How do ESG principles influence compensation and benefits, with businesses integrating sustainability into their targets and offering sustainable benefits to attract and retain talent?

Companies are realizing how important an effective commitment to Environmental, Social and Governance matters is and how measuring and demonstrating their commitments can affect the growth of the businesses and its reputation in the market. Sustainability principles are increasingly felt to be relevant for investors, shareholders, customers and employees that are directing their choices towards the most ESG - compliant service providers.

With specific reference to compensation and benefits, ESG may be involved both in setting a business’s targets and in granting sustainable benefits to employees; an employer that is ESG-oriented also has a competitive advantage when it comes to attracting and retaining talent.

In addition to variable payments, ESG is also influencing benefits packages. Companies should not miss the chance to re-design their benefits packages, linking them to sustainability principles. When it comes to pension schemes and investments in retirement plans for example, employees are now looking for socially conscious and environmentally friendly investments that align with their values. Among the ESG goals that employees care particularly about is the imperative to reduce carbon emissions. Employers could respond to this sentiment by granting individually tailored benefits packages for employees who choose public transport, carpooling, or cycling for their commute, or who choose to walk to work.

The social aspect of ESG is also causing a change in perspective when it comes to occupational health and safety. For a long time, OH&S has been seen by employers as a cost resulting from the need to comply with certain legal provisions, principally to avoid sanctions and exclude the employer’s liability in case of injuries at work. Today, companies are changing their approach and start looking at the importance of managing OH&S in a proactive and socially oriented way.

The pandemic highlighted the significance of implementing safety measures at the workplace as an essential prerequisite to companies conducting business. Further, the management of OH&S has, for a long time, failed to properly take account of employees’ mental and physical health and safety. Employee wellbeing has been found to be a key determinant of the success of the business, in terms of productivity and efficiency, the image and reputation of the company, employee retention and the attraction of talented workers.

Sustainability seems to have a truly positive impact on shareholder value. This means that companies should invest in adopting more sustainable targets, in addition to more traditional indicators. It is therefore advisable for companies to set measurable ESG targets for both their management and employees and to include ESG metrics.

For all of these reasons, an ESG-oriented approach may even bring economic advantages. This way of managing the place of work based on sustainability principles is starting to be seen as an opportunity rather than a mere cost and companies should take their chance to make all their stakeholders (employees, investors and customers) aware of their commitments in a genuine and transparent manner, by publishing real, objective and measurable data. If done properly, this can be expected to provide a reputational boost, benefits from the perspective of shareholders, investors and customers, and benefits in terms of attracting and retaining engaged employees.

Francesco Lorenzi, Partner at Toffoletto De Luca Tamajo and Partners recently presented at the Technical Forum in Vienna, Austria. Please click here to find the resources and presentations from this event.