The Missing ‘‘H Factor’’ in ESG
Social and human sustainability factors are increasingly becoming core components of corporate agendas.
Business leaders have recognised that sustainability extends beyond environmental concerns; that it encompasses a deep care for people, both within and outside of their organisations. However, progress in the provision of transparent and insightful data on human sustainability within corporate reporting is slow.
Will further reporting regulations and standards (such as CSRD and ESRS) provide more transparent and useful information on human sustainability for leaders, investors and other external stakeholders?
Looking beyond the existing and newly introduced legislation and standards (more on that below), there is now also a growing demand from leaders and investors for more structured, consistent and insightful methods to measure and report on the health and wellbeing of the human capital within organisations. A recent report from Deloitte highlighted that 76% of senior executives believe wellbeing should be measured and monitored, 83% think it should be discussed at the board level and 85% believe organisations should be required to publicly report on the wellbeing of their employees.
Yet, despite this growing awareness and demand for data, there appears to be a disconnect between what leaders and investors are looking for, what actually can provide meaningful insights into the risk and potential related to human capital, and what is included in organisational reports.
Thus, the question arises: can more standardised and enhanced reporting practices provide deeper insights and lead to accelerated progress towards a more sustainable workforce?
Business leaders must consider this critical issue, as understanding and improving (and potentially also redefining the meaning of) human productivity is paramount in an era increasingly dominated by AI and technological solutions where innovation and collaboration will be key human differentiating competences going forward.
The Missing ‘‘H’’
With the introduction of more structured reporting requirements from 2024, there is now hope that the focus will shift from compliance reporting to fostering genuine improvement, particularly in the ‘’Social’’ aspect of ESG. This progression towards a more structured and standardised approach to ESG is a positive development, but it comes with its own complexities, particularly in defining meaningful human sustainability goals. The ‘‘H’’ is missing.
The newly introduced directive (CSRD) and Standards (ESRS) will impose significant reporting obligations on large companies from this year (2024) and will extend to smaller firms in the years to come.
Whilst these requirements are challenging in terms of resources and time, they present an opportunity for companies to make their reporting more informed and impactful.
This evolving regulatory landscape presents a unique opportunity for businesses to redefine their approach to human sustainability. It's not just about adhering to standards, but also about fostering a workplace culture that genuinely values and promotes human sustainability. This could lead to healthier, more productive work environments that benefit all stakeholders.
However, whist employee costs remain a substantial part of corporate expenditure and stress and illness-related costs continue to rise, an analysis of reports produced to date, reveals that comprehensive data on human sustainability is not as prevalent or transparent as one might expect, and the question is: will the new regulations help in providing more insightful information?
A review of current corporate sustainability/ESG reports illustrates a tendency to focus on policies and initiatives; diversity & inclusion (D&I), training & development, pay & employment statistics, but companies fall short in providing data that can be linked to employee wellbeing risks and performance potential.
There is a lack of key indicators that measure employee wellbeing risk, productivity and potential to perform. For instance, the ESG100 report by Position Green, released in August last year shows that 95% of companies (in Sweden) report having a D&I policy. However, only 36% disclose data on incidents related to bullying and harassment, a data point which e.g. could be linked to increased levels of stress.
You can have a policy, you can have a diverse workforce, but do you have a healthy and high performing workforce?
This disparity suggests a possible oversight in addressing the real issues affecting employees, a potential gap between policy and practice. Transparency in reporting is essential, especially if there are no underlying issues to conceal.
A hidden human potential productivity gap?
Data from the Financial Times indicates that whilst productivity has increased globally over the past two decades, human productivity has not kept pace. Over the past 10-20 years, technological advancements have been the main drivers of organisational productivity, not human factors. In contrast, human productivity methods, our ways of working, have remained largely unchanged, or even worsened.
This disparity prompts an investigation into the root causes of why this is. The answer may lie in our deeply engrained life and work habits, which can impact our cognition negatively.
Our daily lives are riddled with distractions and self-interruptions. Low levels of physical activity, cognitive overload, and suboptimal nutrition choices (to name a few) negatively impact our cognitive capabilities, and thus, human productivity. Simultaneously, we are witnessing an increase in stress levels, sickness rates, and a decline in mental health, all factors, which in combination, result in an ever widening human productivity potential gap.
An opportunity to lead the way
In this evolving landscape, businesses now have the chance to, and there is a real business case for, leading by example when it comes to human sustainability. This approach, however, must go beyond compliance; it must focus on creating meaningful change that benefits employees, the broader business environment and communities.
The key now lies in how the new standards are implemented and used as tools for tangible improvement, rather than as mere reporting formalities.
Indeed, as the new practices become more widespread, it's crucial that they lead to a deeper understanding and genuine improvement in how companies treat their employees. This evolution in ESG reporting could mark a significant step towards a more holistic and human-centric approach in the business world.
By measuring, tracking and reporting on factors proven to impact human sustainability, organisations can play a pivotal role in shaping a future where economic success is achieved without compromising the health and wellbeing of the human race.
Are you curious to know more about the topic and looking for a way to measure, track and report on human sustainability?
The flow²thrive Human Sustainability Index can help you baseline and track factors impacting wellbeing, productivity and performance of the people working in your organisation.