Some 38% of business leaders cited meeting ESG (environmental, social and governance) criteria as their top priority, ahead of adapting to post-Brexit challenges (36%) or recovering from the COVID-19 pandemic (25%), according to a recent survey from accountancy and business advisory firm BDO. At the same time, a separate Bain & Company report showed only 2% of companies typically âachieve or exceedâ their ESG goals. This can be detrimental for a firmâs valuation and reputation.
A case in point is Swedenâs Oatly, a maker of plant-based versions of dairy products, whose green credentials saw sustainability-focused investors flock to buy the stock during its debut on the Nasdaq in May. Just two months later, the company lost a fifth of its market value after an activist short seller raised concerns about its financial statements and questioned the robustness of its ESG measures.
To drive measurable and sustainable ESG improvements, companies need to link sustainability goals to financial performance. This, in turn, can bring many benefits, such as a higher valuation, lower borrowing costs, reduced legal and financial risks, as well as making it easier to attract socially minded consumers and workers. The C-Suite should look to underscore that sustainability is not just a side-show by tying progress on meeting ESG goals to financial incentives, such as the performance review or variable pay.
A further step is to re-engineer their organizational capability from the top down by integrating sustainability fully into all functions and processes. In this article, we examine a âStrategic Capability Developmentâ process which has evolved from our combined 13 yearsâ experience at more than five global companies.
We typically drive it with and through a cross-functional team comprising members from strategy, finance, business leaders, operations/technology and HR, with unconditional support from the CEO. In the case of ESG, the involvement of functions like administrative, real estate, sourcing, risk and company secretary can be very important. Also consider engaging ESG risk owners and sustainability practitioners, if any.
These could include, for example, the capability to build different batteries or acquire bioreactors; the institutionalization of processes, for governance or ethical sourcing; getting ready for new reporting standards by the Sustainability Accounting Standards Board (SASB) as well as climate related financial disclosure requirements.
In the above case an example could be the need for x number of metallurgists, with expertise in rare earths, or the establishment of sustainability risk owners.
Identify the gaps in skills in different departments, while applying the pareto principle — which states that 80% of the consequences come from 20% of the causes (the vital few) — and be comfortable with approximations versus definitive answers, to optimize progress rather than strive for perfection. Those (focus) roles need to have headcounts associated with them, as well as an understanding of the current level of proficiency of the relevant skillsets of the team(s) in those roles. To identify the level in each of the pivotal skillsets, a simple approximate assessment of their teams by the leaders is good enough. Also capture new roles and new skills required. Make sure you put disproportionate emphasis on the few pivotal roles, through which the smallest improvement will yield the maximum benefit in achieving those ESG targets.
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Quantify the future demand by adding up and finalizing the number of full-time employees associated with each of those future roles and the level of skillsets required, in say, three years. The analytics team should calculate the supply, or what headcount will remain after attrition (assuming no backfill hiring), at the end of each of those three years. This is done by subtracting projected annual attrition from existing headcount. The projected attrition can be as simple as extrapolating the last three yearsâ attrition rates, in each role and department or location.
The above information, along with the assessment of existing teamsâ strengths or level of their critical skillsets, enables the business leaders to identify the gaps between future demand and supply (headcount and skills) and helps them prioritize gaps needing closure within required timelines.
Based on the demand/supply gaps and prioritization signals from the business leaders, you can now finalize workforce plans. You will now have the new roles that need to be created and which existing ones need to be increased/decreased as well as an overview of which skills need to be upgraded and by how much. It will be helpful to also determine the operating structures, risk owners and reporting lines, specific to the ESG initiatives.
There can be multiple strategies to close the above gaps. These can be in terms of build or development, buy or external hiring, rent or use of contingent labor/consultants, reduce and redeploy, organizational change or physical placement, to achieve the ever-evolving future state. Choose the combination of strategies, based not just on cost effectiveness, but also business needs such as flexibility, strategic fit, urgency, co-location requirements, investment appetite, etc.
Letâs now explore in more depth the âbuildâ part of the strategy and plan.
Identify courses and programs/initiatives that can provide the specific skills identified in the above exercise. Convert these courses into learning journeys (or playlists) that an employee can choose to advance on, based on his/her desire and need, along with their leadersâ support.
Ensure that every employee can access the right development asset at the right time. Your ecosystem should be a mix of internal and external learning solutions, some short, (e.g., job aids), some a bit longer (like an article of video) and some much longer (a course or a complete qualification). Make it easy to consume the ecosystem by making content accessible from anywhere and easy to find (guided by artiďŹcial intelligence).
Even the best ecosystems will remain useless unless employees are deeply convinced of their personal why and the inherent value. You want to transform your ecosystem into a vibrant community of learning and exchange. As such, an effective upskilling strategy is above all, a change process at scale. Only when future roles and the required skillsets are truly appealing to the employees, will they start proactively driving their own learning journeys.
Therefore, it is imperative to communicate the offering (and incentivize its use) so that the workforce continuously develops towards the new skills and new roles. In fact, in the case of ESG, communication about it is not just important but also necessary to improve employee engagement and enthusiasm, which in of itself will improve a key ESG metric.
Additionally, you will want to include ESG-related skills, capabilities and knowledge requirements in your talent management and career progression discussions.
It is important to bear in mind that this entire exercise can result in a fabulous document that gathers dust without progress towards strategic objectives unless there is continuous monitoring of results, as part of the executive team/boardâs ESG review. This is amongst the most critical actions for ensuring an effective outcome. In fact, broadcasting the firmâs progress in developing the people component of the âESG Organizational Capabilityâ will even strengthen the companyâs brand.
With the COP26 ending, companies, institutions and states have made various ESG commitments that now need to be executed. The pressure from external observers to do so will be high, particularly as many believe that those commitments will not be enough to have a substantial impact on climate change. Building an ESG organizational capability, especially in the workforce, is therefore necessary to achieve consistent and sustainable results over time.
How can technology help us in this respect? Blockchain can be leveraged to confirm skills and make learning histories transferrable, natural language processing, virtual and augmented reality already offer disruptive and cost-effective learning experiences, while artificial intelligence and machine learning let us design highly personalized learning plans. Technology is moving fast. We must leverage its power to accelerate the development of an ESG organizational capability.
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