Environmental, social, and governance (ESG) criteria are an increasingly popular way for all stakeholders, not just investors, to evaluate companies. Many mutual funds, brokerage firms, and robot-advisors now offer products that employ ESG criteria. ESG criteria can also help investors, employees, contractors, and others avoid companies that might pose a greater overall risk due to their environmental or other practices. What can ESG criteria mean for your business?

What it is:

Environmental, social and governance (ESG) criteria are a set of standards for a company’s operations that socially conscious investors (and other interested parties) use to screen potential investments/partnerships. Environmental criteria consider how a company performs as a steward of nature. Social criteria examine how it manages relationships with employees, suppliers, customers, and the communities where it operates. Governance deals with a company’s leadership, executive pay audits and shareholder rights.he

Willis, Towers Watson maintain that younger employees are driving the focus on ESG and human capital. Companies that are not already incorporating ESG into their strategy will be soon because consumers, investors and employees are demanding it.

• 92% of consumers are more likely to trust a company that supports social or environmental issues
• 88% of consumers are likely to be more loyal to such companies
• 68% of investors have integrated ESG into their investment decision-making and will increasingly vote against organizations which fail to adequately address the issue.
• 58% of employees consider a company’s social and environmental commitments when deciding where to work
• 55% of employees would choose to work for a socially responsible company, even at a lower salary

The Securities & Exchange Commission (SEC) has issued new requirements for public companies to disclose their practices and measures regarding human capital, including recruiting, training and retaining employees. Likewise, the World Economic Forum (WEF) has introduced new standards on measuring stakeholder capital management that includes a statement of an organization’s purpose as well as their policies on diversity, pay equity, health and safety and other human capital practices.

The Role of ESG in Employee Incentive, Reward & Recognition Programs

ESG metrics are increasingly being considered as effective ways to reinforce positive actions within incentive, reward & recognition programs now and in the future of work. Companies already using ESG metrics report that, because employees pay attention to what is measured, performance improvement, incentive and recognition programs are an effective way to communicate what is important to the company leadership. Including ESG metrics further encourage your employees to operate in an environmentally and socially conscious way.

All Star Incentive Marketing’s President, Brian Galonek, is encouraged by these developments in human capital management: “The C-suite is clearly coming to realize that the best way to meet the needs of not just shareholders and customers, but also employees is to focus on environmental, social, and corporate governance (ESG), and employee engagement is a crucial part of doing so. Not simply to respond to the world we all live in, but equally to ensure the financial viability of their companies.”

To learn more about how you can incorporate environmental, social and governance metrics into your effective employee incentive, reward, recognition or performance improvement program, contact us today!