What the social aspect of ESG means for your firmby
Sharon Critchlow explores how practice leaders can incorporate the social aspect of Environmental Social Governance (ESG) within their organisation.
With flooding in Europe and wild fires in North America, much has been spoken about the environmental impact we are having on the planet and the consequences we are now facing.
The capital markets and investors are starting to recognise this too with the rise of ESG funds, and employees, investors and customers taking a closer look at the impact of businesses on the world.
In this article I will look at the social aspect of ESG which is already starting to have a similar impact on business as environmental credentials.
What is the S factor?
The Social factor in ESG covers how an organisation manages its relationships with its workforce. It is also the “social aspect of sustainable investing” and therefore the public face of how you treat people and the priority your clients, staff and investors play in the business.
Wider political and economic factors often impact these areas and the keys to getting it right can be open transparency, regular temperature checks and agile action.
Uninformed or inflexible working arrangements can give rise to strikes, supply chain issues and a struggle to attract and maintain top talent. All of these internal factors are also visible to the outside world and can become a PR issue, so leaders ignore these people needs at their peril.
Some of the social factors which are common across organisations include:
- Health and safety, which has now grown to include wellbeing and resilience
- Diversity, inclusion and equity
- Human rights
- Ethics and whistle blowing
- Responsible procurement and modern slavery
- Personal development and progression
But organisations are also increasingly being asked to fulfil a wider social remit and to demonstrate social value through supporting local communities or addressing social needs.
In ESG terms, environmental and social aspects are people and planet with governance being the framework which holds it together.
Why does it matter?
A recent World Economic Forum article suggested that ‘85m jobs may be displaced by a shift in the division of labour between humans and machines’ and for those that stay in their roles 50% of people will need reskilling. A new core skill of “Resilience, stress tolerance and flexibility” is now appearing in the top 10 skills needed in 2025. Interestingly, seven of the 10 core skills are around creativity, resilience, complex problem solving and learning – with only two skills being around technology.
What we expect from people is changing and will need a proactive approach in the coming years to avoid a talent drought.
Is there something better than employee engagement?
It is not just the World Economic Forum that is tracking these people trends. The 2021 Deloitte Global Human Capital Trends report cites, “Employees who are given the freedom to apply their interests and passions to organisational needs will be more motivated and engaged”.
However, this is only part of the story, as people search for more meaning in the work that they do.
According to research by Garton & Mankins, an engaged employee is 45% more productive than a merely satisfied worker. What is more interesting is that an inspired employee (one who has a profound personal connection to their work and/or their company) is 55% more productive than an engaged employee.
This is more than twice as productive as a satisfied worker. The better an organisation is at engaging and inspiring its employees, the better its performance.
It’s a competitive world
Many of the S factors listed above have a legal framework and therefore companies are duty bound to have policies and processes in place to ensure a minimum level of compliance.
However, this is a competitive world. Future success is reserved for those who embrace best practice and who don’t just recognise their place in the world but actively seek to support that position.
Garton and Mankins talk about inspired employees having a personal connection to the workplace or their work in general. In the right work climate, this extra link can give rise to analytical thinking, innovation or creativity, originality and initiative all of which are listed by the World Economic Forum as top skills for 2025.
What can you do to rise in this new world?
A key aspect of success for businesses moving forward may well be to understand and quantify why you do what you do and the social value that it creates.
For employees looking for more meaningful work and those who wish to cultivate that inspiring connection, establishing a collective vision is a starting place.
It’s not just what your organisation does but why it does it and your understanding of that impact that will attract talent and clients.
As an accountancy practice you may prepare statutory accounts and tax returns but do you also encourage a network of businesses by introducing your clients to each other? Do you help people to sleep at night by talking about all aspects of their business and by being a trusted adviser?
Look at the specific customer benefits of working with your business and if you aren’t sure what they are – ask the people that work closely with you.
Be clear about your policies and create a corporate wellbeing plan. This can incorporate and encourage team cohesion and inspire your teams to have a closer relationship, both with the organisation and with each other. It gives the message that you care about their wellbeing and therefore about them, and it offers an opportunity for the organisation and the individual to get to know each other better.
Research carried out by ACCA and IFAC called “Ground-breakers: Gen Z and the future of accountancy” has found that 51% of Generation Z workers which are the new graduates, cite personal wellbeing and mental health as a worry and 48% think a great work-life balance is a key attraction factor for employment.
So, how do you know if you are delivering for your team in the land of remote working? Chart the pathway a staff member could take if under stress or when unwell. Is it easy? Does everyone know the help you offer? Now carry out the same task for a diversity question, and a whistle blowing situation.
Do you offer a growth pathway for your team? The same ACCA research also found that 91% of new accountants expect to update their capabilities continually to remain employable in the future.
With the power of the internet it is easy to see if another employer can give them that support and with 57% of this age group expecting to move on within two years, it’s an area which deserves some attention for your business to thrive and maintain top talent.
In this increasingly digital world establishing what people mean to your organisation, their place in its success and the values you hold are already in the spotlight. Moving forwards, you have a choice as to how you position your business.
How you value and promote the ‘S’ factor in ESG will have a significant impact on how others perceive and wish to engage with your business.
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