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ESG as a Retention Strategy

from The Bottom Line, 2023 edition

by WICPA

from The Bottom Line, 2023 edition, page 77

Article from: The Bottom Line, 2023 edition

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Setting ESG goals to hang onto your fleeing workforce

By Geoff Trotier, JD, and

The environmental, social and governance (ESG) framework has come into the spotlight in recent years. From ESGfocused investment strategies to the Securities and Exchange Commission’s goals of increasing required disclosures related to ESG, most companies have been inundated with requests for ESG information. Even if ESG is implemented for purely financial reasons, ESG done correctly can also be leveraged as a retention strategy for a younger workforce that has shown they are not afraid to flee.

There are various understandings of what ESG looks like in practice. At a high level, ESG asks three questions:

1. E – How does your company work to protect the natural environment?

2. S — How does your company treat people, including stockholders, employees and community members?

3. G – How does your company govern itself?

The answers to these questions impact a company’s reputation internally and externally, especially among younger generations.

Over the past few years, companies have noticed an increase in resignations in the millennial and Generation Z age groups.1 The phenomenon has been colloquially named “The Great Resignation.”2 However, this trend was not surprising to many, as millennial and Gen Z individuals have always been more willing to switch jobs — and switch jobs frequently.3 With millennials and Gen Z workers making up approximately 72% of the global workforce by 2029,4 companies must make an intentional effort to attract and retain these age groups. Those that are unable to do so will feel economic hardship through hiring and training costs and the loss of industry knowledge as baby boomers retire.

1 Michael Dimock, “Defining Generations: Where Millennials End and Generation Z Begins,” Pew Research Center (January 17, 2019), https://www.pewresearch.org/ short-reads/2019/01/17/where-millennials-end-and-generation-z-begins/.

2 Tim Smart, “Study: Gen Z, Millennials Driving ‘The Great Resignation,’” U.S. News (August 26, 2021), https://www.usnews.com/news/economy/articles/2021-08-26/ study-gen-z-millennials-driving-the-great-resignation.

3 Amy Adkins, “Millennials: The Job-Hopping Generation,” Gallup, https://www.gallup.com/ workplace/231587/millennials-job-hopping-generation.aspx; George Anders, “Is Gen Z the Boldest Generation? Its Job-Hunt Priorities Are Off the Charts,” LinkedIn News, https://www.linkedin.com/pulse/gen-z-boldest-generation-its-job-hunt-priorities-offcharts-anders/.

Fortunately, both millennials and Gen Z workers generally gravitate to similar companies: those that prioritize ESG initiatives in their business practices, such as environmental sustainability, community awareness and ethical management.5 In fact, companies that effectively prioritize ESG initiatives with measurable results are found to be more attractive to talent and have higher employee satisfaction and retention rates than companies that do not have such initiatives.6

The best way to measure the effectiveness of a company’s ESG initiatives is to begin now with a baseline ESG score. There are numerous third-party organizations that allow companies to self-report relevant data, which the third-party organizations will weigh in accordance with their publicly available metrics to give participating companies an ESG score.

5 Alex

Stand Out for Climate Change Activism, Social Media Engagement With Issue,” Pew Research Center (May 26, 2021), https://www.pewresearch.org/science/2021/05/26/gen-z-millennials-stand-out-for-climate-changeactivism-social-media-engagement-with-issue/; Matt Kunkel, “How ESG Alignment Can Spur Employee Retention and Attract Future Talent,” Corporate Compliance Insights (February 16, 2022), https://www.corporatecomplianceinsights.com/esg-alignment-employee-retention-great-resignation/. 6 Bailey, Yeo, Jiang and Ferguson, “ESG as a Workforce Strategy,” Marsh McLennan, https://www.marshmclennan.com/insights/publications/2020/may/esg-as-a-workforce-strategy. html; Matt Kunkel, “How ESG Alignment Can Spur Employee Retention and Attract Future Talent,” Corporate Compliance Insights (February 16, 2022), https://www.corporatecomplianceinsights. com/esg-alignment-employee-retention-great-resignation/; Sarah Carpenter, “How Effective ESG Programs Recruit & Retain Top Talent,” Assent (July 5, 2022), https://www.assent.com/blog/esgprograms-recruit-retain-top-talent/.

7 she advises clients on ESG to attract and retain talent. Contact her at Caitlyn.Doyle@HuschBlackwell.com.

By engaging in this process early, companies are able to understand the categories their current practices are falling short in and can use the third party’s metrics to work backwards to create effective ESG initiatives.

The good news is that ESG initiatives can be simple and still have measurable success across multiple categories. For example, a diversity, equity and inclusion (DEI) initiative is an ESG initiative under the social and governance categories. DEI initiatives could be as simple as providing clear paths to leadership roles within the company and increasing mentorship to diverse employees. Initiatives that encompass the environmental and social portions of ESG include creating a company practice of highlighting a healthy workplace — such as improving office air quality or implementing a wellness subsidy — which can be costfree with buy-in from health insurance providers. Lastly, investment opportunities in environmentally conscious portfolios can both diversify your company’s portfolio and increase environmental and governance scores.

Once your company has an ESG score or otherwise understands where there is room for improvement, it should engage legal counsel to determine what initiatives would provide measurable impact and riskmitigation benefits. For example, a well-implemented DEI initiative can decrease discrimination complaints, increase inclusivity in the workforce, increase risk identification at management levels and even increase revenues.7 Engaging legal counsel early in this process provides your company with attorney-client privilege when discussing sensitive DEI shortcomings and increases the effectiveness of your DEI initiatives to ensure your company is taking full advantage of the risk-mitigation benefits.

The last step to leverage these initiatives as an employee retention strategy is to publicize the ESG initiatives and successes both internally and externally. Talent knows talent, and making current employees your company’s biggest fans will not only increase retention but may also increase the willingness of millennial and Gen Z job hunters to choose your organization over others.