A few years ago, ESG was an unknown acronym in workplaces. Today, it is something that modern employers are embracing, driving, and championing.
ESG in the Workplace refers to the impact it has, specifically in the Environmental, Social, and Governance contexts. Conventionally, ESG information was considered extremely useful to potential investors; but today it has a far deeper meaning, with ESG becoming a key part of an organization’s overall mission, vision, and business value proposition.
Here’s a closer look at what ESG in the workplace is and why it matters.
Understanding ESG and Its Importance in the Workplace
In the context of employment, a business’s social and governance impact is extremely relevant to the workplace. The social impact will typically relate to how business relationships are managed, especially between employees and their managers. The governance impact will focus on leadership approaches, internal best practices, and decision-making mechanisms.
While these value propositions may overlap, generally the below are the most significant areas to understand relative to an organization’s ESG impact:
- Diversity and inclusivity within the workforce
- Recruitment, onboarding, and retention
- Work culture and business practices
- Employee health and wellbeing
- Compensation and benefits
- Internal policies and SOPs
When focusing on these areas, businesses will have to consider aspects like:
- Are they are fostering a healthy workforce?
- Are they are investing in the right people?
- Are their business framework and culture sustainable?
- Are they doing enough for employee health and wellbeing?
- Is the compensation model competitive?
- Are internal policies in need of an update?
Why should employers be investing in this ESG exercise? Because the right investment in people, policies, and culture can yield valuable benefits for any business. These can include the following:
With a negative outlook on ESG, businesses run the risk of negative publicity, public criticism, as well as damage to their credibility and reputation. Therefore, businesses must not only work toward building a more positive ESG impact, but they must also keep their ESG-related claims as accurate as possible.
Information that is false, misleading, or misrepresenting the true state of ESG measures will also damage business credibility in the long and short run. If unaddressed, this can have a severely negative impact on a business’s talent acquisition strategy framework and its ability to retain employees.
Legal and Global Compliances
In many parts of the world, countries and labor legislations already set down certain ESG criteria with which businesses must comply. From laws that require fair hiring practices to those that uphold human rights, to policies governing insubordination write ups, many can impact how a business operates.
Failure to comply with such legislation and/or regulations can give rise to extremely serious legal consequences; and for businesses that operate on an international scale, complying with global best practices is crucial for them to continue doing business. The consequences of non-compliance can include lawsuits, penalties, and damages, including damage to a business’s hard-earned reputation.
Another significant consequence of poor ESG is the radical reduction of positivity and motivation within the workforce. Employees are important stakeholders of any business, especially when considering long-term success; and with growing political and social awareness among modern workforces, businesses can’t afford to ignore societal issues any longer.
Younger workers will almost always expect their employers to take a stance on certain important issues, but employers that do not meet this expectation risk a decrease in employee engagement and an uptick in worker turnover.
New Investor and Customer Acquisition
More people, including potential investors and new customers, are increasingly aware of ESG and will look for it in any organization with whom they do business. ESG, therefore, will impact how these parties make their purchasing or investment decisions.
For firms that place ESG low on the priority list, this can become a real problem. They may experience increased difficulties in acquiring new customers or investors, and by extension, increased difficulties in maintaining cash flow.
Improved Business Performance
Complying with ESG benefits businesses in a financial context as well. With properly managed ESG initiatives, businesses can scale sustainable growth and value. From highly engaged workforces to lowered risk mitigation expenses and minimal employee turnover, businesses with a well-managed ESG impact usually perform better than those that don’t value ESG as a key business goal. The reputational benefits can also include a positive perception among potential buyers and investors, and even a local staffing agency in Denver, driving down the costs per acquisition.
ESG is not simply an employee engagement exercise – it is quickly becoming critical to business success. It must be managed effectively for the best possible impact.