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Workforce strategy in the time of coronavirus: The role of ESG

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As unemployment soars during the coronavirus pandemic, a key challenge for business is how to ensure a strong workforce pipeline for when the crisis recedes. 

Companies with satisfied staff and high attractiveness to prospective hires will have an advantage when the competition for talent heats up. New research from Marsh & McLennan suggests these firms are likely to demonstrate strong performance on environmental, social and governance (ESG) factors.

The growing importance of ESG 

In recent years, ESG investing has gone from niche to mainstream, but it has not stopped there. The value of ESG data is increasingly recognized by a range of stakeholders. 

For example, rating agencies are incorporating ESG into their assessments of creditworthiness and racing to provide ESG scores alongside their credit ratings; financial regulators and policymakers are incorporating ESG into supervisory frameworks and reporting requirements; and clients are considering ESG when making procurement decisions. What’s more, consumers are placing a growing emphasis on companies’ ESG performance, with nearly two-thirds of customers around the world choosing or avoiding brands based on their stance on social or political issues.

ESG performance and workforce

Now employees should be added to the list of stakeholders scrutinizing ESG performance. 

For example, companies with highly satisfied employees tend to be ESG outperformers. Fortune’s 2019 Best Companies to Work For have ESG scores 14 percent higher than the global average. 

ESG outperformance is even more pronounced for companies most attractive to students and young professionals: Universum’s 2019 World’s Most Attractive Employers have ESG scores 25 percent higher than the global average.

Exhibit 1 - Marsh & McLennan

Environment is key

The top companies by employee satisfaction and attractiveness to young talent have particularly strong environmental scores — about 25 percent and 17 percent higher than the global average, respectively.

Consider carbon emission intensity (emissions per unit revenue): Companies with high employee satisfaction and attractiveness to young talent have notably lower emissions intensities than their peers. This is the case in high-emitting sectors, where for example, the most attractive companies to young talent have an average emissions intensity 24 percent below the global average, and in low-emitting sectors, where the difference increases to 49 percent.

Exhibit 2 - Marsh & McLennan

These trends are unfolding in real time. Some companies have been able to promote a culture of pride through their environmental or social performance, while others have had to deal with employee activism from staff unhappy about performance on climate change. Just as investors increasingly expect corporations to embrace the transition to a low-carbon economy, so too, do employees. The Edelman Trust Barometer 2020 found that almost three-quarters of employees believe it’s important for their CEO to speak out on climate change.

The next generation

The link between ESG performance and workforce sentiment is set to strengthen. In the immediate term, the coronavirus pandemic and the economic chaos it has unleashed may lead to greater concern about "big issues" such as inequality and climate change. 

Research from Lippincott in the thick of the crisis has found strong support around the world for greater action on major societal challenges and for climate change to be a focus of recovery efforts. This implies staff may value companies that demonstrate strong ESG performance through the crisis and redouble efforts to tackle climate change on the other side.

Looking beyond the immediate crisis, the premium placed on ESG performance by staff is likely to increase as more young people enter the workforce. 

The pandemic could provide a real opportunity for firms to strengthen their commitments on ESG issues and gain a competitive advantage in the struggle for talent when recovery begins.

By 2029, the millennial and Gen Z generations will comprise 72 percent of the global workforce. These generations tend to exhibit greater concern about environmental and social issues and will bring these values into the workplace. 

For instance, the 2020 Global Risks Report found that young people consider environmental and social risks to be more serious in terms of likelihood and impact than business and societal leaders do. What is more, young people may be more likely to take action at work: 82 percent of young people believe employees are just as right to speak out against their employers’ handling of societal issues as they are to support them.

Implications for business

Companies with strong ESG performance can expect improved staff satisfaction and greater attractiveness to young talent. 

This matters. Research shows that satisfied employees work harder, stay longer and seek to produce better results for the organization. And an increasingly knowledge-intensive economy means hiring the best and the brightest is more important than ever.

It will matter more in the future, as the workforce becomes increasingly composed of millennials and Generation Zs, but also in the wake of the coronavirus pandemic, as concerns about societal challenges increase.

In this sense, the pandemic could provide a real opportunity for firms to strengthen their commitments on ESG issues and gain a competitive advantage in the struggle for talent when recovery begins. And C-suites recognize the need for change: 68 percent agree that their organization needs to better align with the United Nations Sustainable Development Goals and ESG metrics, according to Mercer’s Global Talent Trends 2020. Moving forward requires firms to take three key steps.

First, companies must assess the extent to which ESG has been successfully embedded in the business and identify areas for development. Second, ESG must be integrated into corporate governance, performance management and training and incentive frameworks, with particular attention paid to those areas prioritized for development. Third, employee outcomes, such as staff satisfaction, retention and productivity, should be measured, allowing companies to continually adapt and refine their processes.

Throughout, companies should communicate ESG progress regularly, while also encouraging two-way dialogue with employees. ESG efforts don’t do much for employee satisfaction unless your employees know about them, so communication is critical to realizing the workforce benefits of ESG performance.

In a world disrupted by COVID-19, ESG outperformers will differentiate themselves from competitors, demonstrating that they are truly an employer of choice — there for their employees, and society more broadly, in times of need. As the saying goes, it is how we face adversity that defines us.

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