Sustainability in the workplace: HR’s latest priority?

Over the past half a decade, policymakers have urged businesses to place sustainability at the heart of their growth strategies. Paying attention to environmental, social, and governance issues has become mission-critical.

Then the pandemic hit. Sustainability goals, at varying stages of maturity, were put on the back burner as businesses grappled to stay afloat amid the greatest period of uncertainty seen in the last 50 years.

In late 2021, much of the world began to emerge from the palls of the pandemic – the message from leaders was clear: rebuild but rebuild sustainably. Those that do were promised to reap the monetary rewards; those that do not would be penalised and left behind.

“The environmental, social and governance (ESG) impact has been on the business agenda for a number of years,” says Nick McMenemy, partner at Mercer UK, an international consulting firm specialising in talent and investment.

“Now we are seeing an uplift in demand for aggressively changing business practices, products, and services, in order to meet greater sustainability goals and embed a forward-thinking and sustainable approach throughout all levels of a business.”

When thinking about ESG, HR departments are not typically at top of mind. However, HR functions have a vital role to play in helping businesses achieve both their sustainability goals and growth targets – the two of which have become intrinsically linked.

Why does sustainability matter?

While a gradual shift in the way people work had already triggered a change in how businesses think about the employee value proposition well before the pandemic, business leaders are now faced with the challenge of promoting societal growth and boosting employee morale in tandem with positive social change.

Amid today’s current labour market, employees are likely to stay longer with companies they are happy and proud to work for.  Recent research shows that sustainability credentials attract greater talent, increases worker satisfaction and productivity, and helps protect corporate reputations.

In a 2019 HP Workforce Survey,  40% said that they’d look for new jobs if their employers didn’t prioritise or engage in sustainability practices. A further 70% said they would stay with a company if it had a strong sustainability plan; they were even willing to take a pay cut if a company’s sustainable values are aligned with their own.

“Teams need to be motivated and engaged to ensure their work is aligned with a greater goal in mind as well as constantly reflecting on their outcomes and whether these fulfil their sustainability plans,” McMenemy says.

A sustainable HR strategy

Employees are a key stakeholder group – they ensure business-wide success when it comes to promoting proactive change, better operating profits and increasing returns to shareholders as businesses aim to reach new global targets.

“Sustainability in the workplace has many different layers – the workforce, supply chains, the customer cycle, and so forth,” says McMenemy.  “It’s imperative to analyse each of these separately to gain a clear perspective on whether the business has the right tools and measures in place to meet their sustainability goals, or whether it needs a new structure.”

One area where changes can be made with relative ease is employee benefits; ensuring your third-party providers align with a business’s own sustainability goals and allowing a workforce the opportunity to make more sustainable choices within their own lives.

Recent research from Mercer, published in partnership with the Reward & Employee Benefits Association (REBA), suggests that business sustainability is already influencing reward and benefits practices and decisions –  nearly eight in 10 (78%) respondents’ organisations have made changes to at least some of their products or services to meet sustainability objectives, while a similarly high proportion (80%) continue to make changes.

Typically, existing ‘softer benefits’, such as cycle-to-work schemes, have been the go-to for many businesses. However, we are now seeing the emergence of new ESG benefits, with possibly the most significant being the provision of electric vehicles as company cars or available via salary sacrifice.

Pensions are another area of focus. Most workplace pensions default funds are starting a journey to net zero; ESG is being integrated into where employee money is invested which will have long-term positive impacts on the environment.  In addition, the inclusion of ESG may also increase employees’ interest and engagement with their pensions, which could be huge in growing pension contributions and pension pot values.

Getting it right

HR is uniquely positioned to draw upon the connection between employees and business to help organisations meet their climate-related goals. And it makes commercial sense to get employees involved.

But what is doing enough? “Given the transparency of the modern world and the greater access to information, if a business gets the people sustainability piece wrong, it will eventually impact on employee performance,  behaviours, and all-round engagement with the organisation, risking productivity, profitability and even reputation.” McMenemy says.

Businesses need to take a holistic approach to reduce emissions and improving sustainability. Taking steps to encourage a greener workforce is a logical part of this process. An ESG audit of HR operations is one way to ensure businesses are doing enough.

The findings from Mercer & REBA’s research noted that although relatively few organisations currently audit benefits suppliers for sustainability practices (just one in six do – 15%), this is set to increase rapidly, with half of respondents (50%) planning to introduce auditing for sustainability within the next two years.

Audits will allow businesses to evaluate their mission statement, sustainability policy, and incentives and benefits, to ensure they align with broader sustainability targets. Not only will the audit provide businesses with a view of where they are in terms of meeting those goals, but also provide suggestions of where policies need to be updated.

Pension providers are most likely to be audited in terms of their sustainability practices, followed by health and risk insurers, motivation and recognition providers, and health and wellbeing providers. Mercer & REBA’s research highlighted 71% of organisations either already request child and forced labour sustainability objectives from their reward and benefits suppliers or will do so over the next two years.

As HR teams place sustainability firmly within their strategies, businesses are likely to move towards in-house governance structures for all benefits providers and adopt formal sustainability audits for benefits providers.

Currently, businesses are either informally talking with suppliers about their ESG credentials or assessing suppliers at the procurement stage.

And it is in a supplier’s best interest to align their own goals with their clients’. One-third of employers are prepared to pay a premium to use suppliers that meet sustainability criteria, and just over half will change benefits providers to improve their sustainability, Mercer & REBA’s report noted.

To find out more on how Mercer can help your HR function, register for this latest event here.