Human Resources (HR) directors have taken the lead in implementing internal people sustainability policies and have an opportunity to further extend them along supply chains, according to a recent Mercer survey. It found that progress continues to be made across Environmental, Social and Governance (ESG) factors and UK companies are leading the charge among their European peers.
Mercer’s HR in ESG – European Survey (the Survey) investigated HR directors’ perspectives on sustainability across a wide variety of economic sectors, with the participation of 220 organisations, including 44 in the UK, during January 2022. The majority (52%) of respondents employ more than 500 people and exactly half expected revenue of at least €100 million.
A large number of UK & European HR directors are embracing the opportunity to integrate sustainability into corporate activities.
This opportunity is influenced by the interests of multiple stakeholder groups. 93% of HR directors in the UK view customers as the main driver [of integrating sustainability into corporate activities] compared to 87% in Europe. Furthermore, 86% of UK HR directors consider employees and 77% consider shareholders to have significant influence on corporate ESG activities, compared to 76% and 75% respectively in Europe. That said, 70% of European HR directors consider politics to have significant influence, whereas 64% of their UK peers gave the same response.
Employee preferences – a focus on ESG in HR
Our Mercer Global Talent Trends Report established that an ESG focus is attractive to employees. For example, it found that 49% of employees prefer organisations that actively manage workforce health and financial wellbeing, and 37% prefer companies committed to environmental protection and social justice.
The Survey revealed that while 80% of UK HR directors consider ESG to be a top priority, 70% say that is actually part of the company’s HR strategy, indicating further scope for inclusion within HR strategy. A focus on environmental sustainability appears almost universal with 96% [of UK HR directors] agreeing that these factors are a point of focus. Social aspects are considered of almost equal importance, with 91% [of UK HR directors] agreeing that they are a focus.
The majority of organisations in the UK link the company’s purpose to their ESG goals, with 80% saying they do this. Organisations can obtain important reputational advantage by communicating their ESG achievements. 77% of UK firms (63% of European firms) say they externally communicate their ESG activities and progress.
While ESG has become a top priority, it has not yet fully filtered through into executive incentives. Just over 40% of UK organisations link executive incentives to ESG targets as compared to approximately 50% in Europe.
European companies are also more likely to link ESG achievements to both long and short-term incentives across the board. For example, while 17% of European companies anchor both long and short-term incentives to environmental targets, only 11% do so in the UK. In the UK organisations are more likely to use long-term incentives (18%) than short-term incentives (11%) for the achievement of environmental and social goals. This differs from our 2020 survey, which found that short-term incentives were more likely to be used. This may suggest that executives are more likely to make a long-term commitment to sustainability goals than previously.
The Survey indicates that organisations are raising employment standards as part of their commitment to sustainability. For example, an overwhelming majority of UK HR directors state they have a responsibility to pay all employees the living wage (95%) and provide them with access to an adequate pension scheme (91%), with 92% in Europe agreeing to both statements.
Diversity, Equity & Inclusion (DEI) activities are also a significant priority – UK firms take the lead with 87% making this a priority, while the European average is still very high at 80%. HR also sees it has a role to play in monitoring employment standards in the supply chain, with 53% of UK HR directors considering this a priority compared to one-third of HR directors in European companies. The situation is shifting, likely in response to laws such as the Modern Slavery Act in the UK and Supply Chain Act in Germany, as well as the reputational risks associated with poor third-party employment standards.
The remaining gaps in implementation mean that companies are still far from holistically addressing sustainability and anchoring ESG as a strategic focus. This leaves further room for HR directors to actively shape social sustainability policies. By thinking holistically across the company’s global value chain, they can strengthen their lead in people sustainability.
- Sustainability Consulting Lead, Mercer