December 7, 2021

Volume XI, Number 341

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December 06, 2021

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HR Priorities in a Post-Covid World (UK)

In the innocent days of early 2020 investment research firm MSCI predicted that this would be the year that “ESG storms the CFO’s office, elbowing its way onto their bottom line as financiers get creative with ways to bind ESG criteria to their terms of capital, introducing a plethora of corporate borrowers into the wide world of ESG”. But is this still right? Should Boards still be focused on ESG or have the totally unprecedented events of 2020 left it behind as a worthy but essentially idealistic approach only achievable in more prosperous times?

To recap, ESG is an acronym very familiar to those in the investment community – standing for Environmental, Social and Governance factors that socially conscious investors use to screen potential investments. Environmental and Governance cover fairly obvious ground, but Social? —  this means looking at an employer’s impact on its workforce and the wider community through tell-tales such as its record on diversity, gender equality, employee rights, charitable activities, community work and the use of agency workers.

Put simply, while the main investment motivation has traditionally been to secure a return through the profits the company can generate, with perhaps some stigma only over “sin stocks” (e.g. weapons or tobacco or gambling, etc.), over recent years there has been a tangible shift in the way in which people (particularly millennials) are willing to invest their money. Due to more widespread knowledge of environmental problems, issues of inequality and high profile corporate scandals, investors increasingly desire “profit with a purpose”, so are actively investing in companies with good ethical credentials or a good track-record in carbon emissions and so on. This has led to calls from many quarters for corporations and investors to take a more responsible approach to business beyond the bald numbers for shareholders and return on equity, now also taking into account the interests of customers, employees and our wider society – to define value as something wider than financial return.  The ability of a Board to be clear about the purpose of the company, and how it will deliver on that purpose, has thus become key to long-term success. In fact, the idea that profit and doing the right thing in society are necessarily in conflict has never really been true – companies can only prosper in the long term if they are delivering what their customers want in ways they want it.  But investors do now seem to be looking more closely at the values and purpose of a company when deciding whether to invest in it.

Importantly, these issues are not only relevant to companies seeking investment – we see their effect across the board, impacting the products and services consumers choose to buy, the companies they want to work for, how they want to work, how much they are willing to let Board members be paid, and so on. Millennials are particularly demanding about the companies they are prepared to work for. And of course although the ESG terminology might be new to some, this is not a new issue – it is simply that it is no longer merely the domain of the “worthy” crowd (if you will pardon the expression). The movement is far too big to be ignored, and of course there is the “G” – governance. Much of this is or will soon be backed up by legal requirements too, so not just “nice to haves”, going beyond the existing requirements on gender pay gap and modern day slavery. ESG – think of it as CSR with teeth.

The reality for now is that most businesses have suffered as a result of COVID-19, some dreadfully. Their focus may therefore simply be on doing whatever is necessary for survival in the short term, but even in their response to the pandemic, companies are beginning to be scrutinised on decisions taken and the impact of them, particularly in relation to people. For example, the press is already gnawing at those companies which have (entirely lawfully, it should be said) taken the benefit of the furlough scheme despite having the means not to need to do so (and some are already deciding it is in their interests to pay the money back), while it is lauding those businesses which have re-purposed their operations to assist in the fight against the virus or have been seen to put the safety of their staff above pure profit. This is being born out from an investment perspective too with the 20% of stocks with the highest ESG scores apparently continuing to outperform the broader market. And there can be little doubt that a more motivated workforce, which understands and supports the company’s purpose, will be more loyal and more productive.

Accordingly, while the Environmental issues started the year as a key priority and policy-makers are still promoting the move to a net zero carbon economy, including using COVID-19 recovery programmes to support green investment, our view is that over the coming months there will be increased focus on Social issues too. Human capital management has always been an important factor in ESG. Instilling an inclusive organisational culture with leadership that better reflects the communities in which we operate, and that nurtures, engages and rewards the talents of a diverse workforce lowers costs, leads to productivity gains and helps strengthen the fabric of an organisation. And this is only likely to become more important in these strange times.  In fact, Schroders has referred to its belief that a “new social contract” will emerge as the Covid-19 crisis changes relationships between companies and their stakeholders. The way in which businesses have treated their staff, customers and suppliers during this time may be remembered for years to come. Boardrooms which have measured themselves against a “we’re all in it together” mentality will be better placed to withstand scrutiny.

With public appetite to ‘build back better’ post-pandemic now at a high, our belief is that the scrutiny by press, shareholders, current and would-be employees and customers will continue. Social media and platforms such as Glassdoor will only increase the spotlight on employers behind the scenes. So businesses will need to consider carefully the balance in their decision-taking between commercial objectives, securing a financial return and meeting strict legal requirements versus ESG considerations, finding the right way to deliver both that which is profitable and lawful and that which is right and befitting of the organisations they want to be.

HR issues for now

A huge number of people issues potentially fall within the “S” of ESG – from how employers should move beyond diversity and inclusion being a tick box exercise, how they deal with the anticipated increase in remote and/or flexible working, how they should best ensure the safety of employees who do return to work (including from a mental health perspective), and beyond.

© Copyright 2021 Squire Patton Boggs (US) LLPNational Law Review, Volume X, Number 178
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About this Author

Laura Nelson Employment Attorney Squire Patton Boggs London, UK
Professional Support Lawyer

Laura Nelson’s practice focuses primarily on preparation for and attendance at Employment Tribunal Hearings, preparation of advice on all aspects of employment law, and drafting of contracts of employment, company handbooks and compromise agreements. Laura has also advised on a variety of football related employment issues, as well as more sports specific issues such as player transfers, third-party influence over clubs and the international transfer of minors.

44 207-655-1082
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