HR-ESG is attractive: Environmental, Social and Governance (ESG) aspects are becoming more important for companies who need additional capital, for those who want to increase sales, and also for hiring and keeping good employees (HR for “human resources”)[1].
In addition, employees can help companies to become more sustainable[2]. The Boston Consulting Group, for example, published recently that new ideas generated by employees helped to “overcome roadblocks in reducing Scope 3 emissions”[3].
Little scientific HR-ESG and employee engagement research
Unfortunately, I find very little comprehensive scientific research on HR-ESG[4]. A study by Hoa Briscoe-Tran from the University of Alberta[5] is one of the rare exceptions. Briscoe-Tran writes: “I analyze 10.4 million anonymous employee reviews and find that employees have useful information about firms’ environmental, social, and governance (ESG) practices. Employees discuss ESG topics in 43% of reviews, thereby providing substantial information about firms’ ESG practices. The employees’ inside view predicts various indicators of a firm’s future ESG-related outcomes, beyond the existing ESG ratings, particularly on the S and G dimensions. Using the inside view, I show that a firm’s stated ESG policies often differ from its employees’ view of its practices. … ESG rating agencies could consider incorporating employee reviews into their rating methodology more broadly” (p. 33).
A more recent study shows: „We find that, on average, job-seekers place a value on ESG signals equivalent to about 10% of the average wage. … Quantitatively, skilled workers value firm ESG activities substantially more than unskilled workers. … results indicate that ESG increases worker utility relative to the baseline economy without ESG. The reallocation of labor in the economy with ESG improves assortative matching and yields an increase in total output. Moreover, skilled workers benefit the most from the introduction of ESG, ultimately increasing wage differentials between skilled and unskilled workers“ (p. 32).
Companies should use the broad employee interest for ESG in a systematic way. And Shareholders should address this change potential when they engage with their portfolio companies.
Even though I have studied scientific publications regarding shareholder engagement quite thoroughly[6], I have found very little engagement with a broad HR-ESG perspective going significantly beyond rather limited diversity, equality, and inclusion (DEI) issues.
Broad HR-ESG activation is easy
With my mutual fund I try to invest in 30 of the most sustainable companies worldwide. Most of these companies actively address the typical HR-ESG-topics such as DEI, workplace safety etc.. I read their sustainability reports and also directly asked them, but I could not find one single company which tries to broadly engage its employees regarding ESG topics[7].
In my shareholder engagement strategy[8] I propose a very simple and efficient approach to activate employees for ESG-issues. Specifically, I write to all my portfolio companies:
“I think that regular and broad questions such as “How satisfied are you with the environmental, social and corporate governance activities of your company?” and “Which environmental, social and corporate governance improvements do you suggest to your company?” plus the (anonymous) publication of the main results of the answers in the sustainability report would be very helpful in seriously engaging employees and getting valuable structured feedback”.
Leveraged shareholder or stakeholder engagement
Most of these companies use regular broad as well as specific pulse employee surveys and typically have high participation rates. Implementation of my questions therefore should be simple and cost-efficient.
In addition, I suggest asking the same questions to customers and they also could be asked to suppliers. Interestingly, “surveys are already very common among employees, but many companies do not yet use them for customers (or at least, they don’t report on it if they do) and surveys of suppliers may be worth adopting as well“[9]. Therefore, the implementation of my suggested regular ESG surveys of customers and suppliers might be somewhat more time-consuming and expensive than employee surveys. But I think that it may well be worth the effort.
If companies regularly ask these questions to employees, customers and suppliers, shareholders can leverage their engagement activities to several stakeholder groups.
I started my respective engagement activities only at the end of 2022. Some companies answered that they like my suggestions and plan to analyze them, but I cannot report implementations so far.
I am only a small investors and cooperative engagement can me more powerful. Unfortunately, my trials for cooperative engagement with other investors have not been fruitful yet. One reason is that I could only find very few sustainable investment funds with a dedicated small-and midcap focus such as mine. With the few such funds I have typically very little overlap. The asset managers and shareholder organizations which I have asked so far want to cooperate with larger asset managers and not with such as small entity as mine.
But I will continue to ask for such surveys and the publication of their results. I am confident, that at least a few companies will adopt such surveys and position themselves even more as ESG-leaders[10]. And, maybe, with publications such as this one, I can encourage other companies, investors etc. to support such broad and easy to implement HR-ESG activities as well.
New research and best practices found after the first publication of this post (Sept. 13th, 2023)
Good jobs: Hidden Figures: The State of Human Capital Disclosures for Sustainable Jobs by Ulrich Atz and Tensie Whelan as of Oct. 11th, 2023: “Sustainable jobs … can lead to better financial performance, and represent a material impact for most corporations. … Using data from six leading ESG rating providers, we demonstrate substantial reporting gaps. For example, we find that only 20% of social metrics are decision-useful and quantitative measures are missing for most firms (70-90% per metric across raters). Even turnover, a financially material metric, is only available for half of firms at best and lacks details. Two case studies, on Amazon and the quick-service restaurant industry, further illustrate the financial costs of ignoring employment quality. We also provide several practical recommendations for managers and other stakeholders“ (abstract).
ESG attracts employees: Polarizing Corporations: Does Talent Flow to “Good’’ Firms? by Emanuele Colonnelli, Timothy McQuade, Gabriel Ramos, Thomas Rauter, and Olivia Xiong as of Nov. 30th, 2023: “Using Brazil as our setting, we make two primary contributions. First, in partnership with Brazil’s premier job platform, we design a nondeceptive incentivized field experiment to estimate job-seekers’ preferences to work for socially responsible firms. We find that, on average, job-seekers place a value on ESG signals equivalent to about 10% of the average wage. … Quantitatively, skilled workers value firm ESG activities substantially more than unskilled workers. … results indicate that ESG increases worker utility relative to the baseline economy without ESG. The reallocation of labor in the economy with ESG improves assortative matching and yields an increase in total output. Moreover, skilled workers benefit the most from the introduction of ESG, ultimately increasing wage differentials between skilled and unskilled workers“ (p. 32).
Good green job pledges? Greenwashing the Talents: Attracting human capital through environmental pledges by Wassim Le Lann, Gauthier Delozière, and Yann Le Lann as of June 26th, 2023 (#93): “… we examine a climate movement initiated by elite French students … To hasten the sustainable transition of businesses, participants in the climate movement threatened to boycott job offers from polluting employers. … environmental pledges have a strong effect on intentions to refuse to work for polluting employers: respondents initially intending to refuse a job offer from a polluting company are, on average, more than three times less likely to maintain these intentions after exposure to an environmental pledge. … Individuals who are not responsive to environmental pledges exclude large companies from their career perspectives, do not believe in the ability of a market economy and technological development to solve the ecological crisis, and support radical action in the name of ecology. … Our results … highlight that companies have incentives to strategically use environmental pledges to mitigate the adverse effects of negative organizational attractiveness shocks caused by a poor environmental responsibility” (p. 26/27).
Green safety: Are Green Firms Safer Places to Work? by Yiwei Li, Dragon Yongjun, Sarah Qian Wang and Yupu Zhang as of Aug. 14th, 2024 (#10): “Based on the establishment-level workplace injuries data … from 2002 to 2011 …, we find that corporate environmental performance is negatively associated with workplace injury rates, suggesting that firms with better environmental performance are also safer places to work in. … Additional analyses suggest that the negative relationship is more pronounced in firms with high litigation risk and those value respect, integrity, innovation, and teamwork. We further find that green firms invest more in SG&A (Sö: Selling, General and Administration) which includes expenses on workplace safety. In addition to workplace safety, we find that employees have higher level of satisfaction in green firms“ (p. 28).
Profitable ESG satisfaction: Putting the ‘S’ of ESG into Asset Pricing from a First-hand Perspective – Employee Satisfaction and Stock Returns: Evidence from Germany, Austria, and Switzerland by Nils Gimpl as of Aug. 12th, 2024: “Utilizing a unique dataset comprising 183,944 employee reviews from the employer rating platform Kununu, the analysis reveals that firms with high levels of employee satisfaction exhibit significant outperformance in stock returns compared to those with low employee satisfaction levels. … dissecting the employer ratings, strong associations between stock return effects and employee perceptions of a firm’s environmental and social awareness, equality, treatment of older colleagues, work-life balance, and working atmosphere are identified …“ (abstract).
Employee engagement: Bottom-up collaborative approach to transformative sustainable business model innovation: Developing engagement in an incumbent firm by Genet Corine and Rose Bote as of Dec. 6th, 2024: “This paper investigates the emergence of employee engagement through the process of transformative sustainable business model innovation (SBMI) within an established organization. … Recognizing the critical role that employees play in these transformations, we aim to examine how their engagement emerges. Based on a qualitative case study of a mature nuclear-based organization … From a practical perspective, we advocate for forums to encourage intrapreneurial creativity for incumbent firms seeking transformation in their business models” (abstract).
Green employee pressure? Clients, employees and institutional owners: Who influences corporate decarbonisation commitments? by Andreas G. F. Hoepner, Ifigenia Paliampelou and Frank Schiemann as of Jan. 8th, 2025: “This study examines the determinants of corporate decarbonization commitments … the findings highlight that institutional ownership (IO) exerts the strongest influence on decarbonization decisions, followed by employees with CSR concerns (SGA). Additionally, companies with higher green revenues are more likely to set decarbonization commitments, often at the subsidiary level, driven by specific customer pressures …” (abstract).
Best HR ESG practices
Hannon Armstrong Sustainable Infrastructure asks in its annual employee satisfaction survey if the “organization makes a positive impact on people and the planet”. In the last report, 92% agree (HASI-Sustainability-and-Impact-Report-2023_vf.pdf, p. 69).
„We conduct a global inclusion and engagement survey on an annual basis. We had a record high response rate of 91% in 2024 up from 78% in 2023. … In 2023, 87% of associates responded that they think First Solar operates in a socially and environmentally responsible manner (up from 83% in 2022)“ (First Solar 2024 Sustainability Report).
„… employees are consulted at regular intervals regarding their suggestions on sustainability in company-wide surveys and the results are presented.“ (Nexus AG Sustainability Report 2023, p. 5).
„To effectively engage our employees and raise their awareness of these crucial matters, we distribute a monthly ESG newsletter to all our employees worldwide. This communication tool is dedicated to disseminating information about our sustainability activities, highlighting our progress and the impact we are making. In 2023, we enriched the newsletter with the “What We Do Matters” campaign aimed at sharing our patients’ stories with our employees“ (Medacta Group Sustainability Report 2023, p. 16).
„We launched our Corporate Citizenship Barometer in 2023 to better understand and quantify how our key stakeholders perceive the Company’s environmental and social sustainability priorities, commitments, and impacts. We plan to update the Barometer annually, with the twin aims of applying learnings to the business and improving stakeholder awareness and sentiment. We surveyed more than 16,000 respondents across the stakeholders comprising our mosaic of success: customers, suppliers, TSMs (Sö: Team Schein Members = employees), investors, community partners, and professional associations. We gauged how important these issues are to the stakeholders, and whether they feel Henry Schein is committed, is having impact, and is focusing on issues relevant for a health care solutions company. Open-ended comment boxes allowed for richer feedback from stakeholders. We also learned that many of our stakeholders, particularly our customers, are under-informed about our work on these topics; that our suppliers welcome opportunities for more collaboration; and that our TSMs differ slightly in their understanding and attitudes of Henry Schein’s efforts across geographies” (Henry Schein Sustainability Report 2023, p. 42).
[1] see Effect of Corporate Environment Social and Governance Reputation on Employee Turnover by Ming Leung, Chuchu Liang, Ben Lourie and Chenqi Zhu as of August 20th, 2023
[2] see Engaging your people as the advocates and enablers of ESG change by Jessica Norton and Hannah Summers from Willis Towers Watson as of July 13, 2020
[3] see People Make the Difference in Green Transformations by Alice Bolton, Marjolein Cuellar, Kristy Ellmer, Elina Ibounig, Camila Noldin, Nick South and Astrid Vikström from The Boston Consulting Group as of August 23rd, 2023
[4] For a broad overview see e.g. Stakeholder Engagement by Brett McDonnell – SSRN as of Oct. 31st, 2022
[5] Do Employees Have Useful Information About Firms’ ESG Practices? by Hoa Briscoe-Tran – SSRN as of Aug. 2nd, 2023
[6] see for example Stakeholder engagement and ESG (Special Edition Researchposting 115) by Dirk Soehnholz as of Feb. 3, 23
[7] compare Active or impact investing? By Dirk Soehnholz as of July 21st, 2023 and 230831_FutureVest_Engagementreport-2830ab605a502648339b4f8f58fa2ee2dce539ef.pdf
[8] see Shareholder engagement: 21 science based theses and an action plan by Dirk Soehnholz as of Feb. 8th, 2023
[9] see Stakeholder Engagement by Brett McDonnell – SSRN as of Oct. 31st, 2022, p. 48
[10] this study is one of the reasons for optimism on my part: A Test of Stakeholder Governance by Stavros Gadinis and Amelia Miazad as of Aug. 25th, 2021