The letters ESG first appeared in a 2004 report called “Who Cares Wins”. The report was commissioned by the United Nations, and invited the world’s most prominent financial institutions to look at sustainable investment solutions.
In 20 years, the ESG framework has grown from a document detailing how corporations can grow sustainable, to having around $30 trillion in assets worldwide that now fall under the ESG initiative.
What Is ESG?
ESG stands for Environmental, Social and Corporate Governance. Companies that meet the criteria are far more likely to attract investment or be earmarked for purchase. Financial institutions like Vanguard and Blackrock won’t allow any investment in companies that aren’t meeting the ESG criteria, and most venture capital firms also follow this line.
In short, bringing your business under the ESG umbrella makes you an attractive proposition if at some time in the future you seek investment or want to sell the company.
What Are The Criteria?
Environmental:
This part of the ESG criteria focuses on the preservation of the natural world. Investors, look at how your business is accelerating climate change. They want to know your carbon footprint and energy efficiency rates. For more industrial businesses, water management and pollution are a key factor too.
Social:
Addressing the human capital aspect of your business is the second key factor. How inclusive is your business? Does your business support a diverse workforce? It also looks at overall employee engagement and how well you treat your employees.
Governance:
Last, you are scored on the composition of your boardroom (diversity). Also, your cyber security and data governance practices, as well as liability to corruption and bribery.
The scoring system runs from 0 to 100. With a score of below 50 being poor, and a score of 70+ being good. An investment company would score your business before making an investment decision. If you score too low, you won’t get the investment.
Things get pretty granular when enormous sums of money are being thrown around, so it’s ostensibly a credit score for everything other than the financial balance sheet of the business.
How Can An Employer Of Record Raise My ESG Score
There are several ways an Employer Of Record can raise your ESG score, and we have a confluence of ideas for you to consider.
CO2 Emissions Reduction
Engaging an EoR helps reduce your need for cloud infrastructure, which reduces your carbon footprint. Building out an entire HR team, running payroll, onboarding, offboarding, training, it all contributes to your carbon footprint. Multiply this by 2 or more locations if you seek to expand internationally, and that’s a giant amount of cloud infrastructure and CO2 output you’ll have to account for when another funding round comes along. It will also stand against you if you decide to sell the company.
Payroll Vendor Consolidation
If you’re using multiple payroll vendors in different geographical locations, you’re making your ESG score worse than it should be. Investors will take this fractured, inefficient way of doing payroll into account and may offer you less money when it comes time to expand.
Enhanced Data Governance
Since cybersecurity is at the forefront of the ESG protocols, it pays to be secure. How secure is your infrastructure? The infrastructure you have today might be robust enough to handle the business side of what you do, but what about the HR side? Hiring dozens of staff directly means holding their personal bank data directly. What if hackers take your employees’ data and get access to their bank accounts? When you engage an Employer Of Record you shift that burden to the EoR.
Hiring Diversity Targets
A well-established Employer of Record like Emerald has a vast network of contacts to call upon when your business needs new staff. This includes women, BIPOC and neurodiversity hires. This aspect of your corporate human resources is probably the one that gets most media attention. Emerald searches for, and hires executive talent in dozens of countries and is well positioned to help you meet your diversity targets. Knowing and understanding the local parlance is key when hiring remote staff, Emerald have you covered.
These are the four fundamental ways an Employer of Record can help you build a corporate structure that looks favourable to investors. If you have questions, we are here to answer them, and of course as an Employer Of Record, we have the solutions to your ESG problems.
Our team is here to build your team.
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