For businesses, ‘Being Socially and Environmentally Responsible’ is becoming increasingly important.
In fact, a recent survey of business executives showed that being socially and environmentally responsible, and ‘Complying with Legislation and Regulation’ are now top priorities for leadership teams.
What’s caused these initiatives to become as important as “Being Efficient and Well-Run” and “Achieving Strong Financial Performance”?
The answer is a diverse set of business stakeholders have pushed compliance and sustainability, or more broadly, environmental, social & governance (ESG) into the top priorities for business and the executives who lead them.
Transparency is a Stakeholder Issue
Your business’s stakeholders (and there are many of them) want transparency. The need for transparency is different for different stakeholders. But, there’s no argument that it’s more important now than ever before.
Here’s a look at the stakeholders and why they are pushing for transparency….
Consumers want transparency into the products they buy and the companies that make them.
Why? Because, consumers shop with their values; and they reward the products and companies aligned with their values for doing good especially when it comes to the planet and its people. For instance, there is evidence that half of all consumers will purchase eco-friendly products.
In fact, sustainability-marketed products sell more and at a premium than conventionally marketed products over the past 10 years. And, research indicates the trend will continue as conversations around climate change, sustainability, and green energy become more commonplace.
Board of Directors
Transparency into board composition and corporate governance on topics including gender pay, and supplier and workforce diversity are increasingly important for businesses and boards that steer them.
In fact, ESG reporting is an input into ratings that impact as much as 33%-40% of a business’s cost of capital. For businesses that borrow money this can mean savings of tens of millions annually.
Investors want transparency because they use it to help identify the potential risk and reward of the businesses they consider for investment.
In fact, a growing number of Investors require disclosure on a growing number of topics about business practices and partners, environmental impacts, and social responsibility including diversity and inclusion in the workplace.
Investors and lenders are seeking businesses with comprehensive ESG strategies and transparent reporting because they offer lower risk & out-perform their peers.
Investors are no longer simply satisfied with the mention of ESG issues in annual reports. These issues need to be captured in the risk assessment of a business and proper measures taken to account for such risk.
Companies that create diverse and inclusive work-environments are more adaptable, creative, and become magnets that attract top talent.
The importance of employees as a stakeholder can never be overstated. Workers are motivated by the belief they are contributing to a worthy cause. Companies looking to attract and retain top talent have taken notice and have given employees greater say in strategy and practices.
For instance, it is employees at Johnson & Johnson in the UK who lobbied the company to stop making non-disposable wipes because of the problems created when such wipes were flushed into sewage systems.
The importance of employee input is expected to continue according to experts because Millenial and Gen Z workers are more vocal about aligning personal convictions and work.
Transparency is essential for compliance. Regulators and law makers around the world are enacting new regulations to promote sustainability, social responsibility, and reporting & disclosure.
“Sustainability considerations are increasingly being incorporated into policies, corporate governance frameworks, and the lending and investment decisions of financial institutions. This will increase the influence of ESG on company strategy, financing and operating environments in 2021,” Fitch Ratings says in its new report highlighting five trends.
Diversity, Equity & Inclusion is a Business Advantage
Corporate social responsibility is trending. And, it is for very good reasons.
First, companies that create a diverse and inclusive workplace are more innovative and adaptable.They attract and retain top talent, which is valued by business leaders and stakeholders.
Research shows that companies with diverse management teams achieve margins that are nearly 10% higher, on average, than companies with below-average management diversity.
And, companies with above-average diversity produced a greater proportion of revenue from innovation (45% of total) than from companies with below average diversity (26%).
Workplace diversity increases understanding, acceptance, and valuing of differences between people of different races, ethnicities, genders, ages, religions, disabilities, and orientations with differences in education, knowledge, experience, and skills.
How a business attracts, empowers, supports, retains, and leverages a diverse workforce are parts of its diversity, equity and inclusion (DE&I) strategy. But, your business’s DE&I strategy may be limited by a big blind spot.
The Contingent Workforce in Your Business Value Chain
Many companies do not have information about this large and growing number of workers in their business and supplier ecosystem. These are the contingent workers or those on a contract or ‘gig’ assignments.
For a typical business, contingent workers can represent between 30% – 50% of all workers. The percent of total can be higher for functional areas like customer service and deliveries, and for those performing work in the supply chain like seasonal workers.
These workers often ‘fly under the radar’ when it comes to being represented in D&I reporting.
The issue of under-represented social groups is important from a business transparency perspective, especially for businesses striving to be comprehensive in ESG management and reporting.
The lack of information about contingent workers in the business value chain increases risk exposure for companies. Under-representation or, in cases, prejudice against social groups may go undetected without information and awareness about these workers – which is an important issue for your business stakeholders.
The importance of this information increases with climate transition which has the potential to increase the risk factors for many social groups.
Including the Contingent Workforce in your DE&I Strategy
Gathering information from these workers is an important first step. Collecting the data directly from the workers, even if they are employed through an agency, is important because the information must be accurate and provided on a volunteer basis.
You will want to be sensitive to regulations and norms about gathering social diversity data in the various geographies your business operates.
Enlisting your supply chain partners to gather information from their contingent workers is a second step that will enhance the transparency of your business and enhance the detail provided in your company’s ESG disclosures.
Once you have the requisite data, you can now develop strategies to ensure greater balance in the make-up of your workforce and leadership.
A Note from the Authors
Clearly, transparency regarding social and environmental responsibility is important to all stakeholders.
Businesses today must be seen to be taking enough action towards achieving transparency and goals for responsibility vs simply acknowledging the importance in reports.
Part of social responsibility is ensuring diversity and inclusivity, especially with the contingent workforce in your business value chain.
Companies should begin working to collect data on diversity and inclusivity to get a clear picture of where they stand in that regard and provide a baseline for development.
Your company may not have the right tools for managing contingent workers and collecting and maintaining information from the value chain. We can help.
Procom provides strategic consulting advice to help clients design best-in-class contingent workforce programs.
Procom’s Flextrack VMS is a total talent management solution that offers targeted and automated processes to improve operations management and support robust diversity, equity and inclusion (DE&I) execution in partnership with ICIX.
ICIX is an automated, collaborative, customizable platform to enable your businesses ESG initiatives.