ESG – or Environment, Social and Governance – refers to a wide range of considerations that impact a company’s performance, both in public procurement and within its internal culture. Following the #MeToo and Black Lives Matter movements, employers have been called on by their shareholders and investors to focus on the ‘S’ of ESG and take action to address sexual harassment, racial injustice and other inequalities in the workplace.

Investor initiatives promote diversity and inclusion

More recently, several investment firms have called on corporate leaders to lead the way in making substantial changes to the way companies serve their shareholders, employees and communities. For example, in 2019, the president and CEO of BlackRock, Inc., a multinational investment management firm and the world’s largest asset manager, issued a letter encouraging companies to align their “goal” to company with better service to all stakeholders. BlackRock called on its companies to increase diversity on their boards, provide compensation for service and retention of quality talent, and focus on managing human capital. In line with those goals, in September 2020, BlackRock revealed that in the previous year alone, it had voted against board directors more than 1,500 times for insufficient diversity.

Following in BlackRock’s footsteps, other investment firms have also brought diversity initiatives to the fore. BNP Paribas Asset Management and Legal & General Investment Management (LGIM) also backed diversity-focused resolutions this year, with LGIM supporting 21 of these proposals put forward by shareholders of its portfolio companies, including Amazon. In 2020, Goldman Sachs announced that it would only help IPO companies with at least one diverse board member, with that number increasing to two diverse members in 2021.

In 2019, the Nasdaq launched its ESG reporting guide, putting additional pressure on employers to put in place policies that encourage social awareness in the workplace. Although the Nasdaq does not require ESG reporting by its rules, its ESG metrics are encouraged to guide employers in finding the best path to “improve operations, strengthen strategy, expand risk oversight, or engage with new investors “. Some of the social data that the Nasdaq emphasizes include pay considerations, such as CEO pay ratio and gender pay ratio; corporate culture and staff turnover factors, including gender diversity and non-discrimination; safety and health measures; and human rights issues.

The pressure for internal social reform is not limited to private investors and shareholders. At both state and federal levels, government initiatives are taking root. Several states have instituted pay transparency laws requiring employers to disclose the salary or pay scale for positions at different levels of the application process (for example, Nevada requires employers to provide the pay scale to applicants who completed an interview as Colorado imposes a more onerous standard, requiring employers to disclose the pay scale in any job posting). Other states have implemented laws protecting victims of sexual harassment, including laws preventing nondisclosure agreements in sexual harassment regulations and other laws increasing the ability of sexual harassment claimants to litigate. their complaints.

At the federal level, President Biden has promoted his own ESG agenda since his campaign for the presidency, spelling out “the Biden agenda for women” intended to “strengthen women’s economic and physical security and ensure that women can fully exercise their rights. civilians ”. And recently, on June 26, 2021, the House of Representatives voted to pass the ESG Disclosure Simplification Act of 2021 (HR1187) which would require the SEC to define ESG metrics to guide required corporate disclosures.

In the months and years to come, employers can expect to see increasing pressure not only from the private sector, but also from government entities.

What employers are doing to meet the demands

As employers feel the pressure to respond to the demand for corporate social reform, employers have reassessed their policies, procedures and social priorities to meet the challenge. While such measures, such as ESG audits and internal reform, are certainly encouraged from an investor perspective, it is important that employers who engage in such initiatives show an equal commitment to continue implementation. changes after identifying areas for improvement.

While these ESG efforts are still developing and evolving, some models and attempts at creative solutions have emerged in these initiatives, including:

  • Increase diversity “from top to bottom”, from the board of directors to management to the workforce.
  • Periodic update of the members of the board of directors.
  • Carrying out pay equity audits.
  • Increase training on preventing, responding to and investigating allegations of workplace harassment.
  • Improve internal record keeping and reporting of sexual harassment complaints.
  • Implement policies to recover compensation paid to executives during periods of fraudulent activity or misconduct, including sexual harassment.

In addition to diversity and other non-discrimination initiatives, employers offer additional social programs to improve company culture and encourage employee retention. Some creative initiatives include:

  • Allow long-term remote work.
  • Increase the company’s presence in the community by engaging in philanthropic efforts, such as serving under-represented communities.
  • Offer financial literacy programs, such as matching student loan payments, setting up emergency savings programs for employees, and providing financial assistance.

Even without engaging in new and creative initiatives, there are still steps employers can take to meet demands for increased social awareness, such as reviewing their current policies and comparing them with current practices; consider the effectiveness of current training regarding employment policies such as harassment, discrimination and retaliation; and review HR documents, policies and practices and consider potential improvements to better meet the needs of the business and all employees.

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