations. Globalizing the ESG teams can be 2X cost-effective.
- Use external consultants and Gig workers to further save costs.
- Identify the feeder talent pool with a high overlap of required ESG skillsets. These talents can fill critical positions and is cost-effective too.
- Upskilling or reskilling feeder talent can result in cost savings of up to 50% compared to acquiring new talent. Cost efficiency & talent crunch in the market make ‘training feeder talent’ a crucial factor in the ESG team.
- Build an ESG team with Peer Intelligence to understand the standard team structure prevalent in the industry.
Draup’s Talent Intelligence platform uses machine learning models to provide global HR leaders with actionable insights for ESG workforce planning. With data for 4,500+ job roles and any business function, HR leaders can analyze critical ESG talent hotspots and identify untapped feeder talent pools.