Environmental, Social and Governance (ESG) issues are rising to the top of the agenda for corporates, investors and wider society. The Social agenda needs to go beyond volunteering and donating to charities. There are broader issues including the relationship the organisation has with its employees. Are you considering the imperative to minimise behavioural risk in an organisation?
Corporate Social Responsibility is a well recognised term, but for too long it has been about little more than making annual charitable donations and sending a well intentioned group of volunteers into the community to support a local project. There’s nothing wrong with any of this, of course, but with the prominence of the ESG agenda, it’s time to up your game for delivery on your social strategy.
So what exactly does this mean in practical terms?
Well, we’re all familiar with the environmental challenges we face globally, particularly following the 26th UN Climate Change Conference of the Parties (COP26) in 2021. Many businesses are now working towards a Net Zero Strategy for carbons. In our workplaces and our lives, we are demanding a greater emphasis on environmental sustainability. This is probably the most widely understood aspect of the ESG agenda. By employing people from within our community and working with local suppliers, we can also have a positive impact on our community both economically and through building positive relationships.
Governance, in the context of ESG, is essentially about how a company is managed by those in the executive roles. How well do executive management and the board of directors attend to the interests of the company’s various stakeholders – employees, shareholders, and customers? Is there financial and accounting transparency with full and honest financial reporting? Do executive bonuses depend on more than just revenue or income? Do they include factors such as employee, shareholder, and customer satisfaction? There is far greater scrutiny of “fat cat” salaries and bonuses now, especially in relation to the way in which employees across the company are paid.
The Governance aspects therefore link to the Social strategy starting with the purpose and mission of the company. Is it socially relevant and beneficial to society?
“ESG issues have risen sharply up the business priority list since the pandemic began, along with the importance of corporate purpose. Purpose is closely connected to a company’s stated role in society and commits them to acting in a sustainable manner that creates long-term value for their stakeholders. Customers and employees want to know that the companies they buy from, or work for, have society’s best interests at heart.”
Andrew Yates, CEO of KPMG Australia
Despite the rapid rise in priority for business, the Social agenda remains the area given the least importance, mainly because it is difficult to measure, and yet it is critical to business success.
Social criteria cover a vast range of potential issues, but all of them are essentially about social relationships which includes all of its stakeholders – employees, suppliers, contractors, shareholders, customers, investors, and the local community in which it operates. All of these provide the wider ecosystem of people and businesses who can make or break the reputation of a business.
One of the key relationships for a company, from the point of view of many socially responsible investors, is its relationship with its employees. There are the basic factors for any employer – pay, benefits, pension plans, and then the additional investment through training and development and opportunities to progress; flexible working practices and holiday arrangements. Mental health and wellbeing are also significant factors now, along with equality, inclusivity and diversity. It’s fair to say that many companies address these issues, albeit with different levels of success.
However, the social factors that should be given particular consideration are how companies treat people when things go wrong. What happens when there is inequity between different groups of workers? How does the company react when people speak up about bullying and harassment in the workplace? If your Social Strategy does not address both the need to educate staff and prevent these behaviours occurring, and act with compassion when incidents occur, then you will undermine a huge part of your ESG agenda. People do not want to buy from or work for a business that has a reputation for not treating its staff well, and the employee experience will be reflected in customer experience.
Your Social Strategy is critical for attracting and retaining the best talent, particularly Gen Z and millennials. In this digital world, it is easy for people to share their views about your business which may be considerably different to the one that you, as leaders, are portraying to the world. From employee review platforms like Glassdoor to open letters in the media, your reputation can be damaged both within the local community, and internationally, at the touch of a screen.
“Former BrewDog staff accuse craft beer firm of culture of fear”
Dozens of ex-employees sign open letter claiming they were bullied and treated like objects
“APPLE STAFF PUBLISH OPEN LETTER TO URGE ACTION ON DIVERSITY AND INCLUSION”
Apple employees have written an open letter to CEO Tim Cook, stating that their “experiences with the People team in dealing with harassment and discrimination” have left them vulnerable.
“Azeem Rafiq: Report by Yorkshire finds former player was 'victim of racial harassment and bullying'”
Employee relations and behavioural risk management need to be recognised as a critical element of your Social strategy. If staff turnover is high and people no longer want to work for you, then take the time to look inwards and ask yourselves why. If people are taking to the media to voice their complaints, then look internally at why they felt the need to take this step.
Investors are now pushing companies to have ambitious ESG goals and the plans to implement them, and there is a growing movement for creating standardised ESG impact measurements. It is widely recognised that investment in the social agenda through employee relations and wellbeing, leads to positive financial performance, which is why your Finance Director should be the greatest ally to a Social agenda, whilst recognising that return on investment may not be immediate, but will have long term benefits. Remember, investors do not want to commit to a business whose reputation is put at risk by the behaviours permitted by the leaders.
“Companies with complaints of harassment or discrimination perform far worse than others in the same sector, according to University of Manitoba Assistant Professor of Finance Shiu-Yik Au.
Au and his colleagues analyzed 1.5 million employee reviews on job sites Indeed and Glassdoor, looking for complaints of sexual harassment and discrimination during the period from 2011 to 2017, which includes the height of the Me Too movement.
“If you’d invested in these sexually harassing firms, you would have actually suffered a loss of around 20%, compared to an increase of about 150% for regular firms,” Au said. This amounts to a loss of about $2 billion per year for some companies.
Vault Platform Article: Misconduct claims hits share prices hard
Despite all of these compelling reasons, an increased demand for ESG reporting and transparency, and 71% of CEOs globally feeling that they would increasingly be held personally responsible for driving progress on social issues, 60 percent of global CEOs said they were spending more in capital investment via buying new technology than by developing the workforce’s skills and capabilities and people development, according to the KPMG 2021 CEO Outlook report. That makes even less sense when 76% of CEOs admitted that the pace of digital transformation during the pandemic was not sustainable without first addressing burnout amongst their workforce.
STOP! Listen to your own answers and plan your ESG agenda accordingly! As Brune Poirson, Chief Sustainability Officer at Accor said during a Gallup webinar recently,
“The Social agenda needs urgent work. ESG will collapse if we don’t move on the social agenda”
You can bring behavioural risk management into your Social strategy by implementing actions rooted in the prevention of workplace bullying and harassment. Conduct Change can help you achieve your ESG goals through our Charter for Change, to find out more visit our website here: www.conductchange.co.uk/consultancy
The KPMG 2021 CEO Outlook Report
Gallup's Perspective Paper on ESG and the Will of the Workplace
Misconduct Claims hit share prices hard