Corporate Responsibility

Workforce Strategy: How ESG Can Help Companies Retain Younger Employees

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A key element of any company’s workforce strategy is attracting and retaining talent—especially younger talent that can grow with an organization. In a competitive marketplace, companies that invest in ESG performance stand to gain an advantage with millennials and Gen Z. Members of these generations not only tend to expect more from their employers and the world but are more likely to see themselves as ESG stakeholders.

This generational paradigm shift makes ESG performance a powerful tool for companies’ efforts to recruit and develop the world’s top young talent.

How ESG Helps Attract Talent

Outright compensation and brand name recognition still hold appeal for prospective employees, but they are no longer the talent magnets they once were. For younger generations, they are merely factors to weigh alongside many others as they decide what makes an employer desirable. These employees carry power in numbers—millennials and Gen Z talent make up 46% of the full-time workforce in the United States. Employers will have to consider shaping corporate culture around next-generation workers if they want to succeed in attracting them.

In a 2018 poll from Gallup, millennial and Gen Z respondents said that they value a prospective employer’s care for employee well-being above any other quality. These initiatives might include:

  • Flexible vs. one-size-fits-all healthcare plans
  • Mental healthcare as a key health plan feature
  • Charitable support, such as days off for volunteering and donation matching

In addition to these socially conscious benefits, younger generations also place strong emphasis on environmental and governance criteria. According a report on young talent by Marsh & McLennan Advantage, millenial and Gen Z employees are more attracted to companies that demonstrate:

  • Higher overall ESG scores. Young talent gravitates toward companies with ESG scores 25% higher than average.
  • Low carbon emissions. The most desirable companies have carbon emissions that are 24% lower than average.
  • More diverse leadership. Companies with more than 30% female representation on their boards rank as the most attractive to young talent.

Employers will have to consider shaping corporate culture around next-generation workers if they want to succeed in attracting them.

How ESG Helps Retain Talent

Although top-ranking ESG numbers can raise a company’s initial desirability among younger talent, employee retention is another matter entirely. Bankrate reports that 77% of Gen Z and 63% of millennials will be on the hunt for a new job within the year. So, how can companies develop a workforce strategy to keep younger talent rooted in place?

The answer is creating fertile ground for talent to grow. A February 2021 report by IBM found that younger workers expect a high level of engagement from their employers once they are on the payroll. This report showed 43% of surveyed workers expect career advancement opportunities, and 36% specifically named continuous learning opportunities as a top expectation.

In Harvard Business Review, author Lauren Stiller Rikleen suggests that companies retool their new employee orientation programs to last the entire first year of employment. Mentoring programs can also help new, younger employees establish immediate and enduring connections with company veterans. Companies may also aim to strike a more equal mentorship balance by introducing inverted mentoring programs, where younger employees mentor older employees in areas such as social technology. These practices can help fresh employees forge a deeper sense of personal contribution and connection with the organization.

Whether through formal training programs or other development opportunities such as mentoring and employee resource groups, younger employees crave knowledge, connection, and purpose. Corporate training efforts can provide all three at the same time.

How ESG Culture Affects Company Performance

When a company’s ESG efforts attract and retain key talent, investors also benefit. Companies with highly satisfied employees tend to have higher ESG scores. Happy employees also tend to create more profitable companies: firms that tout the highest employee satisfaction post returns between 2–4% higher than their industry peers. The principles of ESG can exemplify how to build a firm foundation for employees and draw in younger talent for the long term.

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