Recruiting and then retaining good people is what makes businesses successful. But in a competitive hiring market, it isn’t always easy to do. In fact, attracting and retaining top talent is probably harder now than it’s ever been. Offering the right salary, a good benefits package, and opportunities for career growth would once have been enough to seal the deal. But times are changing. And these drivers aren’t enough anymore. So, what’s the deciding factor now?
In December 2021, specialist talent solutions consultancy Robert Half surveyed 2,000 UK employees. The topic was recruitment and retention. Of those employees, 38% said they’d move jobs if they thought their organization was operating unethically. Or if it wasn’t doing enough to reduce carbon emissions. And more than two-thirds said they’d consider an employer’s corporate values before making a choice between two similar offers.
With these stats setting the scene, we explore ESG reporting; the measure of sustainability and social responsibility in the corporate sphere. We look at the benefits of integrating ESG reporting into corporate governance strategies. And, in particular, explore its links with talent acquisition and retention.
A hot (but potentially complex) topic for HR managers and business owners, we start by asking: What is an ESG report? And how can employers elevate it from a tick-box exercise to a meaningful, ongoing, and active commitment with demonstrable outcomes?
What is an ESG report? The definition and purpose of an ESG report
In short, an ESG report outlines and measures a company’s promises and progress in relation to sustainability and ethics. The acronym ESG stands for environmental (stewardship), social (responsibility), and (corporate) governance. And the ESG report format and structure usually reflect this hierarchy. Common practice is to divide the report into issues that fall under each of these three categories.
To assess an organization’s impact on the planet and the environment, the report usually details metrics such as carbon emissions, climate change effects, pollution, waste disposal, renewable energy, and resource depletion.
The social element of the report relates to how a company treats and values people both inside and outside the organization. With this in mind, the focus is on monitoring standards in areas such as labor management, product quality and safety, supply chain, discrimination, political contributions and affiliations, diversity, human rights, and community relations.
When it comes to governance, accountability, control, transparency around leadership and exec boards (for example, elections, pay, and structure), audits, shareholders’ rights, and takeover defenses are all key deliverables.
A form of public disclosure, an ESG report is also a tool for evaluating the risks in these three areas. Linked closely to investment, regulatory and financial reporting, it’s usually managed or controlled by the CFO in an organization. And published by businesses themselves.
Beyond reports and compliance: The benefits of integrating ESG reporting into corporate governance strategies
So far, we’ve answered the question “What is an ESG report?” by listing the type of information it captures. It’s important to cover this because it’s what gives the document substance and purpose. But the risk here is that what you’ve then got is a compliance checklist. Add to that the fact that in some cases, ESG reporting is mandatory and it has the potential to become a tick-box exercise. With the process being viewed as simply another compliance target that needs to be recorded and ticked off the list.
The truth is, for ESG reporting to have any value, it has to achieve something. And those achievements need to be communicated. Let’s loop back to the link with recruitment and retention. Like consumers, current and potential employees don’t necessarily care if a company complies with regulations. Or fulfills its compliance training obligations. They want evidence of actionable initiatives. And to see what a company is actively doing to protect the environment, support the community, and ensure fair and transparent governance—whether it’s mandatory or not. And if they like what they see? They’re more likely to accept that job offer and exhibit brand loyalty once in post.
Take outdoor clothing brand Patagonia. Setting high standards for the power of ESG reporting, the ethical retailer covers every area of Corporate Social Responsibility (CSR). And embeds its commitment to sustainability and ethics in all aspects of its operating model. Following some hefty one-off donations ($10 million of Black Friday sales and $10 million from corporate tax cuts), the company’s profits are now all reinvested to support climate change and conservation. Every garment comes with a lifetime warranty. And, instead of chasing more sales, it promotes a free clothing repair service through its Common Threads Recycling Program.
This message of conscious consumption is echoed across all of its marketing materials. It ran a highly successful “Don’t Buy This Jacket” advertising campaign in the New York Times. And when the business transferred ownership to a trust in 2022, the announcement was made through an open letter written by the CEO.
But marketing alone isn’t enough. ESG reporting requirements feed into this narrative by giving its campaigns credibility, transparency, and a grounding in data and deliverables.
The result? Using compelling and honest communications, the company has become synonymous with ESG reporting well done. This has boosted its brand. And, despite rejecting consumerism, its profits have risen, too. The company sells $1 million worth of clothing a year. It’s valued at $3 billion. And it maintains a 10% profit margin which far outshines many of its competitors.
That said, the benefits of integrating ESG reporting into corporate governance strategies can’t (and shouldn’t) be measured in terms of profits. Which is why Patagonia reinvests all of its earnings back into green initiatives.
Walk the walk: Best practices for preparing an ESG report
Of course, not every business is like Patagonia. There are plenty of organizations that are keen to capitalize on the commercial value placed on sustainability and social responsibility. But less keen on changing their operating model and standards to support this. This is where greenwashing comes in.
A conscious process of deception, companies involved in greenwashing make unsupported claims or provide false and inaccurate information around their sustainability efforts. This could be through the use of misleading images, taglines, and labeling in marketing materials. Or it could be buried inside hidden tradeoffs and half-hearted promises. Either way, greenwashing does ESG reporting a disservice. The good news is that, thanks to better awareness and more rigorous quality control checks, it’s a practice that’s being increasingly called out. But relying on individuals to do this isn’t enough. To really take a stand against greenwashing, other businesses need to lead by example.
The answer is to embed sustainability into the core values of a corporation. And apply it to every part of the business, internally and externally. Sounds good. But what does it look like in practice?
Well, commitment to all of the formal metrics (suppliers, sourcing, investment, energy use, waste, and carbon footprint) is, of course, vital. But companies can also informally encourage employees to be more sustainable in the workplace too. From what they eat and drink to how they travel (and how often) and the type of paper they use (and how much), all of these small changes combine to make a big difference. They also mean employees can talk with conviction about their company values. And honestly sell their brand. This is another example of how ESG reporting standards can influence recruitment. Having environmentally engaged, empowered, and informed employees boosts referrals. Which, in turn, helps grow a rich talent pipeline of similarly ethically-minded prospects.
Global mobility brand Lynk & Co uses training to cement these practices, and its ESG promises into its culture and its day-to-day operations. It also gives employees the confidence to effectively communicate these externally. Creating courses based around sustainability and sustainable messaging, it then uses its LMS to track the completion rates. As well as upskilling employees to operate in an ethical and sustainable way, this approach sends out a consistent message that bolsters their brand and their employee value proposition.
Healthcare provider, Bupa, follows a similar model. Committed to making sustainability more than “something that you put out in your marketing materials” (Sally Pain, Bupa’s Chief Sustainability Officer), it’s made ESG a core element of the company’s strategy. It’s set science-based targets for all of its greenhouse gas emissions, with an aim to hit net zero by 2040. It’s also reinforced this internally by making plans, progress, and updates, part of an ongoing conversation with all employees. As Bupa’s CEO says: “Sustainability isn’t something that can be driven by a small team of enthusiastic experts. It has to involve the entire business.”
Talk the talk: Using ESG reporting standards and frameworks to start a conversation
Bupa’s approach has been, in part, shaped by a survey it conducted about the importance of ESG. More and more candidates, it noted, had started to ask questions about the health insurer’s sustainability goals during their job interviews. So it decided to run some research to find out more. The findings made it clear that ambitious environmental, social, and governance (ESG) commitments made a big difference to recruitment success. And, to be able to answer candidates’ questions (or, even better, pre-empt them), they had to be more transparent about their targets. And communicate them more powerfully and publicly.
With so much scrutiny and hype around sustainability messaging, you may feel uncomfortable about talking too loudly about all the initiatives you’re taking to support it. But with actionable targets and the right ESG reporting standards and framework in place, you can speak with confidence and transparency. And by doing so, use your story to achieve more for the cause. Being open and honest about your efforts will inspire other companies to do the same. It will also motivate your employees and future employees to build on your efforts. And, as we’ve seen, help you gain an advantage in the war for talent.
“Making a better world”: The true importance of ESG reporting for businesses
Until recently, Bupa’s commercial vision was to help people “live longer, healthier, happier lives”. It’s now added “making a better world” to its priorities. We started this blog post by asking the question: “What is an ESG report?”. And Bupa’s public shift in focus provides the answer. ESG reporting is about making a difference. It’s about encouraging people to do meaningful work by aligning themselves with employers who have the same social values and sustainable targets. And it’s about companies and individuals giving something back to the community. If that also happens to promote a healthier recruiting pipeline, all the better. After all, people make businesses. And only people can make businesses better.
“When I draw out a people strategy or plan, I put ESG in the center. Without this, it will be impossible to drive performance and value.” Anne Gnanapragasam, Head of HR GSC Malaysia, HSBC