Social responsibility: The message of our times – how employment advisers can help businesses achieve their ESG goals

In this article we examine how employment advisers can help businesses meet their environmental, social and governance objectives. This article was first published in Employment Law Journal (November 2021) and is also available on lawjournals.co.uk.

Businesses need to take a holistic approach to reducing emissions and improving sustainability, and taking steps to encourage a greener workforce is a logical part of this process.

Investors, clients, employees and other stakeholders are increasingly scrutinising organisations’ non-financial performance and value. In response, businesses are embracing responsible commercial practices by adopting strategies to help them tackle the environmental, social and governance (ESG) issues they face. Designing innovative approaches to tackling ESG issues and identifying and managing ESG risk can help to ensure they are an employer of choice as skills shortages threaten the post-pandemic bounce back.

E: How focussing on the ‘E’ can help businesses achieve their climate targets

The COP26 president-designate, Alok Sharma, has called on businesses around the world to take action to address climate change. Some 2,000 businesses globally, together employing more than 19 million staff, have already committed to a net zero future. This year, the UK government has also proposed to make the disclosure of climate-related financial information mandatory for certain businesses.

With COP26 fast approaching and climate issues in the news on an almost daily basis, many employers are increasing their focus on their environmental impact. A mix of public opinion, stakeholder pressure and employee expectation means that sustainability is no longer a ‘nice to have’ but is becoming a necessity for many businesses. The role that employees can play in helping organisations meet their environmental objectives is often overlooked but they can be encouraged to play their part in achieving these goals.

Environmental sustainability brings benefits for recruitment and retention. Surveying a pool of 2,000 UK workers in August 2020, Unily, an employee experience platform provider, found that 65% said they are more likely to work for a business with a strong environmental policy. More than eight in ten (83%) said their company wasn’t doing enough. But what is doing enough? The difficulty is making tangible changes that demonstrate that an organisation is taking action.

If employers can collaborate with their employees to play their part in tackling climate change, this will not only make a difference but it should also help mitigate against reputational risk and allow organisations to attract and retain the best individuals. By 2029, estimates are that Millennials and Gen Zs will make up 72% of the global workforce. Climate matters to this cohort, with Deloitte finding in April 2021 that 60% fear businesses will deprioritise combatting climate change in the aftermath of the pandemic.

E: So, how can employment advisers help?

So how can employment advisers and HR help businesses tackle the climate crisis?

Businesses need to take a holistic approach to reducing emissions and improving sustainability, and taking steps to encourage a greener workforce is a logical part of this process. Below are some examples of steps that can be taken: 

Employment contracts

The employment contract is the fundamental document in any employment relationship, so any drive to promote a sustainable approach should start with this document. Additional clauses could include:  

• green sabbaticals or gardening leave;
• environmental-based performance conditions, potentially tied to financial incentives (see below); and
• express environmental obligations.

Policies and procedures

Many companies now have a sustainability policy. However, other policies can be refreshed from a sustainability viewpoint. For example, a flexible working policy, disciplinary policy or expenses policy may each have areas that can be improved.

The distinction between contracts and policies is one worth noting: contracts provide a direct message, tied to express contractual obligations. Policies offer greater flexibility, allowing for change in line with future requirements. Both are equally important in enshrining a company’s environmental ethos.

Benefits

Employee benefits and incentives can be a key driver of tangible change, whether they be at a junior or senior executive level. While this may add cost, this could potentially be offset by the savings made through the less quantifiable but equally important metric of employee satisfaction.

Culture

A climate-conscious culture can be achieved by effectively and openly communicating the steps an organisation is taking to improve its sustainability. This will help ensure the workforce is aware of what the business is doing on sustainability and demonstrate that the organisation is taking the issue seriously. But to succeed in improving performance on environmental issues, it is important to embed a sustainability-focussed culture throughout the business. Whether that is introducing climate champions, eco competitions, hosting climate events or webinars or simply removing unnecessary waste bins or plastic cups, these initiatives can all capture employee attention and convey the sustainability messaging across the business.

Nigel Topping, UN climate champion for COP26, has summarised the need for businesses to focus on the ‘E’ as follows:

The science tells us that we must halve our emissions by 2030… Companies whose climate ambitions meet the criteria of Race to Zero are leading the way … I encourage every company, big or small, to join soon or risk getting left behind.

S: Addressing social inequality through the ‘S’

An organisation’s social ESG performance is about issues such as equality and diversity, human rights, fair wages, health and wellbeing, staff training and engagement with stakeholders. This is an area where HR and employment advisers can use their knowledge and expertise to help businesses meet their social goals while at the same time managing risk. For example, an organisation may use positive action to help a group that is under-represented in the workplace, such as when recruiting, but must not unlawfully discriminate against others through the measures it takes.

One of the difficulties businesses face in addressing the ‘S’ compared to the ‘E’ is how to measure progress. While it is possible to measure an organisation’s carbon footprint, it can be more difficult to quantify success in addressing the ‘S’.

Until the late 20^th century, a company was generally valued almost exclusively by reference to financial performance, with the costs incurred by social responsibility often being deemed non-essential – and sometimes even regarded as detrimental. However, this has now changed considerably thanks to the growing need for investment products to satisfy the demands of the responsible investor. There is also greater evidence that the integration of ‘S’ factors has a positive impact on a company’s financial performance.

Workplace culture and diversity

Internal company culture is being scrutinised more than ever – not only by investors but also by customers, suppliers and employees.

In recent years, the government has placed additional demands on employers to focus on and improve workplace culture. The introduction of mandatory gender pay gap reporting in 2017 led, among other things, to companies analysing their gender diversity initiatives to find ways to improve representation of women in senior roles. Many employers now also calculate and report on their ethnicity pay gaps on a voluntary basis. The #metoo movement, the Black Lives Matter movement and the focus on eradicating modern slavery are other examples of areas where employers have come under scrutiny in recent years in relation to their social ESG performance.

Businesses are increasingly focussing on the ‘S’ by considering their workplace culture and policies within the framework of human rights, diversity and inclusion, modern slavery and more. Failure to do so can lead to significant financial and reputational consequences and claims from employees. A recent case before the Employment Appeal Tribunal illustrates the pitfalls of not taking a rigorous approach to workforce diversity and inclusion training. In Allay (UK) Ltd v Gehlen [2021], the employer’s training was found to be stale and ineffective. The employer was therefore unable to show it had taken all reasonable steps to prevent racial harassment and lost the case.

It is not just about external pressures though. Research has shown that having a diverse and inclusive workplace can lead to higher revenue growth, greater readiness to innovate, increased ability to recruit a diverse talent pool and greater employee morale and retention rates. 

S: How can an employer add value to take account of the ‘S’?

These are some practical ways employers and their advisers can improve their organisation’s social ESG performance and mitigate against social risks:

Build a positive workplace culture  

The first step towards a more diverse and equal workplace is to put in place a robust set of policies that sets out the company’s commitment to fostering an inclusive culture where discrimination and harassment are not tolerated. Businesses should consider their recruitment practices to ensure they recruit a diverse workforce and look at diversity across the organisation to identify areas where improvements can be made. It is also important to address and control modern slavery risks.

The second step is to ensure those policies and procedures are underpinned by core responsibilities, expectations and oversight. Taking steps to identify and manage any issues that arise is also an important part of achieving objectives in this area.

Ensure fairness in pay

Larger companies already have to report their gender pay gap and all organisations have an obligation to pay the minimum wage and pay women and men equal pay for equal work. However, employers may also want to look more broadly at fairness in pay. To begin with, businesses will need to collect and analyse the data in order to assess where they are. This can be a complex area to navigate but can be managed through transparent and concise messaging on the purpose of the data collection. Employers can then put in place measures to tackle any issues identified, making sure they avoid unlawful discrimination along the way.

Focus on health and safety

Businesses must have adequate systems in place to support employee health, safety and wellbeing. This includes conducting regular risk assessments to ensure they are providing a safe system of work for employees. But it doesn’t end there: other important areas to focus on include workplace conditions and complying with employment laws, flexible working, mental health and encouraging healthy working practices, including ensuring work-life balance and employee engagement.

Provide training

Employees should receive regular, up-to-date training on matters such as health and safety, workplace culture and diversity and inclusion. Making sure that all employees are aware of the policies and systems in place for raising any concerns and complaints, such as grievance and whistleblowing procedures, is equally important. Businesses should consider to what extent they invest in their people, including in skills training and development.

G: Corporate governance – some areas to consider

Workforce engagement is now a corporate governance consideration. The Corporate Governance Code highlights the need for employees to be considered in boardroom decisions, while the Wates Principles hold that a board is responsible for overseeing meaningful engagement with stakeholders, including the workforce.

The recent UK government White Paper Restoring Trust in Audit and Corporate Governance continues this theme. It explains that the directors’ duties listed at s172 of the Companies Act 2006 (‘Duty to promote the success of the company’) include a company’s responsibility to monitor the impact of its decisions on employees and to strengthen workforce engagement.

G: What is employment advisers’ role?

Advisers should:

• encourage the business to use meaningful two-way informal and formal dialogue, for example with unions or consultation groups; and
• ensure the board can show how it has considered engagement with stakeholders in its decision making.

Final thoughts

In the ever-changing ESG arena, employers should first take stock of where their business currently sits and how well it is doing within the ESG framework before implementing any required or desired changes to ensure they put their best foot forward. This will help them not only to appeal to investors, customers and clients but also to be an attractive employer to current and prospective employees.

Cases referenced:

Allay (UK) Ltd v Gehlen [2021] UKEAT/0031/20/AT

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