The world of corporate responsibility has evolved quickly. ESG initiatives are no longer nice-to-have accessories for businesses. These must-have assets add value to an organization and give a significant competitive advantage over others. A company’s ESG strategy has become increasingly central to its reputation and financial performance. ESG performance is scrutinized by several stakeholders including investors, rating agencies, and clients to predict the viability of the business.
The most effective ESG practices encourage high levels of engagement with all stakeholders, specifically employees. One of the many benefits of such engagement is higher retention rates for top employees. With the COVID-19 pandemic and rising demands for social justice globally, employees are now more driven to work for purpose-led organizations and companies that share their values. Additionally, ESG principles dictate greater care for the well-being of individuals, including employees. In this “Great Resignation,” job seekers have more flexibility to wait for positions in companies that can tangibly show efforts to care for their employees. Businesses that have established ESG initiatives have better odds for attracting new recruits and retention.
When a company employs ESG practices that focus on social and environmental good, it motivates employee loyalty, contributing to the overall success and productivity in the workplace. It is important to recognize that employee relationships (supplier interactions and connections, service to customers, engagements with the local and global community) are at the core of ESG profitability. Therefore, from an ESG perspective, the main stakeholder for any organization is its employees. Businesses need to actively engage with employees to successfully manage ESG strategy and meet ESG targets.
How does ESG matter to employees?
World events of the past couple of years have put social sustainability in the spotlight. Globally, employee and worker attitudes have shifted significantly with more and more people caring about the social impact of their jobs. In 2021, millions quit their jobs due to a perceived lack of job security, flexibility, and good pay. An evident lack of overall satisfaction in the workplace led to a loss of talent for many companies. While changing HR policies around employee compensation, flexibility, and job security may lead to some short-term improvements for companies looking to hire, long-term success in retention will be more likely affected by an organization’s ability to appeal to the emotional reasoning of employees by transparently displaying deeply embedded ESG endeavors. According to Mercer’s 2021 Global Talent Trends Report, 63% of businesses in Hong Kong say the ability to keep their ESG strategy visible to their employees has a significant impact on their success.
Furthermore, Mercer’s insights show that ESG has emerged as a key factor in engaging today’s workforce, as one in three employees prefer to work for organizations that show responsibility towards all stakeholders, not just shareholders and investors. Globally, employers with the highest ESG scores also perform 14 percent higher in employee satisfaction and are 25 percent more attractive to prospective talent than the average. In return, engaged employees strengthen a company’s talent pipeline for their long-term success. While it may sound too good to be true, engaging employees in making the world a better place through ESG practices improves a company’s financial performance as well as gives employees a sense of fulfillment by making an impact through their work.
How can businesses engage with employees?
ESG strategies promote investor confidence and business resiliency. This is evidenced by companies with previously established strong ESG programs outperforming and attracting more investment during the financial struggles associated with COVID-19. However, without the essential elements of employee buy-in, a company’s ESG strategy will underperform or end up unsustainable. Investing in ESG without a follow-up effort of employee engagement contributes to the higher probability that all the ESG investments made by the company will not lead to the desired payoff in the future. The following are the Top 4 ways businesses can engage with their employees for ESG success:
- Create buy-in for your employees.
Mandates for ESG reporting aside, businesses need to proactively generate buy-in with a strategic declaration of intent regarding ESG. As mentioned earlier, without this buy-in, ESG strategies cannot reach their fullest potential and can result in little to no return on investment. To avoid ESG strategies becoming a wasteful endeavor or nothing more than a hollow ideal, employees need to understand how these efforts will benefit external stakeholders (customers, communities, and investors via corporate brand reputation) and themselves.
Leaders within the organization also need to understand the value their ESG strategy creates for their employees. When higher-ups can answer the question of what this strategy means for employees, they can then lead by example as well as more easily motivate others to responsibly accomplish what is needed from them to make this strategy a reality. With employee buy-in, half the work in implementing an ESG strategy is already done.
- Collect employee input.
Similar to other types of stakeholder engagement, businesses should consider employee input when planning their ESG strategy. When they feel more ownership and personal investment in the initiatives, employees will more readily help companies navigate their strategy, resulting in a greater impact at the social and environmental levels. For example, employee input in favor of racial diversity can have a positive impact on corporate policies (e.g., the Diversity and Inclusion Policy), leading to successful acceptance of the recruitment and growth of a more diverse team at all levels of the organization.
Seeking, accepting, and acting on employee input boosts workplace morale and improves quality, productivity, customer service, and safety concerning ESG initiatives. At every viable opportunity, businesses should encourage employee input and provide positive recognition and reinforcement for this feedback.
- Embed ESG in your work culture.
A natural result of businesses truly embracing their ESG strategy by embedding it into the core and culture of their organization is greater employee engagement. Though any investment requires an initial cost, ESG strategies, when properly implemented, are proven to lead to improved financial standing. Engaging employees around sustainability issues beyond the typical CSR/Philanthropy departments has been shown to strengthen a company’s competitive advantage, financial performance, and brand reputation. Employees being able to craft sustainability outside of these normal silos generates more opportunities for the realization that their work does contribute a positive impact.
An embedded ESG culture also attracts talent and increases retention rates. A Marsh & McLennan study found that the employers with the highest employee satisfaction rates and the most appeal to recent university graduates tend to be the ones with lower carbon emissions, more diversity, and displayed efforts to understand employee feelings.
- Drive top-down and bottom-up behavior change.
For any successful transformation within an organization, those leading the change need to focus on creating tools and training to help every individual align with (and/or adjust to) the desired way of thinking and working, especially when it comes to deeply embedding a new value set. Establishing an unconscious habit for the entire organization takes time and transparency from every participant. It is critical for the establishment of an ESG strategy that all levels of the organization are held accountable for their part in driving it forwards. ESG efforts do not do much for employee satisfaction unless employees are aware and actively participating. Clear communication and a compelling ESG narrative are essential to gain the workforce benefits of ESG performance.
By offering employees a “So What?” statement regarding ESG and allowing them to contribute a “voice,” businesses can implement a lasting ESG strategy within the workplace. By embedding ESG into the company culture to drive change throughout the organization, leaders will create the greatest potential for the desired return on investment to come to fruition. Deciding to engage employees and nurture a positive mindset towards ESG requires maximum transparency and minimal effort, as most of the work would be done by employees taking ownership of their actions in making the world a better place through their work.
Experienced in corporate sustainability in both developed and emerging markets, Fatima Fasih has over 5 years of experience in advising businesses on their sustainability strategies and reporting. She also assists businesses in identifying their progress on the UN Sustainable Development Goals.
Currently, working as an independent Sustainability Consultant, Fatima holds a Masters degree in Sustainability Management and Bachelors in Health Sciences and Environmental Science from the University of Toronto.
She is also certified a Greenhouse Gas Inventory Quantifier (GHG-IQ) and aims to work towards pushing businesses to play a larger role in solving the world’s biggest sustainable development problems: hunger, poverty, and inequality.