ESG is trickling into employee experience and benefits

A growing number of companies are embedding their environmental, social and governance ambitions into their rewards and benefits. A new study suggests that linking workplace rewards to a firm’s ESG performance could rapidly boost its efforts to become more sustainable.

Traditionally, environmental, social and governance (ESG) goals are looked at by companies more in terms of risk management, than as an opportunity. However, stakeholders keen to boost profitability while turbo-charging ESG change are pressuring for a shift away from this thinking – and towards sustainability as both a business differentiator and a marketing opportunity.

According to a new study by Mercer Marsh Benefits and the Reward & Employee Benefits Association, this is seeing many companies consider ways to incentivise their employees to prioritise surpassing ESG targets. To that end, business sustainability is regularly influencing employee reward and benefits practices and decisions.

This revolution in how business is conducted means that chief human resources officers (CHROs) and their reward and benefits teams will be fundamental to realising organisational aspirations for change. This has already seen a quarter of companies align their benefits strategy with sustainability goals, and almost one-third use their benefits to support local communities.

In the years ahead, this trend looks set to grow further. A 56% majority told Mercer that they plan to ensure their benefits support ‘under-represented groups’ better, in a move that could help diversify many workplaces. Meanwhile, 63% plan to offer benefits that can enable their staff to live more sustainably in the next two years.

“Sustainability policies very much link up with pay and benefits and are key drivers in the way organisations are redesigning their reward frameworks,” explained David Wreford, Partner, Mercer. “Sustainability is now a major influence on how the employee value proposition is evolving. At the front of HR and reward and benefits professionals’ minds is the extent to which an organisation’s employee value proposition evolves, lives, breathes and is relevant to its employees.”

When it comes to ESG initiatives most likely to become popular in the next two years, some rarely offered to day are set to explode. For example, while only 9% of firms currently change providers in their supply chain to improve sustainability, 48% of companies will do so in the next two years. Meanwhile, just 15% of firms polled make decisions based on sustainability audits at present, but this is set to grow to half of all companies.

But benefits-related policies will even be more popular among businesses. A 63% majority plan to deploy benefits allowing employees to live more sustainably. Meanwhile, 56% will ensure benefits support under-represented groups, and also align their wider benefits with sustainability goals.

“Sustainability is no longer a marginal business concern,” said Debi O’Donovan, Director of REBA. “In broader society, consumers have shifted their purchasing behaviour towards being more sustainable. Employees are consumers too, and if businesses don’t demonstrate sustainable products and services as well as values and strategies, both employees and customers will vote with their feet.”