According to Investopedia, the term human capital refers to the economic value of an employee’s collective experience and skills. It is an intangible asset and cannot be accounted for on a company’s balance sheet. It is commonly understood that the strength of human capital is an important driver of a company’s success and productivity.

This same argument holds true for ESG strategies and implementation. As companies chart their sustainability journey, human capital represents a primary lever in unlocking the interconnection of material ESG issues and identifying long-term impacts.

With ESG issues increasingly becoming a central priority in business decisions, here are four key steps companies can take to strengthen their human capital approach to create meaningful positive impacts and deliver effective sustainability-linked outcomes.

Establish a clear structure to manage sustainability

Each company’s ESG exposure might be vastly different depending on its operating environment, stakeholder expectations, geographical footprint, and other material factors. Further, ESG issues are multifaceted and deeply rooted in many business functions. As a result, there is no one-size-fits-all approach to operationalising ESG or sustainability. Some companies have established dedicated sustainability departments while others opt to manage ESG issues across various business units. Both approaches can be effective in ensuring the successful implementation of ESG strategies.

What matters is that companies adopt a governance model that best fits their organisational culture and reporting structure. A clear governance model minimises duplication of efforts while ensuring companies deploy the right resources to oversee and manage ESG issues. Given that ESG issues encompass a broad spectrum of topics, it also allows companies to tap on relevant expertise and experiences to devise suitable strategies and implementation plans.

Measure and incentivise ESG outcomes

I am a firm believer of the old adage “you can’t manage what you can’t measure”. In the world of business, financial metrics such as Return on Investments, Net Profit Margin, Compounded Annual Growth Rate are often used to measure performance outcomes.

To ensure we derive value from ESG strategies, we must adopt the same principles and measure ESG-focused metrics related to key priority areas for the organisation. This minimises the risk of greenwashing claims and allows companies to transparently report on sustainability progress and achievements through a quantitative approach.

Today, many companies routinely include ESG-related metrics into company scorecards and key performance indicators of their employees. Such an approach ensures ESG issues are aligned with corporate goals and individual objectives, thus allowing for a deeper internalisation of ESG factors within the organisation.

Create a pipeline of ESG advocates

All companies, regardless of size, should cultivate internal champions and change agents to drive ESG throughout the organisation across all levels, from board members, C-suites, and management teams to junior executives. This will help foster a stronger internal appreciation of ESG issues, coordinate and deliver ESG efforts while enabling companies to adopt a holistic approach to manage complex issues such as climate change, human rights, biodiversity impacts, among others.

Moving forward, it is vital that companies systematically identify internal champions and empower them to spearhead sustainability-related projects and initiatives by providing them with the necessary resources and support to excel. To encourage more employees to become ESG advocates, companies should also invest in awareness creation programmes that demonstrate the positive impacts of sustainability investments to the organisation as well as the planet and wider society. These methods, if employed continuously, can expose the workforce to diverse viewpoints while driving enterprise-wide culture transformation to support long-term ESG goals.

Develop structured learning and development programmes

Last but certainly not the least, companies must ensure there is a robust strategy for learning and development to build internal capacities on various ESG issues. Aside from their complexity, ESG issues are also constantly evolving driven mainly by changes in regulatory environment and stakeholder expectations, convergence in sustainability reporting standards, and the emergence of innovative technological solutions in advancing the sustainability agenda.

Thus, companies must embrace the changing business needs and support continuous upskilling and reskilling of corporate sustainability practitioners within the organisation. It is important that practitioners have the right knowledge and skills to craft high-quality ESG strategies and manage delivery of programmes and initiatives. To this end, Bursa Malaysia, in collaboration with UN Global Compact Malaysia and Brunei, has developed the Corporate Sustainability Practitioner (CSP) Competency Framework, along with a digital self-assessment tool for the use of practitioners. I hope both the framework and the digital tool will be useful for companies and individuals that are embarking on a sustainability journey. With the framework and the digital tool, Bursa Malaysia aims to create a common reference point for capacity building and help corporate sustainability practitioners to be more effective in their respective roles.

There are numerous other approaches companies can employ to drive human capital development to advance the ESG or sustainability agenda. It is important that companies adopt a structured approach that is both practical and realistic. As the nexus between ESG and financial performance continues to grow, companies must also ramp up investments to manage human capital to drive ESG outcomes or risk being left behind.

As we work to establish a low-carbon economy, I will write on the importance of "just transition" in my next post.