ESG (Environmental, Social, and Governance) practices don’t just make the world a better place – they can add value in the eyes of prospective and current employees. Solid ESG practices will appeal particularly to Generation Z, who are driven like no other generation to address global issues such as climate change and social inequality. In a competitive labour market that is increasingly comprised of Gen Zers, ESG initiatives are a critical tool for attracting and retaining a productive workforce.
Attracting talent. Surveys show Gen Z cares relatively little about salary,2; most of Gen Z would choose an exciting job over a boring but better-paying one. For Gen Z, serving a bigger purpose is a priority. Fewer than two in 100 Gen Zers believe businesses are doing their part to tackle environmental and social issues – this belief weighs heavily on decisions about which company to work for. Nearly two in five Gen Zers report turning down job offers because the employer’s values did not match their own2. So strong is Gen Z’s commitment to making the world a better place that students from more than 300 universities recently pledged to work only for environmentally conscious companies. ESG is a way for employers to demonstrate a commitment to goals that align with Gen Z’s priorities. Being part of a workplace with strong EEG initiatives means an individual can do more to benefit society than they could on their own. For Gen Z (and sustainability-conscious people from all generations), a company’s ESG initiative creates unique value that cannot be replaced by salary or other employee benefits.
Retaining talent. Pandemic upheaval has made many people question their job choices, but none more so than Gen Z. A recent global survey by Deloitte2 revealed 40 percent of Gen Z (compared to just 24 percent of Millennials) planned to leave their current job, and would resign even if they didn’t have another job lined up. For Gen Z, the decision to quit depends critically on their employer’s commitment to sustainability and equity. Gen Zers satisfied with their employer’s impact on society and commitment to sustainability typically plan to stay with their employer for five years or longer; those not satisfied with their employer’s efforts almost all report considering leaving their job in the next two years2. ESG weaves a sense of purpose into a job in a way that no other initiative can rival. Being part of an ESG initiative creates a sense of belonging, a factor associated with improved employee performance. Indeed, employees from companies with active ESG initiatives often report increased job satisfaction. The more satisfied an employee, the less likely they are to leave their job.
Enhancing employee wellbeing. Better wellbeing translates to improved productivity. The most obvious impact of ESG on wellbeing is from initiatives that directly support employee mental health; one study noted for every $1 employers invested in evidence-based mental health support, up to $4 was saved on other expenses. A company-wide commitment to wellbeing is also highly desirable in the eyes of Gen Z2, a generation that is not afraid to voice wellbeing concerns. Perhaps more surprising is evidence suggesting broader social and environmental ESG initiatives also improve employee wellbeing. For example, one study noted a company’s commitment to sustainable water use enhanced feelings of wellbeing among its employees. ESG can mean that even the routine parts of one’s job make a positive contribution to the environment and society – research shows such prosocial acts are highly rewarding for the individual, and correlate with improved wellbeing and better physical health, regardless of one’s generation. ESG activities that match an individual’s own values create additional rewards for doing one’s job, promoting fulfilment. As a result, ESG may also guard against the ever-increasing threat of workplace burnout; studies show meaningful rewards, and a good match between one’s own values and one’s job requirements, both make burnout less likely.
In short, ESG’s benefits are far more wide-reaching than the important but often distant prospect of making positive social and environmental changes. ESG practices project a company’s commitment to important principles, and add value to a company’s culture in a way that salary and other benefits cannot rival. ESG is thus an important tool for attracting and retaining healthy and productive employees.
Dr Sarah Cowie is a Senior Lecturer in psychology at the University of Auckland. Sarah is the Director of the Behaviour Lab, a research group that looks at how decisions and actions are influenced by experience and by the world around us.