Safeguard the environment. Promote workforce equity. Drive your company with the fuel of fair play. It’s all part of a growing contemporary mantra of environmental, social and governance management (ESG).
“Corporate social responsibility means being a good business citizen,” said Jill Poet, CEO of the Organisation for Responsible Businesses. “It starts in the workplace with the well-being of employees. But it extends into the surrounding community and people in your supply chain who you might never meet. It means building good relationships with customers and suppliers and treating them properly.”
Make It Pay
ESG initiatives vary from sustainable sourcing and compensation fairness to gender equity and community involvement. But can companies really “do well by doing good?” Or will progressive initiatives cause the enterprise to go “woke and broke?”
Contributing to the skepticism are headlines trumpeting the fate of some enterprises that championed their commitment to ESG.
Many observers blamed the fall of Silicon Valley Bank on an over-emphasis on workplace inclusion and climate consciousness, to the exclusion of the safeguarding of customer funds. And before the collapse of FTX, Sam Bankman-Fried had committed to making his company carbon-neutral and was donating to a group aiming to provide solar energy to the Amazon basin.
No doubt, going too far down the ESG road can lead to problems. But thoughtful commitment in the workplace can also motivate employees and firm up profits.
“When we think about all of the benefits of ESG, it’s clear that it makes business sense,” said Kim Crowder, an executive leadership and inclusive workplace consultant. “The data show that organizations with greater diversity tend to have higher profits.”
A direct driver of that profitability is the changing nature of the nation’s workforce.
Members of Gen Z—defined loosely as people in their early twenties—are the fastest-growing segment of the nation’s labor pool. It stands to reason that in a tight labor market, employers must respond productively to their mindset. And because these young people have heard about ESG issues their whole lives, they expect their potential employer’s program will consist not so much of defined goals as of integral values already ingrained in operations.
Attracting Top Talent
Employers, in short, are feeling pressure for ESG from their most valuable workers.
“So many of the younger generation are deciding where they’re going to work based on company values,” said Poet. “And they’re savvy enough to not just look through the documents that are on the website. They dig deeper to find out what’s really happening. So, while salary and perks are good, they are not the drive-in factors for that generation.”
Of particular importance to Gen Z are initiatives for diversity, equity and inclusion (DEI). Employers need to operate in ways that build unity and strength across ethnic, gender and racial groups.
“This is a good time to deal with equality in the workplace because recent news events have made the topic uppermost in our minds,” said David Campt, founder of The Dialogue Company, an equity and inclusion consulting firm. “When something important is happening in society we don’t want to let discomfort keep us from discussing what’s obviously on people’s minds.”
Workers want to know their employers are taking a stand.
So, what tactics can a company take to help fatten the bottom line while responding to the needs of a more idealistic workforce? And how can it plan out a workable pathway? The answer may vary by company size.
“In larger corporations, the governance aspect is very much focused at the board level,” said Poet. “Board members make decisions about what needs to be done to ensure the company is operating ethically and responsibly, and their decisions filter down through levels of management.”
The case is different at smaller businesses, where company values are determined by a small group of owners who both create and carry out policies.
“Employee relationships at smaller companies are usually much stronger,” said Poet. “Managers communicate more proactively with them and pivot more quickly.” Closer ties with employees can lead to ESG decisions that are more attuned to actual company needs and serve to drive the employee enthusiasm and workplace productivity that boost company profits.
Whatever the size of the organization, it’s important to root the ESG program in fertile soil: Get employees involved from the get-go.
“Many companies will start ESG projects that look very bright and shiny,” said Poet. “But when you look deeper, you find that employees have not been engaged in either planning or carrying out the program.”
Reach out to the workforce for ideas, suggests Poet. Surveys or individual discussions can help get a sense of everyone’s priorities. Where do they feel the company is lacking? What do they suggest the company do about it?
Employees may specify any number of ESG initiatives such as workplace equity, community involvement or environmental protection. Whatever the programs, basing them on employee input can bring benefits to the company.
“Engaged and motivated employees are more productive and deal more effectively with customers, and that makes the business more profitable,” said Poet. “And some of that profit can be poured back into more ESG projects. So, what you have is what we call a virtuous circle of employee engagement.”
The company’s future leaders may also come out of these efforts, Poet said. “You will find that certain people will have a passion for some of these programs and they’ll want to lead a group and they will shine.”
Many companies are discovering a top-of-mind concern among their personnel—the lack of sufficient pathways for hourly and minority individuals to deeply engage in the organization and advance into management positions. Eliminating promotional roadblocks can foster an atmosphere of fair play that motivates the entire staff to engage more deeply with their work. It can also go a long way toward relieving the recruitment and retention problems so many companies are having in today’s tight labor market.
“By embracing ESG in its fullest capacity, you’re going to attract and retain the best people,” Poet said.
Employers can lay the groundwork for this effort by encouraging supervisors to understand the importance of fair play when working with employees. The fact is that hourly and minority workers are often held back by unconscious attitudes and practices.
“I think everyone in the organization should go through bias training,” said Victoria Pelletier, managing director at Accenture. “This will help them support DEI initiatives.”
Another effective technique is to assign mentors to workers who show advancement potential.
“A mentorship program is very important to organizations today,” said Tammy Hodo, a DEI consultant. “It is a great tool to help people move to the next level, and it also shows employees that you really care about them and are willing to invest in their careers.”
As for the employees themselves, providing them with a clear vision of the company’s advancement pathways can spark enthusiasm and help them plan their future.
“There needs to be a mechanism in place that defines how people can move up the management ladder,” Hodo said. “What actions do they need to take to get to the next level?”
She suggests creating an organizational chart that illustrates advancement pathways in the company hierarchy.
While mentoring can help employees hone their leadership skills, there is also a need to shine a light on talent that might otherwise be hidden under a bushel. Sponsors, who operate in a way very similar to mentors, can try to bring unknown talent to the attention of top management.
“Suppose someone in a board meeting poses a question and no one has the answer,” Hodo said. “A sponsor may well mention the name of an employee who is knowledgeable on the subject, and then suggest that person be called into the room to address the matter.” Raising an individual’s profile in this way increases their chance of being promoted.
Initiating ESG programs is one thing. Assessing their results is another. To do so, it’s wise to look at the numbers. Data can provide a more reliable indicator of success than seat-of-the-pants assessments.
“Data hold us accountable to outcomes, in ways that are transparent, so that everyone can understand why ESG decisions are made,” Crowder said.
Useful DEI metrics include promotion and retention rates and the rate at which people are assigned to team projects.
“We have found that such participation is a direct determinant of whether someone is going to be promoted,” said Crowder. It’s natural to look at such metrics first as one big group, Crowder suggests disaggregating them to discover if rates vary by race, gender or ethnicity.
Crowder also suggested taking qualitative looks at company performance.
“My first question to human resources always is, ‘When was the last time you googled your organization to see what people are saying online?’ That’s a really good indicator of what employees are feeling in the workplace.”
Websites such as indeed.com and glassdoor.com can be eye-openers when it comes to identifying troublesome issues.
Committing Deep Down
Some companies hesitate to get involved in ESG projects, fearing a backlash from employees who may resent what amounts to a re-engineering of the relationship between organization, worker and community. And many people feel that a “woke” society has taken issues of fairness too far. How can the company surmount this attitude?
“It’s all about sensitivity and about encouraging rather than forcing people to get involved,” Poet said. “If you tell people they’ve got to get engaged in a project and it’s something that’s not close to their heart, there will be resentment. But if the matter is approached with sensitivity, there are no negatives.”
That thought takes us again to the need to root ESG programs in the desires of the workforce itself. But these initiatives will only succeed if top management is sold on the connection between ESG programs and business success.
“In the past, too many companies were treating corporate social responsibility initiatives as checkbox exercises,” Poet said. “The main idea was to show everyone they were doing the right thing. In contrast, authentic ESG should be rooted in a company’s embedded values. Does the organization really care about people and the business environment?”
A positive answer to that question will motivate employees to carry out ESG initiatives with enthusiasm at all levels of the company hierarchy, in a spirit of teamwork, mutual respect and shared responsibility.
“It’s really important that people understand we are all in this together,” Pelletier said. “We need to stop the divide-and-conquer mentality. ESG need not be a divisive subject. As a society, we will all thrive, or we will all fail."