Boards, shareholders, customers, the media and employees are closely monitoring organizations’ environmental, social, and governance (ESG) promises and, more importantly, deliverables. Human capital is key to ESG success and strategic total rewards can be the spark that inspires employees to put their all into contributing to an organization’s ESG priorities. Astute leaders get it. Twenty-five percent of North American organizations have aligned their total rewards programs with their ESG goals and 47% more are thinking of doing the same in the next three years. The icing on the cake? Tangible, actionable ESG objectives advance your employee value proposition—and help you succeed in the ongoing war for talent.
Before your organization embarks on its journey to connect total rewards with ESG, it’s important to remember that organizations start from different places with different goals. Make sure your employees and business leaders are on board with your plan. Do they understand how it will impact them? Are they aware of their role and the commitment required in the coming months and years?
Here are four steps total rewards leaders can employ to encourage your entire organization to support your ESG agenda.
Linking ESG and total rewards begins with a deep understanding of your organization’s current ESG state. Start by answering the following questions:
Possible ESG-related risks
Do your homework. Asking these questions up front will provide you with a solid footing on which to make broader connections to your total rewards strategy.
Following your assessment, connections between your total rewards strategy and ESG will become apparent and expose areas where your total rewards strategy may already be, sometimes unintentionally, contributing to or working against ESG objectives.
For example, remote and flexible work policies may align with your broader business net-zero commitments or diversity, equity and inclusion (DEI) goals (e.g., research shows that remote and flexible working arrangements can help reduce air pollution by around 8% and flexible work can improve gender equity in pay and career). Or you may already have practices in place to track whether your total rewards programs are properly considering affordability for your underrepresented employee groups (including those at lower income levels). Conversely, a requirement for employees to have a four-year college degree to participate in upskilling initiatives may create career inequity among underrepresented employee groups.
Consider ROI as you think about how to modify, enhance, or eliminate elements of a current total rewards strategy to amplify your ESG goals. Total rewards investment should be commensurate with the benefit the organization may reap from an improved ESG profile. These benefits may vary significantly depending on business factors such as industry (e.g., some are under intense pressure to produce a robust net-zero plan), business lifecycle (e.g., high-growth companies may need to prioritize other critical business and infrastructure investments), and stakeholders (e.g., some businesses have more complex stakeholder interests to balance).
We’ve found that organizations find themselves in one of the following three categories as they think about where they currently are in linking their total rewards with ESG goals, and where they want to go.
“The secret to getting ahead is getting started” - Mark Twain
Immediate priorities may include leveraging employee experience platforms to clarify and promote ESG programs and policies and to help employees understand how linking total rewards to ESG can benefit them. We recommend rebranding or re-promoting elements of your total rewards strategy that already support your organization’s ESG agenda.
Longer-term priorities may include developing a plan to ensure pay equity and wellbeing programs that consider the social determinants of health. For example, an employee’s financial resilience is often linked to race and gender. Or you may want to support your strategy on net-zero commitments by redesigning workspaces to be environment-friendly, incentivizing employees who use energy-efficient or low-emission transportation and/or subsidizing remote workers’ home energy assessment. If you’re focused on social equality, prioritize equitable total rewards like pay transparency, living wage and reskilling or upskilling programs to pave equitable career paths for underrepresented talent. While more subtle, total rewards can also better align with governance priorities, such as a greater focus on risk management, data security, ethics, and vendor relations.
In either case, the bridge you build between total rewards and ESG should be customized to your organization, taking your current ESG state into account, where you are headed, and the role total rewards can play in influencing this journey.
To sustain momentum, total rewards leaders should focus on three key areas:
Around the world, many regulators, investors and shareholders are calling for organizations to improve and sustain their ESG initiatives. You will need all hands on deck to accelerate your ESG commitments and sustain that momentum. By linking ESG to total rewards, you recognize that employees play a vital role in helping shape your ESG priorities and you can go farther with the whole organization rallying towards the same goal. Amidst continuous shifts in global markets and talent requirements, a sustained commitment to ESG objectives can give the organization a competitive edge in its human capital strategy.
