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Environmental, Social and Governance criteria (otherwise known as ESG) are becoming increasingly important as a measure of the sustainability of an employer's practices.

In the modern world we live in, with challenges such as climate change and a societal push towards greater equality and diversity, employers are expected to drive change and have a sustainable business strategy. ESG is also something which is increasingly driving the financial success of organisations, not least because it has become a key criteria for lenders.

Many employees now expect their employer to demonstrate their responsible and sustainable credentials, so it's important to get it right.

This article focuses on the social and governance criteria (the S and G) and gives a broad overview of what these mean in an employment context.

Social criteria

An important element of sustainability is taking into account social considerations. These are often more challenging to implement and to measure but there are many ways that employers can demonstrate that they take social factors seriously. A key part of this is a commitment to valuing staff welfare. Here are some examples of what employers could consider:

  • Ensure there are up to date equality, diversity and inclusion policies and training in place.
  • Review staff work/life balance and consider introducing or extending agile working practices to enable greater flexibility to work from home for those with caring or other responsibilities.
  • Provide access to health and wellbeing support (including mental, physical and financial wellbeing) and offer training to staff on how to help colleagues with wellbeing issues.
  • Ensure there are appropriate systems so that any incidents of discrimination, harassment or bullying are dealt with in a timely and effective way.
  • Undertake an equality audit and consider appropriate positive action to address areas of under representation or lack of inclusion.
  • Encourage staff to get involved in charitable activities or community work - this could be separately rewarded or acknowledged as part of an appraisal process.
  • Review and update your approach to employee engagement.
  • Prioritise changes to improve working conditions for staff and adopt policies in line with the Modern Slavery Act 2015 even if not legally required to do so.

Governance criteria

A genuine commitment to good governance means much more than compliance with legal requirements. It involves complying with the spirit of the law and voluntarily adopting what is considered good practice. Some of the steps employers can consider when developing their governance are below:

  • Adopt codes of conduct promoted by the government or well-respected bodies.
  • Be alive to conflicts of interest and ensure there are strong and clear policies to identify and manage conflicts when they arise.
  • Ensure ongoing board diversity and put in place systems to achieve future diversity goals.
  • Ensure policies and practices are in line with the Bribery Act 2010.
  • Ensure the whistleblowing policy is accessible and up to date so that staff can easily raise any concerns about malpractice in the workplace.
  • Consider voluntary reporting (e.g. ethnicity pay reporting) to demonstrate the importance your organisation accords to improving fairness and diversity.
  • Adopt clear and transparent remuneration policies.

How things have changed

The Covid-19 pandemic has acted as a bit of a catalyst in bringing certain elements of the ESG agenda to the fore. Many employers have adopted agile working policies and, in doing so, have facilitated a more diverse workforce by enabling and encouraging those with disabilities who may have previously struggled with a work commute and office set-up, to work more effectively. Employers have been forced to adopt more flexible working practices, and this has allowed many employees to fit family commitments around their working day in a way that they would previously have been unable to.

Employers also now have an enhanced awareness of mental ill health. The pandemic was a challenging time for many, and lots of people suffered, and continue to suffer, from mental health issues. Employers have had to react to this, and put in place support mechanisms to help their employees cope. Along with this increased awareness of the ill effects of mental health problems and the measures which can be put in place to alleviate them, employers have found that there is a renewed focus on employee wellbeing, and many are now putting tailored wellbeing strategies in place.

The future of ESG

The importance of ESG has already evolved so that many of the concepts have become legal requirements. For example, outside of the employment context, there is a raft of new legislation on climate change. Within the employment context, there are also various pieces of legislation (for example, the Bribery Act 2010 and gender pay gap reporting requirements under the Equality Act 2010) which put ESG consideration on a legal footing.

However, this area is ripe for further evolution, and it's likely that, over time, there will be many more mandatory requirements on employers to make them act responsibly and sustainably. In the meantime, there are lots of steps forward thinking employers can take to demonstrate strong ESG credentials. Whilst these are largely voluntary (for now), they will pay substantial dividends in terms of employer reputation, attracting and retaining staff, and workplace satisfaction and productivity as well as having a positive long-term impact on the financial success of the organisation.

In the meantime, we have developed a Trowers Toolkit which focuses on the S and G in ESG and which can help your build and refine your existing strategies.