What is “ESG”?

ESG refers to the Environmental, Social and Governance factors of an organisation. The marked shift in attitudes and growing importance of ESG has resulted in an expectation from shareholders, employees and other stakeholders that employers should go beyond merely having internal policies that comply with legislative and regulatory requirements, by taking pro-active steps to increase awareness and minimise any negative impact of the key ESG factors.

Why is ESG important for Employers?

The Covid-19 pandemic led to an increased focus on business resilience, which is now routinely seen to be directly connected to good ESG management. This, and the ability to connect a business’ operations and “purpose” with future societal changes (such as the transition to a low carbon economy) are seen as increasingly important indicators of the future profitability of a business and there is a related push to create an “ESG narrative” for businesses.

Your ESG performance as an employer will impact:

• Reputation. If you fail to meet and maintain your ESG performance as an employer, this can have a negative impact on your reputation. Low ESG performance can  dissuade employees from joining your workforce in a climate where people are increasingly concerned about such values. This can also push your existing employees to leave your workforce and harm the overall image of your business.
• Company value. Low ESG performance has been linked to a drop in share prices and the overall value of the company. Investors are increasingly concerned about the ESG performance of a business and are unlikely to invest in a business that is failing to meet its ESG criteria.
• Productivity. Research* has shown that businesses with a strong ESG policy have a more productive and engaged workforce as strong ESG principles often assist with creating inclusivity.
• Employee satisfaction. Research* has also shown that employers with high ESG performance have highly satisfied employees and are more attractive to young, incoming talent.
• Attracting the best talent. In light of the increased awareness, Gen Z employees are significantly more concerned than previous generations about the social and ethical values of their potential employer. The higher the ESG performance, the more successful you will be as an employer in attracting and retaining talent in the future.
• Legal compliance. There are numerous elements of ESG that are underpinned by compulsory legal requirements, for example, preventing bribery/ money laundering and reporting on your gender pay gap. Complying with such requirements is fundamental to ensure you do not breach any laws.

What can employers do?

Refining your ESG performance requires a multi-layer approach in order to ultimately develop a socially responsive and sustainable business model.

As an employer, you may wish to consider reviewing and building on the following:

• Diversity, equity and inclusion (DEI) –  You may wish to consider taking the following ongoing actions to improve diversity, equity and inclusion in the workplace:
  • Carrying out effective equality monitoring during recruitment and employment to identify any inequalities and areas in which further support or changes are required to achieve equality of experience, whether their DEI policies are working in practice and to obtain the data from which DEI targets can be set
  • Set realistic, measurable DEI targets and establish clear board accountability for meeting those targets.
  • Review recruitment and promotion practices. This should include stating your commitment to DEI principles in job advertisements and considering using positive action, where appropriate.
  • Regularly review and where necessary, update DEI and bullying and harassment policies to ensure they reflect best practice and provide training to all staff on the policies at induction and regularly thereafter.
  • Mentor junior employees and potential employees, particularly those with protected characteristics that have been identified as being under-represented or potentially disadvantaged in the company.
  • Sign up to equality initiatives, such as the Race at Work Charter and Disability Confident scheme.
  • Implement management and staff training (for example, unconscious bias training and inclusive leadership training).
• Employee wellbeing from a mental and physical perspective. The connection between mental health and physical health has led to companies seeking to support employees’ physical wellbeing as a way of also supporting their mental wellbeing. This may be through initiatives such as subsidised gym memberships and related benefits as well as through workplace policies.
• Benefits/ incentives or schemes. You may also wish to explore cycle to work schemes, e-vehicle schemes, workplace charging points and less business travel with a view to driving sustainability and environmental consciousness.
• Pay. Employers’ pay practices are under increasing scrutiny due to pay disclosure legislation and demands from regulators and investors for greater pay transparency. Are you paying your employees a competitive salary that reflects their responsibilities and what does your gender pay gap look like? Fair and equitable remuneration is a key aspect of overall employee satisfaction.
• Policies and practices. Currently, there are few employment laws requiring employers to take account of climate change. Whistleblowing legislation protects whistle-blowers from detriment or dismissal for raising concerns about an organisation’s environmental practices. There are a number of aspirational climate-aligned legal initiatives for inclusion within employment contracts or staff handbooks, including:
  • A garden leave clause permitting employees to undertaking climate-related volunteering activities.
  • A sustainable commuting policy.
  • A flexible working policy to support achievement of net zero target.

It is imperative that as an employer, you are aware of ESG requirements and remain ahead of the curve taking a leading role, where possible – not least to allow you to achieve a competitive advantage in today’s market and to create opportunities for growth.

The Employment Team at Berry Smith often advise employers on ESG principles and regularly draft and advise on various ESG related policies, practices and employment related clauses.

Please contact us if you would like more information about the issues raised in this article or any other aspect of employment law at 029 2034 5511 or employment@berrysmith.com

*research conducted by Marsh McLennan on ESG as a Workforce Strategy: link.