Organisational alignment: The key to realising ESG strategy

Achieving real-world impacts demands a clearly defined mission that involves every employee

Organisational alignment: The key to realising ESG strategy

This article is sponsored by Aon.

With governments around the world tightening regulations around environmental, social, and governance (ESG) issues alongside the changing priorities of board members and investors, businesses are recognising the importance of accelerating their corporate social responsibility agendas.

60% of surveyed companies are fielding more questions from investors about ESG.

According to Aon’s 2023 Asia Pacific Corporate Governance and ESG Survey, 58% of companies surveyed consider ESG to be critical to the long-term success of their business, while 60% claim to be fielding more questions from investors about ESG.

In Australia, mandatory ESG reporting requirements are already in place under legislations such as the Climate Change Act 2022 and companies are also encouraged to make voluntary disclosures on environmental and social risk in accordance with international and industry-specific standards. The ESG reporting landscape in other markets across Asia Pacific is more uneven, but consideration and adoption of regulatory guidelines are continuing apace in jurisdictions including Mainland China, Hong Kong, Singapore, Japan, and Indonesia, creating new risks and opportunities.

Moving beyond nominal targets to achieve real-world impacts… involves every employee.

In response to these trends, it is paramount for businesses to ensure proper alignment with ESG goals and policies at every level of the organisation. 

The role of human resources

Corporate ESG agendas are largely set in boardrooms by C-suite decision makers but moving beyond nominal targets to achieve real-world impacts demands a clearly defined mission that involves every employee. It is here that successful human capital management can shape the ESG journey. By instilling a strong corporate purpose in the workplace, recruiting the right talent, and supporting employees to upskill and make a difference, HR professionals are indispensable in aligning the entire organisation with its ESG roadmap.

41% of companies do not have a formal process or program for educating board members about contemporary ESG topics.

Start at the top

According to Aon’s 2023 Asia Pacific Corporate Governance and ESG Survey, most companies involve their entire board in ESG decisions. Given the responsibility of the board and management in ESG decision-making and oversight, it is crucial to ensure that all members are well informed. Yet 41% of the companies surveyed lack a formal process or training program to educate board members about contemporary ESG topics.

Nearly 33% of companies plan to introduce or expand ESG roles.

Gaps in ESG strategy open potential areas of exposure, be it issues with compliance or reputational risks from failing to meet stakeholder expectations. Having a holistic, data-informed view on ESG policies, practices, risks and organisational resources is thus vital for effective stewardship.

The green talent crunch

A mature approach to ESG depends heavily on having the right data.

In a 2018 report, the International Labour Organisation predicted that 14 million green jobs would be created in the Asia Pacific region by 2030. Indeed, the demand for green expertise has rapidly increased as more and more industries adopt sustainable practices, from decarbonisation and green infrastructure to circular models of resource use. This is borne out by Aon’s recent findings that nearly one-third of companies plan to introduce or expand ESG roles, with 76% of positions being hired at mid-professional level.

A major challenge is the lack of sufficient training and experience, as new methodologies and tools for tackling ESG problems are constantly emerging, and few university degree courses offer substantial interdisciplinary instruction in this area. This necessitates a rigorous assessment of skills and qualifications among existing employees and potential hires, followed by education and upskilling initiatives to address any skills gaps.

From finance to legal and accounting departments, professionals throughout the organisation can become ESG experts with the right motivation and attributes, such as agility, adaptability, and strong problem-solving and communication skills. In fact, many of those entering the workforce today already support ESG commitments and are keen to join companies whose values align with their own. The key is for HR teams to take the lead in connecting an organisation’s ESG aims with its people strategy and implement human capital solutions that support and mobilise the workforce.

Designing the right ESG incentives

In a tight talent market, appropriate incentives are important for recruiting and retaining employees. Companies can attract talent while demonstrating their values and accountability by aligning their approach to compensation, incentives, and total reward programs with ESG aims.

Only 29% of surveyed companies are implementing ESG-related goals and KPls for their C-suite.

However, few companies are applying ESG metrics to remuneration, with only 29% of survey participants implementing ESG-related goals and KPls for their C-suite. Where incentives are offered, they tend to be pegged to short-term targets. Generally, ESG measures are weighted at 10–20% of overall performance assessment in compensation plans, largely due to the continued prioritising of financial metrics by investors and other stakeholders as well as difficulties in quantifying ESG outcomes.

Establishing a mature approach to ESG depends heavily on having the right data, which in turn facilitates a better understanding of how to define, monitor, and assess relevant performance metrics and standards for the purpose of incentivising and rewarding concrete action in ESG.

Diversity, equity, and inclusion

Another significant internal consideration is the fair payment and promotion of employees. This is important not only for keeping employees motivated but also for achieving real progress within the organisation.

Diversity, equity and inclusion (DE&I) mean much more than box-ticking. A people-first environment that promotes fairness and belonging results in a workforce that is generally more innovative and resilient, as evidenced in our report, The Rising Resilient. Moreover, a cultural shift toward DE&I is reflected in the salary transparency and pay equity regulations that are being implemented in parts of Asia, including Singapore, Malaysia and Japan.

Aon’s extensive data analytics capabilities can help to uncover opportunities for advancing pay equity and defining career pathways to support DE&I, as well as tailoring compensation and flexible benefits programs that meet employees’ increasingly diverse needs. Our assessment tools use artificial intelligence to help identify unconscious bias and bolster a more inclusive workplace culture. DE&I is no longer optional. It is a key driver of workforce resilience that can help organisations navigate unprecedented global challenges.

Better data, better decisions

Corporate ESG is clearly gaining traction around the world, yet our ongoing research shows that significant gaps in strategy, human capital, and risk management remain. By consolidating comprehensive functional expertise with powerful technologies and analytics, our holistic solutions can help organisations tackle the complexities of ESG.

To learn how you can improve your company’s ESG knowledge, strategy and outcomes, contact Aon or download Aon’s Asia Pacific Corporate Governance and ESG Survey Results

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