ESG Strategy: What HR Leaders Need to Know in 2025
HR puts the ‘S’ in ESG by building a culture where employees are motivated to work, collaborate, and propel the company forward. And guess what? Top employers boast ESG scores 14% above the global average, highlighting the strong link between employee satisfaction and robust ESG practices.
An ESG strategy is a critical tool for driving sustainability and building trust with stakeholders like investors and employees. Consider this: 86% of employees in organizations with strong ESG commitments say they feel proud to be part of their organization, and companies with strong ESG practices experience improved financial performance.
Beyond boosting morale, ESG strategies help businesses tackle pressing global challenges while creating lasting value for employees, investors, and customers alike. From actionable policies to employee-driven initiatives, organizations are turning sustainability goals into tangible outcomes. HR plays a key role in this effort by embedding ESG values into recruitment, training, and workplace culture.
Let’s explore how HR can contribute to a well-crafted ESG strategy that drives meaningful change.
Contents
What is an ESG strategy?
Importance and benefits of an ESG strategy for HR
ESG strategy framework: Key components
Challenges in developing an ESG strategy
How to develop an ESG strategy
ESG strategy examples
What is an ESG strategy?
An ESG strategy is a framework that helps organizations tackle their environmental impact, build strong relationships with stakeholders, and establish solid governance practices. It focuses on three key pillars: Environmental, Social, and Governance. With global challenges like climate change, social inequality, and tightening regulations, ESG strategies have moved from being a “nice-to-have” to a necessity.
ESG is becoming integral to corporate strategy, shaping how companies operate, innovate, and compete. Beyond environmental concerns like carbon footprint reduction, organizations are addressing social metrics, such as diversity, equity, and inclusion, and governance factors like transparent decision-making and ethical leadership. HR is instrumental in managing these matters.
Companies that prioritize ESG are thriving. For example, organizations with strong ESG practices have seen their brand value grow by 175% over 12 years, compared to just 70% for those with a lower impact.
Importance and benefits of an ESG strategy for HR
It’s clear that ESG is more than just a trend; it’s a game-changer for attracting investors, customers, and employees. For HR leaders, it’s a chance to shape workplace culture, align talent strategies with sustainability goals, and co-create an ESG strategy that drives engagement and long-term success across the organization.
Enhanced brand and corporate reputation
A strong ESG strategy gives HR the tools to create a workplace culture that resonates with employees, shareholders, and customers, building trust and credibility along the way.
When a company is seen as responsible and ethical, its reputation naturally gets a boost. Organizations with a solid ESG focus often enjoy greater brand loyalty and stakeholder trust, making them stand out to people who care about corporate responsibility.
Competitive advantage in talent attraction and retention
ESG initiatives position companies as socially responsible employers—a huge draw for today’s workforce. Many employees, especially younger generations, are actively looking for workplaces that share their values. In fact, 41% of employees say they’re more likely to stay with companies that offer ESG-focused benefits.
Regulatory compliance and risk management
HR is key in ensuring the company meets labor standards, diversity benchmarks, and ethical guidelines. Compliance strengthens the organization’s standing with regulators and boosts its reputation. A proactive approach can help navigate complex legal requirements while promoting employee wellbeing, equity, and inclusion.
Employee engagement and satisfaction
When employees see their organization actively contributing to environmental, social, and governance goals, they feel more connected to the company and their role within it.
75% of HR leaders believe that ESG initiatives increase employee engagement. This creates a positive cycle—engaged employees are more motivated and productive, driving better outcomes for the organization while the company’s commitment to meaningful goals continues to inspire its workforce.
Financial and operational benefits through sustainable practices
Sustainability isn’t only good for the planet—it’s also good for the bottom line. HR can champion practices like remote work, waste reduction, and other eco-friendly initiatives that save money while meeting employee expectations for greener workplaces. These efforts align with financial goals and showcase the organization’s commitment to corporate social responsibility.
Building a resilient and inclusive workforce
Embedding ESG principles into HR practices advances diversity, equity, and inclusion, creating a workforce that reflects societal values. Diverse teams bring varied perspectives, making organizations more resilient, adaptable, innovative, and prepared to tackle complex challenges. By tracking key metrics like gender pay equity, leadership diversity, and employee satisfaction, organizations can measure progress and maintain accountability.
ESG strategy framework: Key components
Building a strong ESG strategy requires a clear framework to guide the organization’s efforts. By focusing on the essential components below, companies can create a roadmap that aligns sustainability goals with business priorities.
1. Materiality assessment
A materiality assessment is a strategic process for pinpointing and prioritizing ESG issues that matter most to your business and stakeholders. It ensures that your organization’s ESG efforts focus on areas where they can have the greatest impact. Engaging with stakeholders during this process is key—it helps understand their concerns and expectations, leading to a more targeted and effective strategy.
Key stakeholders to involve include:
- Investors: Focused on financial performance and long-term sustainability.
- Employees: Interested in workplace values, DEI efforts, and sustainability initiatives.
- Customers: Looking for ethical and eco-friendly products or services.
- Suppliers and partners: Concerned about responsible sourcing and collaborative practices.
- Regulators and policymakers: Enforcing compliance with laws and sustainability standards.
- Local communities: Impacted by the company’s operations and environmental footprint.
2. Transparent and structured reporting
Using recognized reporting standards boosts the credibility and consistency of ESG disclosures. Frameworks like the Global Reporting Initiative (GRI) Standards, the Task Force on Climate-Related Financial Disclosures (TCFD), and the Corporate Sustainability Reporting Directive (CSRD) offer clear guidelines for reporting. Following these standards makes it easier to communicate your ESG performance effectively to stakeholders.
3. Suitable board structure and oversight
Setting up a governance structure with clear ESG oversight is essential. This includes defining roles and responsibilities at both the board and executive levels to ensure accountability. Whether it’s through a dedicated ESG committee or by adding ESG responsibilities to existing teams, having clear oversight makes it easier to integrate ESG considerations into corporate strategies.
4. Accountability mechanisms
Accountability mechanisms ensure transparency and drive progress in ESG initiatives. Regular sustainability reports, third-party audits, and clear key performance indicators (KPIs) are must-haves. These measures help stakeholders understand how well the organization is performing and show a commitment to continuous improvement.
5. Risk management
Incorporating ESG considerations into your risk management framework is critical for spotting and mitigating potential risks. These can range from environmental risks, like climate impacts, to social risks, such as labor practices, and governance risks, like compliance issues. Proactively managing these risks helps protect your reputation and maintain financial stability.
6. Stakeholder engagement
Engaging with stakeholders—including employees, customers, investors, and communities—is vital for understanding their perspectives on ESG issues. Regular communication and collaboration not only improve decision-making but also strengthen relationships, making your ESG strategy more effective.
7. Continuous improvement and adaptation
A strong ESG strategy isn’t static; it evolves with changing circumstances. Setting up processes for regular monitoring, evaluation, and adjustment keeps your strategy relevant and ensures it continues to address emerging challenges and opportunities effectively.
Empower your HR team to drive ESG strategies forward
ESG is becoming an increasingly important part of the HR agenda, requiring teams to play a central role in advancing sustainability, diversity, and governance initiatives.
HR teams need the skills to address these priorities but also to align business operations with stakeholder expectations.
AIHR’s team plans help your team members develop a deeper understanding of the business that, in turn, enables them to navigate complex ESG challenges and deliver meaningful, measurable business outcomes.
Challenges in developing an ESG strategy
Aligning ESG and HR strategies
Balancing long-term sustainability goals with immediate operational needs can be challenging. For example, shifting to more sustainable practices may require cultural transformation, reskilling employees, and cross-functional collaboration.
HR leaders need to embed ESG principles into talent management, employee engagement, and diversity initiatives, ensuring these align with overarching business and sustainability goals.
Data and metrics management
Collecting accurate and reliable ESG data is a significant challenge, as many organizations lack standardized systems for tracking and reporting.
Determining the right metrics to measure progress—such as carbon emissions, diversity ratios, or employee wellbeing—is complex and often varies by industry.
Companies also face difficulties integrating ESG data into existing systems, which may lead to fragmented reporting.
Developing an ESG roadmap
Crafting a clear and actionable ESG roadmap requires strong leadership and commitment from the board. Organizations often struggle to outline specific short-term and long-term goals, assign responsibilities, and allocate resources effectively. Without a well-defined plan, progress can be slow and inconsistent, impacting the credibility of the ESG strategy.
Ethical policies and social impact
Balancing business objectives with ethical practices presents an ongoing challenge. For example, maintaining fair labor practices and inclusivity while meeting cost pressures requires careful policy design and oversight.
Organizations must navigate potential conflicts between profit motives and social responsibilities, particularly in global supply chains where labor laws and standards vary.
Stakeholder engagement and supply chain transparency
Actively involving stakeholders such as employees, customers, investors, and communities is essential for trust, but managing their diverse expectations is not easy.
Supply chain transparency, especially in industries with complex or global operations, can be difficult to achieve. Verifying ethical practices, environmental impact, and compliance throughout the supply chain requires significant effort and coordination.
Regulatory and industry-specific challenges
Evolving regulations across jurisdictions can make compliance challenging, especially for multinational organizations.
Industry-specific concerns, such as climate risks in manufacturing or human rights in retail supply chains, add layers of complexity to the ESG strategy.
Limited resources and expertise
Many organizations, especially small and medium enterprises (SMEs), lack the financial and human resources to implement and sustain comprehensive ESG initiatives.
Expertise in ESG frameworks, such as GRI or TCFD, is often limited, making it harder to align strategy with global standards.
How to develop an ESG strategy
Creating an effective ESG strategy isn’t a one-size-fits-all approach—it requires addressing your organization’s unique challenges when implementing ESG initiatives. Whether you’re building a strategy from the ground up or enhancing an existing framework, focusing on your organization’s specific needs and priorities will ensure the approach is both impactful and practical.
Here’s a guide to developing an ESG strategy tailored to your organization’s goals and challenges.
1. Conduct a materiality assessment and establish baseline metrics
Begin by identifying the ESG issues most relevant to the organization and its stakeholders. This includes evaluating current practices, identifying gaps, and benchmarking against industry standards.
HR’s role:
- Conduct internal assessments to understand the organizational culture, practices, and employee perceptions related to ESG
- Use employee feedback surveys to identify gaps in areas like DEIB, wellbeing, and labor practices
- Gather baseline data on workforce metrics such as gender diversity, turnover rates, and training participation.
2. Set clear goals and develop policies
Establish specific, measurable ESG objectives, such as reducing carbon emissions by 10%, achieving gender pay equity within three years, or setting leadership diversity goals. Draft policies to support these goals.
HR’s role:
- Lead the development of social and governance-related policies, such as DEIB initiatives, ethical employment practices, and employee wellbeing programs
- Set diversity targets for leadership roles and implement policies to address pay equity.
3. Select and align with ESG reporting standards and frameworks
Choose appropriate reporting frameworks like the Global Reporting Initiative (GRI), Sustainability Accounting Standards Board (SASB), or the United Nations Global Compact (UNGC). These provide guidance for structuring and disclosing ESG activities.
HR’s role:
- Align workforce metrics, such as diversity, engagement, and turnover rates, with ESG reporting standards
- Collaborate with sustainability and legal teams to ensure compliance with reporting guidelines.
4. Educate your employees and leaders
Engage employees and leadership by educating them on the organization’s ESG commitments and their role in achieving them.
HR’s role:
- Organize training sessions on sustainable practices, ethical governance, and workplace inclusivity
- Develop engagement programs like volunteer days, sustainability challenges, and awareness campaigns
- Create a culture of accountability and purpose by encouraging employees to take ownership of ESG goals.
5. Build an ESG roadmap with leadership input
Develop a detailed roadmap outlining short- and long-term ESG goals, assigning responsibilities, and setting timelines.
HR’s role:
- Involve employees and leaders in the planning process through workshops and feedback sessions
- Ensure the roadmap incorporates workforce-related goals like wellbeing initiatives and leadership development for ESG skills.
6. Conduct third-party assessments
Engage third-party evaluators to verify ESG data and enhance the credibility of reports. Independent assessments can validate the organization’s performance in areas like labor standards and sustainability.
HR’s role:
- Coordinate with third-party assessors to evaluate the company’s social and governance efforts
- Prepare data on workforce metrics, employee satisfaction, and labor compliance for external review.
7. Monitor progress and adapt
Regularly track progress toward ESG goals, assess challenges, and adapt strategies as necessary. Use performance metrics and feedback loops for continuous improvement.
HR’s role:
- Monitor metrics like employee engagement, diversity progress, and retention rates to measure the impact of ESG initiatives
- Provide regular updates to leadership on workforce-related ESG outcomes and identify areas for improvement.
Tips for success
- Promote leadership buy-in: HR leaders can advocate for ESG as a strategic priority and ensure executive alignment.
- Leverage technology: Use HR software to track metrics like diversity, training participation, and carbon footprint reductions from remote work.
- Promote cross-functional collaboration: Partner with sustainability, operations, and compliance teams to align ESG efforts.
ESG strategy examples
Example 1: Ricoh
At the electronics company Ricoh, sustainability is embedded in HR’s responsibilities, led by a dual-role director overseeing both HR and corporate responsibility. The company’s approach focuses on embedding ESG principles into workplace practices, leadership programs, and operational policies.
- Flexible and agile work: Ricoh implemented agile working practices to reduce legacy property reliance, resulting in a 24% reduction in business travel and significant carbon footprint reductions.
- Fleet carbon policies: Limits on vehicle emissions for company cars and employee car allowances were introduced, with excess emissions contributing to sustainable infrastructure projects like electric vehicle charging points.
- Leadership and volunteering: All leadership programs require mandatory participation in community investment activities, and they also include policies promoting volunteering and reducing office waste.
Example 2: Siemens
Siemens has introduced a number of initiatives to address key ESG priorities, demonstrating the company’s commitment to driving long-term positive change.
- DEGREE framework: Siemens’ sustainability strategy focuses on decarbonization, ethics, governance, resource efficiency, equity, and employability.
- Community engagement: Education initiatives include partnerships with organizations like Green Power to teach sustainability-focused engineering and curriculum collaborations with Pearson.
- Sustainable skills pipeline: Siemens integrates ESG into recruitment and leadership development, aligning leaders with sustainability goals. Employees are given two paid volunteering days per year to enhance community impact.
Example 3: Unilever
Unilever’s Sustainable Living Plan emphasized employee wellbeing and environmental stewardship.
- Employee wellbeing: The Lamplighter program, which focused on improving nutrition, fitness, and mental resilience, reached 91,000 employees in 70 countries.
- Fair pay: 100% of the company’s direct employees were paid at or above a living wage by the end of 2020.
- Environmental targets: Unilever set out to halve office energy consumption and ensure 90% of office waste was reused or recycled by 2015, with zero waste going to landfills by 2017. They achieved both goals within the established time frame.
To sum up
HR is at the heart of making ESG happen. From driving diversity programs and creating sustainable workplace practices to ensuring compliance with regulations, HR brings ESG to life in tangible ways. Whether it’s conducting surveys to identify gaps, developing policies, or training employees on sustainability, HR is instrumental in embedding ESG into the company culture. The payoff? A resilient, forward-thinking organization that’s not just prepared for the future but is actively shaping it.
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