Environmental social and governance (ESG) issues have leapt up the corporate agenda over the past few years, driven by regulatory impositions on publicly listed companies and a heightened sense of urgency among investors, customers and employees.
A new era of sustainability-related disclosures in capital markets began in June when the International Sustainability Standards Board (ISSB) issued its final IFRS Sustainability Disclosure Standards. More than $35 trillion of assets worldwide are now monitored using a sustainability lens, an increase of 55% since 2016.
First coined in a 2004 United Nations report titled “Who Cares Wins,” ESG embodies the three major challenges facing business and wider society. Environmental criteria consider how a company safeguards the environment. Social criteria examine how it manages relationships with employees, suppliers, customers and the communities in which it operates. Governance deals with a company’s leadership, executive pay, audits, internal controls and shareholder rights.
Not surprisingly, the bigger staffing firms have been proactive in this regard. An SIA analysis of the most frequently used words and phrases within staffing firm annual reports showed that ESG was mentioned only 24 times in 2019, compared to 969 in 2022. The Adecco Group’s 2022 annual report comprises 11 pages of ESG content, Randstad stretches to 25 pages, while ManpowerGroup published a separate 50-page ESG report titled “Working to Change the World.” Adecco has set a target of halving its emissions by 2030, while ManpowerGroup has committed to net zero by 2045 and Randstad by 2050.
And it’s clear that staffing firms generally have a good story to tell — they play a key societal role in finding people work, they proactively support their client’s DE&I initiatives and remote working policies, promote lifelong learning, generously support charitable causes and they are not overly destructive to the environment during their normal course of business (though, admittedly, their clients might be).
The Role of Private Firms
While larger, publicly listed firms have been at the forefront of this issue, many expect ESG to become increasingly prevalent among smaller private firms. So, if you are a private staffing firm, why should you be concerned about any of this? There are four key reasons:
- Regulatory developments. The assumption that only large, listed companies are subject to ESG regulation is outdated. EU regulations such as the Corporate Sustainability Reporting Directive (CSRD) and the EU Taxonomy Regulation will increasingly oblige companies to report on non-financial items, including SMEs from 2026 onward.
- Funding requirements. ESG is now a concern of private fund providers from private equity to debt and beyond, so private companies should, at the very least, have a prepared ESG narrative so as not to exclude themselves from wider funding opportunities.
- Resilience to disruption. As climate change increasingly causes disruptive weather events, ignoring ESG could lead to higher insurance costs, higher energy costs, supply-chain disruption and, not forgetting, irreparable damage to the planet — which would clearly be bad for business.
- Stakeholder expectations. ESG may be a vital concern for your customers and employees, not to mention your potential customers and potential employees. Competing for more of both, especially among a younger demographic, may be more difficult if you are not willing to share your ESG credentials. Mercer’s Global Talent Trends 2020 found that employers with highly satisfied employees score 14% higher on ESG performance than global average employers.
In short, ESG can help private companies manage risk better, enhance their reputation, access capital, and position them more strongly for long-term success.
One consideration is that ESG initiatives can expose the company to criticism from both the political right and left. Those of a right-wing disposition may push back on your intentions and perceive them as evidence of overt political correctness. Commenting on ESG in a 2022 Wall Street Journal article, former US Vice President Mike Pence said, “The woke left is poised to conquer corporate America and has set in motion a strategy to enforce their radical environmental and social agenda on publicly traded corporations.”
Meanwhile, activists on the left will be casting a critical eye over your ESG statement for any signs of ambiguity between what you say and what you actually do. “ESG washing” is a relatively new term used to describe the actions of corporations that oversell their ESG initiatives to gain a favourable impression. In fact, a whole new set of definitions have emerged to signify and highlight specific areas of hypocrisy:
- Greenwashing. Misleading or overstating environmental credentials.
- Bluewashing. Misleading or overstating commitment to coastal, oceanic, and marine development.
- Pinkwashing or Rainbow washing. Advertising support and sponsorship of the LGBTQ+ community while maintaining discriminatory internal practices.
- Purplewashing. Attempts to appeal to the diversity and inclusion of women that are inconsistent with internal practices.
- Brownwashing. A public show of support for Black, indigenous and people of colour (BIPOC) communities in the absence of appropriate employee protection from discrimination, prejudice or harassment.
ESG is not for the fainthearted. It requires a much more serious commitment than crafting a mission statement. It demands specificity and an obligation to set targets, as well as ways of measuring performance. While your mission statement might claim that you operate with integrity and ethics, ESG requires that you prove it.
If your business has a purpose beyond a basic profit motive, then you should not be shy about broadcasting it. Taking a proactive approach to sustainability and social responsibility can lead to better company positioning for sustained success, drive innovation and improve operational efficiency. For example, adopting more sustainable practices can lead to cost savings through reduced resource consumption.
In March 2023, the United Nations Intergovernmental Panel on Climate Change (IPCC) announced that the world is likely to pass a dangerous temperature threshold within the next 10 years, pushing the planet past the point of catastrophic warming without drastic action to transform economies and transition away from fossil fuels.
Clearly, we have reached a point where business leaders need to decide whether to take action to contribute to the collective effort or stand on the sidelines and watch as the consequences play out.