Human capital is the key to a successful ESG strategy – World Economic Forum

Human capital is the key to a successful ESG strategy  World Economic ForumHuman capital is the key to a successful ESG strategy  World Economic ForumHuman capital is the key to a successful ESG strategy  World Economic Forum

This website uses cookies to provide website functionality and analytics. Please refer to our Cookie Notice for more information about the cookies we use and how you can change your cookie settings. Clicking the “I accept” button will confirm your acceptance of the use these cookies. I agree to Join us Global Agenda Climate Change Stakeholder Capitalism February 2, 2021 John M. Bremen Managing director, Human Capital & Benefits and Chief Innovation and Acceleration Officer at Willis Towers Watson Shaiganu Managing director, Executive Compensation, Global Practice Leader and ASEAN and South Asia Talent and Rewards Business Leader at Willis Towers Watson Amy Sung Managing director, Talent & Rewards, Willis Towers Watson Matt Wurtzel Senior editor, Willis Towers Watson Environmental and social governance (ESG) issues of governance, social and governance Employees are key advocates and enablers for ESG strategies. Here’s how to measure human capital and align it to ESG priorities in order to achieve goals and promote employee well-being. Geopolitical issues such as the COVID-19 pandemic have made ESG issues a top priority for boards, policymakers, and executives. A solid set of ESG metrics and a framework to organize and manage them will help organizations achieve positive impacts on society and the environment. It will also guide them in their efforts to create value, mitigate risk, and improve long-term business performance. Human capital is an integral part of ESG. Leading companies have realized that people are the most powerful advocates and enablers for ESG strategy and are a key force for positive change. Many stakeholders, including policymakers, investors, consumers, employees, and consumers, are calling for change. According to Pensions & Investments’ World’s Largest Asset Managers 2020 report, more than eight in ten global consumers expect CEOs will lead on societal issues. The top 500 global asset managers also place a premium upon the sustainability nexus that connects purpose, diversity equity and inclusion (DEI), and ESG principles. 58% of employees take into account a company’s environmental and social commitments when choosing where to work. Employees are three times more likely than others to stay with companies they consider purpose-driven and 1.4x more engaged. These stakeholders demand transparency and accountability on financial exposure to risks, opportunities and governance, as well as fiduciary responsibility related to human capital. As they entered 2021, 51% of S&P 500 firms used ESG metrics to reward their executives. According to Willis Towers Watson research, the most popular category for executive incentives in North America and Europe is people & HR. This includes metrics such as succession planning and talent development, employee engagement, and culture. ESG efforts are moving at a rapid pace. The International Integrated Reporting Council (IIRC), and the Sustainability Accounting Standards Board, (SASB), announced a merger to consolidate ESG initiatives. They formed the Value Reporting Foundation. In collaboration with Willis Towers Watson and the World Economic Forum, we have written in the white paper Human Capital as an Asset: An Accounting Framework for Resetting the Value of Talent. We must treat human capital as an investment with associated metrics. A holistic approach to managing human capital across ESG factors is beneficial for many stakeholders, including investors, chief risk officers, finance and HR leaders, as well as boards and other stakeholders. You can evaluate human capital in a variety of areas, including employee experience, DEI, wellbeing, and operational excellence. Human capital metrics include the workforce profile, pay, benefits and careers. They also include hiring, retention, productivity and wellbeing. Governance and ethical metrics for human capital include whistle-blower policies and unethical behavior that results in monetary losses, dismissal, and incentives to avoid excessive risk-taking. Willis Towers Watson’s Human Capital Value and Risk Model Image by Willis Towers Watson. There are also many ESG metrics related to human capital management, such as employee productivity, pay gaps and high-performance employee experiences, as well as equitable access to reskilling or upskilling programs. There are also quantitative metrics such as pay-equity ratios and diversity and representation targets, retention rate of top talent and investment in employee upskilling. There are also metrics that cross all categories, such as the benefit claims ratio or total workforce value. Willis Towers Watson’s Human Capital Value and Risk Model Image: Willis Towers Watson Organizations must align their metrics with their overall business strategy and company culture. ESG principles are integrated into all three. They carefully choose metrics and follow the principles used to measure physical and financial capital. To make a significant change, forward-looking companies will incorporate meaningful ESG metrics in their performance expectations and executive incentive plans. Mastercard’s efforts to increase purpose-driven total rewards is an example of how human capital can be used to achieve environmental and social goals. The company announced in March 2021 that its compensation will be tied to ESG goals, specifically improvements in carbon neutrality, financial inclusion, and gender pay parity. The company adapts its total reward models continuously to address different areas and risks. This includes DEI, supporting new working methods, and employee well-being. ESG principles must be at the heart of organizations’ human capital management strategies in an increasingly ethical and socially conscious world. The increased emphasis on organizational and financial sustainability offers opportunities to outperform and manage risk, drive shareholder value, and increase shareholder value. License and Republishing Written By John M. Bremen, Managing director, Human Capital & Benefits and Chief Innovation and Acceleration officer, Willis Towers Watson Shaiganu, Managing Direct, Executive Compensation, Global Practice Leader and ASEAN and South Asia Talent and Rewards Leader, Willis Towers Watson Amy Sung. Senior Editor, Willis Towers Watson. The views expressed in this article do not reflect the World Economic Forum. Subscribe to receive updates Receive a weekly update on what’s happening on the Global Agenda. View all

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