What is ESG and What Does it Mean For Employers?

ESG stands for environmental, social and governance. It is a tool for organizations to measure their sustainability in these given categories and becoming an important part of conversations in business today. But what does it mean for your business as it relates to being an employer? Below, we break down ESG and dive into some of the areas in your hiring practices that you may want to look at with an ESG mindset.

Gabrielle Christman, President & CEO of Hunter International Recruiting, has over 16 years in talent attraction and retention, hiring for Fortune 500 companies across the nation. She explains her perspective on this initiative, “ESG should be on the forefront of every business leader’s mind right now,” she explains. “Current and potential clients, current and future employees, stakeholders, investors and more will be asking about your company’s ESG proposition when evaluating their relationship with your business.”

While getting ESG wrong can hurt your business, getting it right can propel your business’s profitability, reputation, relationships and overall contribution to creating a more sustainable and socially responsible future. One study found that top employers rated by employee satisfaction and attractiveness to talent have significantly higher ESG scores than their peers. From other research published by Gallup, we know that employee satisfaction directly correlates to a 14% increase in productivity, a 18% decrease in turnover and 23% greater profitability.

This trend is only more likely to increase as Gen Z is projected to make up 27% of the world’s workforce in 2025. This generation has been shown to be more focused on ESG initiatives, including diversity, equity and inclusion (DEI) and sustainability. To stand out to new talent, employers should start by benchmarking in environmental, social and governance areas and set goals in areas that need improvement.

Below are some areas employers should consider developing to improve their ESG practices.

Diversity, Equity and Inclusion (DEI)

Diversity, Equity and Inclusion should not be a new term for employers; however it plays and important role in ESG practices. Christman explains, “An effective DEI strategy should span across your workforce initiatives and be integrated into conversations about your talent attraction, engagement and retention goals.”

Some strategies you can implement now include offering DEI learning opportunities, utilizing inclusive language in internal communications, examining hiring practices to mitigate implicit bias and utilizing employee resource groups. Companies with DEI goals can also leverage data to track results, find areas of opportunity and report progress to shareholders.

However, research from Gartner found that while 69% of organizations prioritize diversity and inclusion (D&I) accountability, 60% of them also say that leader accountability is the biggest obstacle to realizing D&I progress. To hold leaders accountable, businesses should provide education and resources for leaders, determine effective means of communication and clearly define their role in D&I.

By taking a proactive and strategic approach to implementing and integrating DEI initiatives, and getting leaders on-board, you can expect to see better retention and talent attraction to your organization. A 2020 study by Glassdoor found that 76% of employees and job seekers named diversity of the company’s workforce as important when evaluating companies and job offers. To stand out to stakeholders, DEI practices should be integrated into all aspects of your business.

Employee Well-Being

Employee well-being can include a number of different factors involving a company’s physical workspace, culture, benefits, and policies. Christman describes how well-being has evolved over the years, “Previously, employee well-being initiatives were a nice-to-have option, but now they are an essential component for employees and job seekers.” She continues, “Leaders are being held accountable for proactive efforts and the promotion of employee well-being.”

Employee well-being goes beyond office snacks and free coffee, and spans across organizational policies and environments. Some tactics for building out an effective well-being strategy, can include creating flexible scheduling options, encouraging open communication, providing professional development training, developing an effective physical workspace and promoting your organization’s purpose.

By implementing an integrated approach to incorporating well-being into policies, physical workspaces, programming and other areas, employers can stand out to current and potential talent. Employee well-being efforts have been linked to both talent retention and workforce productivity. Research from Deloitte found that when organizations support the well-being of their people, they can experience lower turnover, lower burnout, increased engagement and greater productivity. Additionally, a study conducted by Paychex found that more than 6 in 10 employees say well-being support programs/benefits will be a top priority for them when applying for their next job.

Beyond employee satisfaction, increased work performance, talent attraction and more, employee well-being is critical to future business growth and following ESG best-practices.

Sustainability

While ESG governs how the world impacts a company, sustainability focuses on how the company impacts the world. In recent years, sustainability has become a focus for many business leaders, with an estimated 90% of companies on the S&P 500 index publishing a corporate social responsibility report in 2019, compared to just 20% in 2011.

Christman explains this development, “Companies are investing more than ever into sustainable efforts.” She adds, “From bringing in Chief Sustainability Officers, to setting net-zero carbon goals, organizations will be expected to be sustainably conscious as we move into 2023 and beyond. Those that are finding creative and innovative ways to weave in sustainable practices will be the most competitive in the marketplace.”

Sustainable practices go beyond business benefits, and additionally can contribute to talent attraction and retention. A 2022 Deloitte report found that 49% of CxOs agree that their company’s current sustainability efforts have/will have a positive impact on brand recognition and reputation and 42% agree that it has/will have a positive impact on employee morale and well-being.

But what can employers do advance their sustainability efforts? To start, companies can incentivize employees to follow sustainable best-practices, support a flexible working environment, reduce business travel requirements and promote corporate sustainability goals. By getting everyone educated and on-board with your organization’s efforts, you can start making an impact on your business’s ESG goals and contribute to making the world a better place.

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