How HR in financial services can contribute to ESG goals

ESG” is the latest buzzword prompting companies to take swift “calls to action”, often with short term initiatives. However, the demand for organisations to engage with ESG, and embed it within their businesses, will be here for the long term, and therefore needs more than just a short term focus. HR departments will become increasingly involved in helping to set, and achieve, the objectives in their organisations’ ESG plan.

This article first appeared in the Personal Investment Management and Financial Advice Association (PIMFA) winter journal. PIMFA is the UK’s leading trade association for firms that provide investment management and financial advice to everyone from individuals and families to charities, pension funds, trusts and companies.

So why are businesses in the financial services sector focussing on ESG strategy?

ESG is a top agenda item for the FCA. 2021 saw the FCA appoint its first Director of ESG, Sacha Sadan, and refresh its ESG strategy. With it’s aim to support the financial sector in driving positive change, including the transition to net zero, much of the FCA’s work to date has focused on climate change, particularly so in light of COP26. But the FCA is also committed to building resources and capabilities on ESG beyond climate change, leveraging the extensive work they’ve already done on governance, diversity, culture and purpose. The FCA sees this as essential as listed companies and the financial sector respond to society’s evolving expectations on environmental and social matters.

Clients, employees, investors and other stakeholders are increasingly scrutinising organisations’ non-financial performance and value. The Investment Association publishes guidelines on issues which influence members on whether to support a company’s remuneration policy. Its Principles of Remuneration for 2022, and its letter to members encouraged companies to incorporate ESG metrics into their remuneration policies and explain their intentions to shareholders. 

Many firms in the financial sector have to report climate change requirements:

• Regulations, in force 6 April 2022, will require over 1,300 of the largest UK registered companies and financial institutions to disclose climate related financial information. See our previous article.
• The FCA’s new mandatory disclosure rules cover a wide range of firms. For the larger asset management firms, new rules in force from 1 January 2022 require publication of an annual report on the firm’s website and disclosure of certain information in a prominent place on their products and portfolios.

What can HR professionals do to assist their organisations in meeting their ESG goals?

Environmental

The E in ESG stands for Environmental. A mix of public opinion, stakeholder pressure, reporting requirements and employee expectations means environmental targets are a necessity. And so reducing emissions, improving sustainability and encouraging a greener workforce will be issues that businesses in the financial sector will want to consider. HR can help by encouraging their organisation to discuss ways to improve sustainability. It may seem like small steps, but taking actions such as introducing climate champions, holding tech training sessions to encourage a move away from paper, removing unnecessary waste bins or plastic cups can all inspire colleagues to improve sustainability. HR, with their direct interface with the employees of the business, and with their key role in generating and supporting the values and culture of an organisation, are very well placed to both help in setting, and driving achievement of, targets in the “E” space.

HR might wish to review job descriptions, employment contracts, policies and procedures to enshrine the company’s environmental ethos and improve flexibility to allow for change in line with future need. New benefits could be considered such as company electric car schemes.

Social

The S in ESG stands for Social. Social issues extend to a broad range of people issues which sit naturally within HR and which HR teams can help to tackle in practical ways (see box below). Social is also about how organisations fit within society; how they look to interact with their community of customers and clients, and the wider society within which they operate. HR can be, and often are, the drivers of pro bono programmes and outreach programmes – where employees are encouraged to interact with, and assist, the society around us all. And, of course, it is HR policies which assist, together with compliance, regarding making sure that customers and clients are treated fairly – and that where something goes wrong, it is properly reviewed.

Addressing the "S"

Key areas to focus on are:

• Building a positive, diverse and inclusive workplace culture where equal opportunities are safeguarded. Robust policies which set out the company’s commitment to fostering an inclusive culture which are underpinned by core responsibilities expectations and oversight are particularly important for the financial services sector given that improving culture is a continuing priority for the FCA. Policies should address non-financial misconduct (i.e. behaviours such as sexual misconduct, sexual harassment, other forms of harassment, bullying, favouritism, exclusion and intimidation). This is particularly important now that the way Senior Managers tackle cases of non-financial misconduct may be relevant to how the FCA assesses their fitness and propriety.
• Ensuring fairness in pay by collecting and analysing pay data. This can be a complex area to navigate but can be managed through transparent and concise messaging on the purpose of the data collection. Supporting health and safety and employee wellbeing with a focus on workplace conditions, mental health and healthy workplace practices.
• Training staff on keeping safe and on how they are expected to behave and making sure staff are aware how to speak up if they see unacceptable behaviour. Employees should receive regular, up to date training on matters such as health and safety, workplace culture and diversity and inclusion. 

Governance

The G in ESG stands for Governance. Workforce engagement is now a corporate governance consideration. The Corporate Governance Code highlights the need for employees to be considered in boardroom decisions, while the Wates Principles hold that a board is responsible for overseeing meaningful engagement with stakeholders, including the workforce. Further, the UK government White Paper “Restoring Trust in Audit and Corporate Governance” continues this theme, providing that the directors’ duty to promote the success of the company includes monitoring the impact of its decisions on employees and to strengthen workforce engagement.

Policies and procedures should be updated to align with ESG objectives. Do job descriptions of senior leaders (senior managers) align with the expectations on governance? Does the responsibility mapping explain where these sit? And do your appraisal / feedback / certification processes embrace and include considerations of this?

Next Steps

For those in organisations who have ESG objectives and a strategy already, HR should be considering how they can assist in meeting those objectives, and in developing the strategy, reflecting on all of the above.

For those without, HR should be “at the table” in terms of considering what should be done and how employees can be harnessed to assist with the strategy which is formulated.

It is only a matter of time before HR have ESG objectives set by the responsible Senior Managers – getting in “early” and helping set the strategy and action plan will assist HR in ensuring that they are involved and utilised in the best ways possible.

How can we help

We can assist with all of the points and themes referred to in this article. And we have also developed the HR Eco Audit which is designed to assist employers in meeting their climate targets and strengthening their sustainability culture.

A strategy for positive change: our ESG priorities | FCA principles-of-remuneration-2022.pdf (ivis.co.uk)

To understand more on what HR can do to improve D&I listen to our webinar: PIMFA - Webinar - Improving diversity and inclusion in the workplace – what is expected from PIMFA members in 2021?

https://www.pimfa.co.uk/virtual-events-gallery/?vimeography_ gallery=15&vimeography_video=570334632

UK to enshrine mandatory climate disclosures for largest companies in law - GOV.UK (www.gov.uk)