Key ESG Considerations for CHROs | Deloitte US has been saved
Authored by Amy Sanford, Karen Cunningham, Franz Gilbert, Fine Westermann, and Samu Eskola
The world is at a tipping point—CHROs hold the key to ESG success
Picture this: a world where companies don’t just chase profits—but also prioritize the people, the planet, and prosperity. Feels unrealistic, right? But it isn’t a distant dream—it’s the reality of today.
With a changing regulatory landscape emphasizing and prioritizing environmental, social, and governance (ESG) initiatives,1 organizations are at a crossroads. In this transformative landscape, the chief human resources officer (CHRO) emerges as a powerful catalyst for change and is therefore uniquely positioned within an organization. Once primarily responsible for managing workforce and talent-related human resources (HR) matters, the CHRO has evolved into a strategic leader who plays a pivotal role in shaping an organization’s ESG ambitions and ensuring long-lasting change that is widely embraced.
CHROs, consider these factors for long-lasting ESG success
Navigating the complexities of managing an organization’s human capital, CHROs often prioritize the social aspect of ESG considerations, sometimes overlooking the environmental and governance dimensions. Recent research indicates that the “S” dimension of ESG tends to be overshadowed by the “E” dimension—primarily due to the lack of clear definitions or standardization of social metrics.2 This leads to a focus on self-promotional approaches to measure human impact. “True” sustainable organizations address underlying structural and systemic issues to create value for humans at the systems level.3 Adaptation toward sustainability necessitates a holistic approach to ESG, recognizing the interconnectedness of environmental, social, and governance factors. As such, leaders must consider that embracing ESG not only enhances the organization’s reputation for sustainability externally—but also influences the employee experience, thereby affecting talent attraction and retention. This awareness becomes increasingly crucial as organizations recognize the profound influence of ESG considerations on their operations and culture.
The evolving regulatory landscape poses new challenges as well. Local regulations increasingly diverge from global standards, disrupting seamless global operations. Organizations must adapt their strategies to navigate these changes effectively. This shift highlights the need for flexibility in embracing ESG, not solely for compliance purposes, but as a strategic imperative.
Furthermore, acknowledging the interconnectedness of the environmental and governance aspects of ESG is crucial. While social considerations focus on human capital, neglecting environmental and governance factors can have adverse effects. Taking a comprehensive approach to ESG is vital for talent management, ensuring that sustainability principles are ingrained in every aspect of organizational culture and strategy. By embracing ESG in its entirety, CHROs can lead their organizations toward a more resilient and responsible future. In fact, the CHRO should foster a culture that considers and embeds carefully selected and focused ESG principles into the organization’s core values and business strategy—thus responsibly ensuring that ESG considerations are integrated into all aspects of people management and ways of working. It’s important that CHROs work with the business to decide which principles will make the most impact. Careful consideration will be important to not promote too much action in haste, given it is delicate and complex work. Altogether, for a well-rounded and truly effective ESG strategy, it’s imperative for CHROs to focus on all the components of ESG: environmental, social, and governance.
Strategic steps for CHROs to kick-start the ESG journey
Step 1: Enable organizational readiness and abilities for ESG
Consider starting with some initial steps to enable organizational readiness and abilities for ESG.
- Connect to the enterprise business case—emphasize employer brand
Example: Build a compelling business case by presenting business benefits of ESG practices such as enhanced employer brand and reputation, reduced risk, increased customer loyalty, and potential cost savings. Providing quantifiable data and real-life success stories can make the business case more compelling.
Key statistic: Fifty-five percent of Generation Z respondents in Deloitte’s 2023 Gen Z and Millennial Survey researched a company’s sustainability impact before accepting an offer, with 17% changing jobs due to climate concerns, and 25% saying they plan to in the future.4 - Infuse ESG into organizational culture—reinforce new mindsets and behaviors at the top
Example: Infuse ESG behaviors and mindsets into everyday work of leadership by putting emphasis on cultural building blocks to promote new mindsets and behaviors: It all starts with building awareness, momentum, and organizational readiness.
Key statistic: Organizations that score highest on treatment of their workforce had a 2.2% higher five-year return on equity and emitted 50% less CO2 per dollar of revenue.5 - Grow capabilities on purpose—focus on skills of the future
Example: Grow capabilities among the workforce and relevant stakeholders by initially understanding the required new and evolving ESG-driven skill sets and then build capability programs based on needs.
Key statistic: More than 800 million jobs are vulnerable to climate and economic transition impacts—and the growth rate of LinkedIn green job postings in 2023 was over double the rate of green skills listed on profiles in the United States.6
Step 2: Mobilize the full organization to act toward ESG ambitions
After the organization has reinforced and strengthened its organizational readiness, it’s time to ignite the ESG journey with robust actions to empower the full organization to act.
- What gets measured gets done—step away from using metrics solely for a box-checking exercise
Example: Create active participation from leadership and managers by linking their rewards to sustainability metrics.7 By holding leaders and managers accountable for progress against all three aspects of ESG, organizations can effectively drive change. This involves establishing goals to improve key sustainability outcomes and drivers and implementing incentives to ensure their attainment.
Key statistic: Linking executive compensation to sustainability goals is associated with higher shareholder engagement, voting support, and lower risks that may be priced into cost of borrowing.8 - Drive operational efficiencies—combine strategic initiatives with ESG and achieve faster outcomes through efficiency
Example: Incorporate ESG objectives into organizationwide goals and individual performance metrics by integrating ESG into each workforce member’s target setting and performance experience. Each member can drive sustainability within their respective area and feel empowered to support the organization’s purposeful sustainability journey. - Communicate the progress—prioritize sustainability stories to make people aware of the ESG journey
Example: Communicate and lead the change during the sustainability journey by facilitating organizationwide dialogue on the business case for ESG, the organization’s ESG goals, and progress toward those goals. The CHRO should also manage ESG-related changes effectively to minimize change disruption and ensure a smooth journey.
By using these tactics, CHROs can play a key role in influencing the strategic adoption of ESG practices within the organization.
Step 3: Ensure sustainable change and elevate the future direction
Cementing sustainable change for ESG means integration and elevation of the ESG journey for the CHRO. In practice, the organization is closing the final ESG gaps while aiming for seamless ESG experience. The CHRO can even further elevate the ESG journey with sponsorship to strategic topics and drive the culture of innovation and learning. Below are five steps to ensure you finish the final miles of the ESG journey and advance toward a sustainable future.
- Sustain the journey through data and analytics—current workforce data can be of considerable benefit to meet ESG goals
Example: Leverage data and analytics by monitoring and sharing gained ESG ambition results through HR and workforce analytics. Identify areas for improvement, and make data-driven decisions. - Lower talent acquisition and retention costs—not just by saying you have sustainability values, but actually living up to them
Example: Work to incorporate sustainability as a key factor for consideration of candidates. Make recruitment processes green, including conducting virtual interviews and removing all paper, such as pamphlets, brochures, forms, company information, and reports, to make the hiring process entirely electronic.
Key statistic: Workers in retail companies with a strong sustainability commitment are twice as likely to stay in their roles, 1.5 times likelier to feel a sense of accomplishment, and 3 times more likely to feel inspired at work when compared to peers.9 - Equip the business to respond to market shifts and emerging regulatory changes—upskilling is a key draw for talent
Example: Promote a culture of innovation and learning by building an environment that encourages experimentation, learning, and adaptation—important for pioneering new ESG practices. This could involve promoting diversity of thought, rewarding innovative ideas, and creating safe spaces for trial and error.
Key statistic: Ninety-four percent of workers surveyed by Salesforce said training existing employees on sustainability-related skills would build trust in a company’s ESG commitments.10
The organizations that will win in tomorrow’s economy have CHROs who are actively driving the integration of the people, agenda, and sustainability. Progress is monitored and tracked through a culture of transparency, oversight, rigor, and continuous improvement—delivering enhanced business achievements, attracting and engaging talent, and ultimately, bringing value to stakeholders and societies.
Ready to close the say-do gap? We’d be happy to discuss the topic further; don’t hesitate to contact us.
Authors
Endnotes
1 European Commission, “EU taxonomy for sustainable activities,” accessed May 14, 2024.
2 European Commission, “Corporate sustainability due diligence,” accessed May 14, 2024.
3 European Commission, “Implementing and delegated acts – CSRD,” accessed May 14, 2024.
4 Deloitte, 2024 Gen Z and Millennial Survey: Living and working with purpose in a transforming world, 2024.
5 Sue Cantrell et al., 2024 Global Human Capital Trends, Deloitte Insights, 2024.
6 Dieter Holger, “America’s green skills gap raises concerns about energy transition,” Wall Street Journal, July 6, 2023.
7 Cantrell et al., 2024 Global Human Capital Trends.
8 Patrick J. Kiger, “Does it pay to link executive compensation to ESG goals?,” Stanford Graduate School of Business, July 13, 2023.
9 Elizabeth Payes, “In a competitive labor market for retail workers, sustainability programs could give employers an edge,” Deloitte Insights, April 6, 2023.
10 Kathryn Moody, “Sustainability skill training could be key talent draw, study says,” HR Dive, September 20, 2022.
