Catriona Aldridge

At a time of labour shortages and rising wage demands, implementing workforce ESG strategies can make an employer stand out to prospective staff and help them retain existing colleagues. The CBI recently reported that three quarters of UK businesses have been affected by labour shortages in the past year. Many companies have responded by increasing pay to retain existing staff and attract new recruits. But with companies facing spiralling energy costs, and inflationary pressures mounting, increasing the wage bill may no longer be a viable solution.

An alternative approach involves a greater commitment towards ESG (environmental, social and governance issues) where research shows that it can be a valuable tool in attracting and retaining employees.

ESG covers a wide range of areas, from environmentally-focused issues such as energy use, to social themes revolving around how a business or organisation treats its people. On the governance front, how an organisation deals with board appointments and corporate reporting all come under scrutiny.

Given this spectrum of issues, it can be difficult for organisations to know where to focus their ESG efforts. However, we have identified three areas where businesses can take tangible steps under their ESG agenda which in turn is likely to have the benefit of attracting and retaining staff, leading to the creation of a more long-term sustainable workforce.

First of all, businesses should promote their green credentials to staff and job applicants. A recent IBM survey reported that 71% of employees believed that environmentally sustainable companies are more attractive employers, underlining the changing dynamics in today’s workforce. According to the website Greenbiz, sustainability is attractive to candidates for several reasons: it is seen as a source of employee pride, it shows that an organisation cares about its staff, and that there is an alignment in values on a corporate and individual level. Employers can further cement this by including employees on their climate change journey by implementing HR policies that have a green focus, such as travel policies which encourage reduced or sustainable travel or benefits packages which focus on locally sourced benefits.

Secondly, employers should focus on their approach to diversity and tell their staff and future recruits what they are doing in this area. According to research, diversity at work is particularly relevant to Millennials, those born in the 80s and late 90s. Diversity includes going further than establishing equal opportunity and related policies, although these are essential first steps in the process. Actions need to be consistent with the policies to drive an inclusive culture throughout the organisation. Getting serious about diversity means speaking to staff and asking for feedback, either through annual surveys or in conversations with diversity networks. Employers should be capturing diversity data and understanding the composition of their workforce and where there are areas of underrepresentation.

Another option is to look at sustainable working practices that are not only family-friendly but also work-life-balance friendly, and promote the measures being taken in this area. Does the organisation pay above the living wage, or more than statutory sick pay, how much support is given to employees around time off and are employees offered stable employment terms, rather than zero hours contracts? Put simply does the organisation value their workforce and treat them well? In a world of financial insecurity if an employer is offering stable and supportive employment terms then this is something to shout about.

Many employers will already carry out some, if not all, of the steps mentioned above, but are simply not selling their approach to staff or new recruits. Those businesses and organisations that are rethinking their approach can start with a few simple steps. This might include carrying out a staff survey to identify areas of change; developing a priority list of issues which need to be improved with an action plan to achieve this; and putting in place a structure to communicate ESG initiatives to both staff, prospective candidates and stakeholders.

There is the flipside to consider as well. What happens if an employer ignores ESG issues in the way they treat their staff? Poor working cultures can very quickly be outed on social media with toxic environments resulting in the employer facing reputational damage and putting off prospective talent. Embracing ESG is not just about being seen to be a good and sustainable employer; it is also a means of mitigating risk. Investing now in ways to avoid reputational damage in the future might be difficult to quantify, but should result in a major competitive advantage in the long run.

A commitment to ESG backed with the corresponding actions can significantly enhance a company’s public profile. In an era of labour shortages, it can also prove a decisive factor in helping them secure the best talent.

Catriona Aldridge is partner and an employment law specialist at CMS