ESG Investing

Employees Are ESG Stakeholders, Too

While investors play a vital role in shaping corporate sustainability efforts, they are by no means the only stakeholders involved. A wide range of other parties have turned increasing scrutiny toward companies’ environmental, social, and governance (ESG) performance. Key among these groups driving change are companies’ own employees.

When Employees Set the Pace on ESG

As public concern about environmental and social issues grows, it makes sense for employees to try to make their voices heard regarding their employers’ policies and actions. These concerns encompass a range of issues and have been expressed through walkouts, shareholder proposals, and other actions.

Climate is one area attracting significant employee attention. The Edelman Trust Barometer 2020 found that a majority of employees believe it is important for their top executives to speak out on climate change. In 2019, more than 7,600 Amazon employees backed a shareholder resolution calling for the company to adopt more aggressive action on climate change and wean itself off of fossil fuels. Not long after Amazon announced plans to become carbon neutral by 2040 the next year, an employee organizing group called Amazon Employees for Climate Justice demanded that the company move more aggressively to cut carbon emissions, end cloud computing contracts with corporations stepping up oil and gas extraction, and withdraw funding from officials who deny the existence of climate change.

Employee advocacy has centered on other issues as well. In 2018, thousands of Google staff from Singapore to New York City staged walkouts to protest sexual harassment after news reports revealed that the company had concealed details of sexual misconduct charges against a number of Google executives.

As You Sow’s 2020 Proxy Preview report notes that in some cases, actions like these can help an issue gain the attention of investors, who may cite them in shareholder resolutions. Similarly, other resolutions tracked by As You Sow seek to ensure protections for employee whistleblowers who raise concerns about ESG issues at companies like Google parent Alphabet.

Studies point to a possible relationship between strong ESG measures, employee satisfaction, and company performance.

ESG as a Workforce Management Strategy

ESG investing observers say that companies ignore employee voices at their own peril—and that a focus on corporate sustainability and ESG can in fact be an important workforce management strategy.

For one thing, ESG can be a tool to attract and retain talent. Almost 60% of employees consider a company’s social and environmental commitments when deciding where to work, according to Willis Towers Watson research. Other studies show that the companies of most interest to younger talent are ones that demonstrate particularly strong ESG performance. As the pandemic continues to highlight issues of inequality and racial injustice, this trend may accelerate.

There is also evidence of a possible relationship between strong ESG measures and employee satisfaction. For example, employers with highly satisfied employees score 14% higher on ESG performance than the average employer globally. Highly satisfied workers tend to be more productive and stay with their employers longer. This could give companies a competitive edge.

That said, in order to enjoy the benefits of these “positive externalities,” corporate incentive experts note that it is critical to design ESG frameworks that are both rigorous and tailored to be material to a given company’s circumstance.