In recent years, ESG (environmental, social and governance), sustainability, inclusion and diversity have become common buzz words in business, particularly in financial services. Research shows that diverse teams lead to better decision making and ESG-focused investing can lead to increased long-term profit. Executives understand that they need to promote these issues to attract top talent and improve their bottom line, and top companies are now racing to do this better than their competitors.
This has led to new commitments from the corporate world. Exemplified through this year’s World Economic Forum (WEF) Annual January Davos Meeting and Larry Fink’s Annual Letter to CEOs, the world’s top corporate leaders are now openly talking about what they can do to combat climate change, support the 2030 Sustainable Development Goals (SDGs), and advance diversity and equality in leadership. As the 2019 Business Roundtable Statement on the Purpose of a Corporation indicated, CEOs are now aligned that they can no longer focus solely on shareholders – to be successful, companies must deliver value to all stakeholders: customers, employees, suppliers and communities, in addition to shareholders.
While public commitments are a good first step, now companies must focus internally. To transform the ESG conversation into sustained action – and show consistent progress towards these public commitments – employers need to focus on company culture and internal communications, to ensure that all employees feel accountable.
Invest in Employees so They Invest in You
New ESG commitments will require hard work and behavior change at all levels. To drive progress, every employee needs to feel a sense of emotional ownership for the company and desired ESG outcomes. Across all industries, company leaders need to reevaluate their business objectives and operating principles to ensure that investing in talent and workplace culture are considered a key part of business strategy, prioritized and measured in the same way as sales and consumer satisfaction.
Internal communication is key, to ensure that employees understand how the new ESG commitments will affect their individual roles. This may also require additional investment into company and office culture, to ensure that what the CEO is saying externally is being practiced internally. Companies must be willing to prioritize integrating environmental considerations into office infrastructure from LED lights to recycling programs, and addressing social and governance factors by allocating considerable funding and time to staff leadership and development opportunities, focusing on “re-recruiting” each employee every day.
Employees are the best brand ambassadors for a company, and it is imperative that they feel that expectations internally have changed, and that there are consequences for not complying with these new priorities.
Tie ESG Words and Deeds to Compensation Metrics
People follow incentives. A key way to drive behavior change is by tying ESG objectives to performance reviews and compensation. While many companies have already allocated a small percentage of annual bonuses to human capital and sustainability metrics, this may need to be increased and applied across the board to all employees – from CEO to entry-level. As ESG is a long-term investment and signs of progress might be slow, compensation should consider time spent developing and advocating for innovative solutions and reward incremental changes, instead of simply focusing on profit and new products.
For example, for inclusion and diversity objectives, success cannot only be focused on hiring and promotions – it must also consider employee retention and focus group feedback. This will look different for every company, and may be introduced incrementally over time, as any change to compensation is sure to affect company moral. Openly discussing these compensation changes with employees will also be a good way to build trust in leadership.
Communicate the Whole Picture
Employees want to know what’s going on. In many companies, it is employees that are demanding greater data transparency and pushing their employers to progress faster on their ESG commitments. To help ease this tension and promote accountability, it’s important to communicate openly with employees, to celebrate successes and recognize where there are opportunities for improvement.
ESG reporting trends are moving companies further in this direction. At the WEF 2020 meeting, a group of the world’s top executives and major accounting firms aligned on a core set of proposed metrics and disclosures to be presented alongside financial statements in company annual reports. As the International Business Council of WEF stated in its report, Towards Common Metrics and Consistent Reporting of Sustainable Value Creation, “What we seek is a general framework for companies to demonstrate their long-term sustainability; a framework that integrates financial metrics along with relevant non-financial criteria such as ESG considerations,” including gender equality compensation practices, employee diversity, health and wellbeing, responsible supply chain management, greenhouse gas emissions and climate action.
It’s important to get ahead of this trend and to show-up in a bold way to all stakeholders. This will allow employees and companies to hold each other accountable to themselves and their stakeholders, to acknowledge what areas of the ESG agenda need support and retooling, and to identify where they can be proud of their culture and the impact they are having to create a more sustainable world.
APCO Worldwide has been working with companies for over a decade on ESG integration and can work with clients on all of these topics, to determine what works best for your organization.