By Robert Bailey, Jaclyn Yeo, Lingjun Jiang and Angela Ferguson
Environmental, social, and governance (ESG) issues are no longer treated as an afterthought by companies. These issues are increasingly central to a firm’s reputation and financial performance and are scrutinized by an array of stakeholders including investors, ratings agencies and clients.
To date, however, there has been limited attention paid to how a company’s ESG performance affects one of the most important stakeholder groups: its employees.
Drawing on MSCI’s ESG data, this study offers insights into the relationship between ESG performance and workforce sentiment – a key lever in a time of unpredictable turnover and tough competition for talent.
1. ESG performance’s impact on workforce sentiment can be a source of competitive advantage
Our study found that top employers, as measured by employee satisfaction and attractiveness to talent, have significantly higher ESG scores than their peers. This pattern is partly due to these employers’ relatively strong environmental performance, though the trend is also evident across specific social and governance issues. This finding suggests that ESG performance can help companies both improve employee satisfaction and attract prospective employees.
This is significant because prior research shows that satisfied employees work harder, stay longer with their employers, and seek to produce better results for the organization. Equally important, enthusiastic prospective employees strengthen a company’s talent pipeline and ensure the availability of crucial human capital.
2. ESG performance will become increasingly important to attracting and retaining talent as Millennials and Gen Z come to make up most of the global workforce.
By 2029, the Millennial and Gen Z generations will make up 72 percent of the world’s workforce, compared to 52 percent in 2019. These generations place greater importance on environmental and social concerns than their predecessors do – and will expect more from employers on these issues.