Having a strong Environmental, Social and Governance (ESG) proposition continues to be significantly important for businesses, with more and more beginning to understand the value and impact. This is not only true of financial performance but also in attracting and retaining diverse talent. In fact, a report by Marsh McLennan, ‘ESG as a workforce strategy’ found that ESG performance can have a positive impact on employee satisfaction and is key to attracting emerging talent, especially millennials and Gen Z who place greater emphasis on environmental and social concerns. Results from the study showed that top employers, as measured by employee satisfaction and attractiveness to talent, had ESG scores 14% higher than the global average (Marsh McLennan: ESG as a workforce strategy).
As a growth consultancy business, IDEX continue to place considerable importance in this area and as such, we spoke to our own Strategy and Sustainability Director, Geoff Guerin to get his thoughts on the steps businesses can take to start to implement and measure an effective ESG strategy.
What is ESG and why is it important?
Environmental, Social and Governance (ESG) are often referred to as the pillars in ESG frameworks. They are a set of standards which measure a business’s impact on society, the environment and how transparent and accountable it is, used by companies to demonstrate activity in these areas. It also provides a structure for businesses to report back to stakeholders and investors with a broader set of measurements on company performance, than just the financial.
There is growing evidence that ESG policies and practices can have a positive impact on business growth, investment, brand and reputation and subsequently customer and talent acquisition. A report conducted by PWC, which surveyed 325 investors globally showed that the majority were more likely to invest in companies with clear ESG goals, in fact around 50% said they were willing to divest from companies that didn’t take sufficient action on ESG issues (PWC: The economic realities of ESG).
How do you define and measure the ESG performance of a company?
There are a significant number of methods you can use to measure a business’s ESG performance, it is important to choose something that fits your business in terms of size and sector. It will also depend on the motivations of the owners and stakeholders within the business. If the goal is solely to be a business that can demonstrate its ESG credentials to outside investors, then having very formal frameworks in place are a requirement and will really help. If a business is thinking more about a wider sustainability approach that might not attract the same levels of external scrutiny, less formal but still effective reporting measures can be applied, to still give great value and drive the ESG and sustainability agenda.
For businesses that don’t have an ESG strategy, what initial steps do you recommend they take?
The first step is to acknowledge that this is an inevitable requirement that every organisation will need to meet. Organisations will need to look throughout their supply chains to understand key data such as, the quantity of carbon produced, any business needs to understand this and be able to measure it, ideally setting a Science Based Target and measuring against it. It is also important for organisations to think more broadly than just ESG and give thought to their wider sustainability impact and how this can be measured across a broad range of factors. The UN have 17 sustainable development goals that organisations can use as a framework to develop their strategy, and many will find that they are doing some work in a number of these areas already.
What impact can a robust sustainability strategy have on talent attraction and engagement?
Working for an employer that cares about their role in society, operating ethically and proactively thinking about its impact on a wider range of stakeholders is being seen as an area where organisations can develop a competitive advantage. As well as the financial and wider package of benefits, people increasingly want to be part of a quality organisation who care about the impact it makes on the world.
It's no surprise that people seek purpose in their careers and working for a purpose-driven and inclusive organisation with a clear mission and values is a top priority for professionals in today’s market. Anthesis, UK sustainability research and advice company, found that 40% of UK workers are disappointed by the lack of focus and effort on sustainability by UK organisations and around a third of Gen Z talent say they’re more likely to work for a company that has a strong green footprint and is ethically driven (Anthesis: Research reveals sustainability is vital for employee attraction and retention).
How can employers engage their workforce in their ESG strategy?
The key is to start by understanding the areas that are important to a workforce and then develop a strategy, together with the wider team and stakeholders that includes employee views and works for the business model and long-term vision. This can be carried out through surveys, interviews and focus groups. From this, being clear on where the organisation wants to focus, engaging with teams to understand what initiatives can be developed and then promoting and reporting the progress made on an annual basis is a great place to start. As with all engagement, it needs to be a two way process and the organisation should listen and adapt their strategy in line with the key areas being identified by their workforce.
What actions can employees take to support sustainability practices?
It is important that an employee speaks to their employer about their interest in the ESG strategy and where and how they can get involved. Giving them this clarity will help the business understand what is important and which initiatives should take priority, plus where resource can come from. Have communication channels in place to give people the opportunity to share and feedback on topics such as these, so they feel empowered to contribute and collaborate. Knowing what is important to employees means businesses can adapt their sustainability strategy and work with teams to build something that not only resonates across the company but importantly, something that people feel motivated and inspired by. This is how organisations can collectively work together to make a difference.
ESG practices and commitments will be different for organisations but it is important to collectively define the purpose and strategy based on commercial activities, cultural values and what matters most to employees. Once the strategy has been defined, it’s important to develop a roadmap to ensure the various goals and objectives are met. Meaningful progress towards ESG goals and sustainable practices will continue to influence growth, investment and customer loyalty as the business world transitions to a sustainable focused economy.
Forbes: The impact of Environmental, Social and Governance (ESG) issues on companies today
Harvard Business Review: Social-impact efforts that create real value
Marsh McLennan: ESG as a workforce strategy
PWC: The economic realities of ESG
United Nations: Sustainable Development