A strong ESG (environmental, social and governance) proposition can create substantial commercial value for your business, including attracting both investors and top talent, plus boosting financial performance. So how can you leverage your workplace strategy to support ESG?
Can you define what ESG really means?
“ESG can sound complicated, but it really isn’t. It’s essentially a reframing of what we mean by sustainability” – Jack Noonan.
Jack Noonan, VP at the International WELL Building Institute, recently spoke to us to delve into what ESG really is, the benefits of a strong ESG position, and how your workplace strategy fits in.
At a top level, Environmental, Social and Governance (ESG) is a framework for assessing the impact of a company’s sustainability and ethical practices – in the past it has been associated with investors assessing business value.
However, Jack says this is an important framework for us all to use when thinking about sustainable practices: “We need to think about things that are good for the planet, things that are good for people and things that are done in the right way.”
“As someone who’s been a passionate sustainability advocate for over a decade, it’s been difficult to see that sustainability is often associated with this concept of doing ‘less bad’ or harm minimisation – it is often associated with needing to give something up. Because of this, it doesn’t always resonate with the broader community.”
“What ESG does is reframe sustainability as a concept in a more positive, holistic and standardised way so that people can understand what ‘good’ actually looks like.”
Investors and ESG
For investors, the ESG framework is about including non-financial indicators to investment decisions to help better inform potential risk and return.
Jack explained that previously, 70% of the information used to create valuations was financial, and about 30% was non-financial or somewhat intangible (Jessica Cheam, Founder and MD of Eco Business and ESG Committee Member for the Singapore Institute of Directors). That’s now flipped, so about 30% is financial, and about 70% is non-financial, intangible types of indicators like ESG. One of the key drivers of this trend is evidence that employers who focus on health and wellbeing have employees who are more engaged, productive and resilient. This typically results in better financial outcomes over the long term.
So while ESG used to be very niche, according to Bloomberg Intelligence, globally ESG assets may hit $53 trillion by 2025. However, in the early days of ESG frameworks and data, Jack says it is challenging to demonstrate higher social sustainability performance in particular.
“I think for a long time we’ve been able to say what good environmental sustainability looks like, we’ve been able to show what good governance looks like, but social sustainability has been to some degree a bit of a black box,” he explains.
Now it’s a different story: “Due to recent efforts in healthy buildings, corporate social responsibility and the acknowledgement of the positive impacts on human health and wellbeing, as well as broader societal impacts, social sustainability has become more prevalent within global sustainability benchmarking platforms and other frameworks.”
What are the benefits of a strong ESG proposition?
Attract and retain talent with a strong ESG proposition
There is an increasing expectation from employees that their organisation contributes to broader sustainable outcomes and a more environmentally conscious future. Additionally, there is an expectation that the organisation is demonstrating good governance and that the organisation cares about the health and wellbeing of employees.
Jack explains that “up to 76% of employees said they struggle with their health and wellbeing and that stress was a key factor in this, and that was before the global pandemic.”
Employees are increasingly looking to employers to support their health and wellbeing and that of the wider community: “If we spend so many of our waking hours at work, it makes sense to expect our organisations to have our health and wellbeing in mind. And I think another important aspect to this is that we have people increasingly demanding that organisations have the broader community and the health and wellbeing of the planet in mind as well,” Jack reveals.
In recent years there has been a solid focus from the investor community on ESG. Jack cites KPMG, who found that 86% of Australians expect their investments to be responsible and rooted in ethics, with another majority aiming to shift their investments into ethical companies in the near future.
“And they’re not just doing this because it’s the right thing to do; They’re investing because it has better returns,” explains Jack.
“This might sound like something quite obvious, but an organisation that values and supports the health and wellbeing of their employees is an organisation that has employees that are more engaged, productive and resilient, and this results in better financial outcomes for the organisation itself. This is why investors are looking at ESG performance because it just makes financial sense.”
ESG is good for the bottom line
Fundamentally, a strong ESG position has a material benefit to an organisation. Jack told us that “organisations are more likely to have better financial outcomes as a result of strong ESG performance.”
How can your workplace strategy support your ESG proposition?
Jack says this is a question that many organisations are thinking about right now, particularly as we begin considering the post-pandemic future, where some of these more intangible aspects of organisational strategy have come to the fore.
“Ultimately, workplaces need to become people-first places, and they need to be focused on providing a positive and inclusive experience for all people, and one that supports all aspects of their health and wellbeing as well,” Jack explains.
What does this look like in practice? Jack says that workplace strategies should include provision for mental health programming, more robust community programmes as well as exceptional indoor environments: “That is, an environment with great air quality, lighting, acoustics, thermal comfort, and that encourages hydration, healthy nourishment and movement through the day.”
“These are all fundamental for organisations to provide a workplace that can support and demonstrate a strong ESG position,” Jack concludes.
Additionally, indoor environments which enable connection and efficiency whilst removing barriers and frustrations will serve to improve productivity and also better your bottom line.
Would you like to learn more about what the future workplace looks like? Explore the progressive leader’s guide to the future of work in Australia to find out more.