Why ESG has become a key issue for employers?

I. What is ESG ? How does ESG impact business?

ESG refers to Environmental, Social and Corporate governance considerations in relation to business and financial investments. This is a tool for businesses to measure sustainability.

Being poor on ESG can have a huge impact in terms of productivity, profitability, reputation, and values.

If this indicator has an international aspect (fairness and equality standards being globally applied), it is also closely linked to the action of European institutions.

Originally, the idea was essentially to open the debate on a possible binding regulation to promote ESG, and to set up several forums for the exchange of best practices.

As a result, companies must embark, in close cooperation with their stakeholders, on a process to integrate social, environmental, ethical, human rights and consumer concerns into their business operations and core strategy.

Regarding environmental matters, companies should examine the current and foreseeable impact of their operations on the environment, and, as appropriate, on health and safety, the use of renewable and/or non-renewable energy, water use and air pollution. Regarding social and employee-related matters, they should take action to ensure gender equality, implementation of fundamental conventions of the International Labour Organisation (ILO), working conditions, social dialogue, respect for consultation rights and staff representation, and health and safety at work.

In 2011, the European Commission completely renewed its strategy for the promotion of ESG, including the adoption of a new definition and the implementation of two directives in 2013 and 2014.

The ISO 26000 standard gives further insights for employers by providing guidance on actions to be implemented. In these guidelines, the ISO provides for the following definition: “The responsibility of an organisation for the impacts of its decisions and activities on society and the environment, resulting in ethical behaviour and transparency which contributes to sustainable development, including the health and well-being of society; takes into account the expectations of stakeholders; complies with current laws and is consistent with international standards of behaviour; and is integrated throughout the organisation and implemented in its relations.”

ESG can therefore be defined as the strategy through which the company organises its decision-making process based on a more integrated consideration of the interests of its stakeholders (internal and external), a sustainable ethical orientation that it assigns to its activities, and a voluntary approach that exceeds what is strictly imposed by legislation and regulations.

In this context, ESG has emerged as a key driver for companies around issues such as climate, human rights, modern slavery, corruption, transparent and inclusive governance.

II. Why should HR pay particular attention to ESG?

Beyond a strict appreciation of all existing legal provisions relating to the environment, corporate governance and employment, ESG is becoming a major factor in demonstrating the commitment of employers for corporate sustainability efforts and positively differentiating vis-à-vis competitors, and also for raising funds through sustainability financing and generally demonstrating a sustainable strategy for growth. This trend has increased since the COVID-19 pandemic.

Because this crisis has had a significant and lasting impact on people and employment, the pandemic has engendered more of a focus on the social aspects of ESG.

During this period, companies have made massive use of telework leading to a particular focus on working conditions (i.e. the increased need for flexibility, work life balance, mental health, workload, etc).

As a result, companies need to find ways to reflect the change in their culture and the behaviour of their management and employees.

There is indeed a significant number of key themes emerging in ESG, which directly relate to employment. These include:

• Diversity and inclusion;
• Gender gap;
• Health, safety and well-being;
• Training and investment in people and in skills
• Compliance;
• Work life balance;
• Environmental and waste management policies.

Therefore, it is no longer sufficient to ensure that these internal policies are compliant with legal rules. They should form the basis for setting standards and goals and be part of a global ESG strategy within the company.

In this regard, it becomes crucial for companies, whatever their size, to be proactive, creative and to involve all of their stakeholders including, as the case may be, staff representatives.

III. French new provisions regarding involvement of staff representatives

In view of accelerating the implementation of ESG principles in French organisations, the French Labour Code has been enriched in recent years with new provisions that grant powers to staff representatives in this field.

Indeed, according to the Labour Code, staff representatives must be consulted on various subjects related to ESG, such as gender equality, professional training, working conditions and the impact of the employer’s decisions on the environment.

Since August 2021, Works Councils (WC) are now required to give opinions on the environmental consequences of their companies’ activity.

As per the “Climate Law" dated 24 August 2021, the WC of companies with at least 50 employees now enjoys new consultation rights in this respect. The employer will be required to inform and consult the WC on all the environmental consequences of projects impacting the organisation, management and general operations of the company (e.g. when advising on a change of workplace, all the environmental aspects of the contemplated move will be included in the consultation).

In the same way, during a WC's periodic consultations (e.g. on the strategic orientations of the company, economic and financial situation, working conditions and employment), the employer must henceforth inform staff representatives of the environmental consequences of the company’s activities.

In addition, full members of the WC elected for the first time, in companies with at least 50 employees, will be eligible to follow a training programme on the environmental consequences of the company's activities.

It is clear that the ESG movement is on-going. This has nothing to do with greenwashing but with new parameters and commitments to be taken by businesses for which both employers and employees are accountable. ESG has become a new indicator for measuring a business's performances and a critical success factor. For more information on ESG, contact your CMS client partner or local CMS experts: Caroline Froger-Michon, Camille Baumgarten.