Employers and ESG

There has recently been increased momentum and interest in employers’ environmental, social and governance (ESG) credentials. This is in response to the expectations of investors, employees, customers and regulators, for employers to act ethically and responsibly.

So what is ESG?

ESG refers to a broad range of environmental, social and governance factors. Environmental takes into account factors such as a company’s carbon footprint, its impact on bio diversity and its production of wastes and pollution. In an employment context, environmental factors might focus on sustainable commuting or volunteering at relevant organisations. The social aspect measures how employers treat their workforce, customers, suppliers and the wider community. Key employment considerations would be an employer’s approach to gender, diversity, pay and equality for example. Governance aspects measure how a company operates in terms of leadership, executive pay, audits and internal control.

Why does ESG matter?

With more attention and scrutiny being placed on ESG, an employer’s ESG performance can affect its reputation, productivity and ability to retain and attract talent as well as its standing against its competition. Research has shown that ESG is becoming a key factor for employees with one in three employees preferring to work for organisations that demonstrate good ESG qualities.

Poor and unethical working practices can damage an organisation’s reputation and affect its share price. For example, in 2020, online fashion retailer Boohoo saw a significant drop in its share price when news articles widely reported regarding a low pay culture and poor standards in its supply chain. Similarly, the decision by P&O Ferries to dismiss nearly 800 employees by video message and replace them with temporary crew from an agency was met with shock from not only the affected employees but also the public, trade unions and the government.

What can employers focus on in relation to ESG?

When organisation’s are considering ESG in relation to their employment practices, a lot of the key areas of focus fall within the social aspect. Areas that employers can focus on include:

• Diversity, Equity and Inclusion;
• Employee wellbeing, in relation to both mental and physical health;
• Whistleblowing processes;
• Pay and pay gaps; and
• Employee engagement.

In terms of environmental aspects, employers can consider formulating and implementing climate-conscious policies. When considering governance aspects this can be in relation to diversity and pay gap reporting as well at anti-bribery, corruption and tax evasion issues. We have considered some of the social aspects in more detail below.

Diversity, Equity and Inclusion (DEI)

A workplace culture that promotes equity and diversity can encourage employee retention, attract the best candidates, increase motivation and productivity as well as enhancing an employer’s reputation. A diverse workforce also enables an employer to draw on a wide range of talent. There are also significant risks if employers do not prioritise DEI or even ignore it. For example, high incidences of sexual harassment can have significant impact on an organisation. In terms of practical considerations, employers should ensure that that they have adequate policies in place for DEI and also that they are complying with any diversity reporting requirements which . To support diversity in the workforce, employers can also consider implementing additional family friendly leave policies and entitlements beyond the statutory minimum requirements and taking steps to develop an inclusive workplace culture.

Health and wellbeing

In addition to employer’s legal responsibility to take reasonable care of the mental health and wellbeing of their employees there is a clear link between employee wellbeing and financial performance. Research by Deloitte found that the cost to business of mental ill health in 2020-2021 was £53-£56 billion. Employers should consider implementing workplace policies in relation to stress and mental wellbeing to support those in situations where they are suffering with their mental health and also to put into place working practices to hopefully increase mental wellbeing in the workplace. This can include initiatives such as remote working and flexible working policies as well as smaller initiatives like encouraging interaction with employees, offering support and regular breaks and rewards.

Pay Practices

Private employers with 250 or more employees are required to analyse their gender pay gap on 5 April each year and publish their gender pay gap report within 12 months. Some organisations are voluntarily choosing to report on their ethnicity and disability pay gaps even where there is no mandatory requirement to do so.

Employee engagement

There has been a clear shift to demonstrate that employees are now more driven to work for purpose-led organisations and companies that share their values. One of the benefits of high levels of employee engagement is higher retention rates. To succeed on this basis, employers need to proactively seek buy in to their ESG initiatives. Employers should encourage employee input on how to embed ESG within their work culture and provide positive recognition for feedback.

There are many different approaches an employer can take when considering ESG, depending on the resources available and significance to the organisation. Whichever way an employer wishes to demonstrate its consideration of ESG, it is important that it is not ignored.

For further information on the employment aspects of ESG or for help with relevant policies, please contact a member of the AfterAthena Team.