How ESG factors are becoming a crucial part of the employee value proposition
The pressure for employers to integrate environmental, social and governance (ESG) policies and measures into various aspects of their business has been steadily growing.
According to data from a recent report by Diligent, Aligning Pay, People and Planet, the percentage of companies incorporating ESG metrics in executive compensation plans in the EU has increased from 4% in 2008 to 34% in 2020.
But speakers at REBA’s recent webinar on ways incentives are changing to meet ESG needs outlined that the importance of ESG is trickling down the chain of command, from shareholders to executives and senior leaders, all the way to job candidates.
Peter McDonald, statutory reporting lead at Natwest Group, told attendees that ESG is changing recruitment as candidates are becoming increasingly drawn to socially and environmentally savvy businesses.
Getting an edge in a competitive market
McDonald, who had previously worked in several recruitment roles over the years, said that questions surrounding the company’s employee value proposition on ESG comes up “virtually every time” while interviewing external candidates.
“What we are seeing is people wishing to work for an employer, or organisation, that aligns with their value set, and the increasing choice to do just that,” explained McDonald. He added that the market is now very competitive for recruiting and retaining knowledgeable and desirable talent.
Indeed, having a sense of responsibility for ESG doesn’t just benefit an executive’s pay pocket, it can also build or fracture a talent pipeline, so said McDonald.
“It’s fundamental on employers to create an employee value proposition that speaks to actually what it is your people want, because your current and perspective people will go and work elsewhere if you can’t offer it to them,” he added.
This was echoed by Nathan Birtle, senior vice president EMEA sales at Diligent, during the webinar who said he has had more questions from potential candidates about his company’s sustainability and principles than “all his previous years” combined.
“It’s a sign of the times and a sign of the awareness that people are taking this more seriously when they consider who they wish to work with,” said Birtle. He added that this highlights the importance of an organisation understanding its purpose “not just its shareholder return”.
Make it relevant to your company
The social strategies of ESG are also of increasing importance, with the pandemic and Black Lives Matter protests highlighting the need for businesses to be inclusive, diverse and fair. A survey of boards of directors conducted by Willis Towers Watson in 2020 found that more than four in 10 (41%) plan to introduce ESG measures into their long-term incentive plans over the next three years, and a third (30%) planned to raise the prominence of environmental and social/employee measures in their incentive plans.
Additionally, over half (53%) are accelerating their ESG priorities and timing because of moral and ethical reasons, and to increase their organisations’ long-term value.
As the spotlight remains firmly on the ethical concerns of diversity, equity and inclusion, Claire Yule president, reward and mobility at John Wood Group, who was also on the webinar panel, said that it is key that organisations ensure ESG targets are relevant to company strategy and are meaningful in the business.
Yule explained that Wood will have put 37,000 employees through inclusive awareness sessions as part of its broader strategy to focus on inclusivity and specifically gender, but warned that global ESG strategies can be more challenging.
“In the UK we have received a lot of support for our measures and targets, but in other countries it's been challenging in terms of whether we are at risk of being non-inclusive by setting gender diversity targets in place,” said Yule.
She added that ethnicity targets are also under development as considerations must be made for the different legislative requirements in each country. Ultimately, Yule noted that a key factor of ESG is making sure it’s meaningful not only for your business but for the overall strategy.
“Don’t necessarily go along with what the newest shiny thing is,” she advised. “You need to go with what will drive sustainable, incremental change for your business and for the people within it.”
The author is Elizabeth Howlett, associate content editor at REBA.
For more on this topic watch the full webinar: Ways executive incentives are changing to meet ESG targets.