ESG: The E from a people perspective

United Kingdom

Often employment law is ahead of the curve but, while green leases and green loan agreements are, for example, becoming common in other parts of the legal world, green employment contract clauses or HR policies with an environmental focus are still thin on the ground.

We expect that as employers continue to devise their own climate goals they will increasingly looks at ways of encouraging employees to align with those goals. They may be surprised to find that employees are receptive to this. In one survey in 2020, 65% of respondents said that they were more likely to work for a company with strong environmental policies. As always however there is a balancing act to be done as not all employees will welcome it if employer climate goals impinge on their day-to-day working lives.

Although there is now a complex list of corporate reporting and listing rules relating to environmental disclosures, in the employment sphere there is currently no standard approach on how employers approach environmental issues with their employees. In the first of our series exploring the link between ESG, the workforce and employment law, we focus on the E and suggest five issues for employers to consider as they look at the role employees can play in their climate strategy.

Greening contracts of employment

Some employers are beginning to think about employment contracts and how they can build in contractual requirements that align employees with environmental goals. This could include, for example,  a contractual commitment that employees directly contribute to the sustainability targets set by the business and/or towards carbon offset targets. Along with making required changes to the T&Cs of employment contracts, in line with relevant consultation processes, employers must also consider how far they’re prepared to go in enforcing such clauses. For many therefore making such a definitive statement of intent may be aspirational but remains commercially unrealistic.

Audit and review HR policies

For employers looking to encourage rather than enforce a green approach, HR policies could be updated to reflect a more sustainable outlook. This could include limitations on business travel and printing, providing additional holiday for those who choose slow travel and offering sustainable employee benefits, including discounts from local suppliers.

Hybrid working strategies

Working from home reduces travel and for most people the carbon footprint associated with commuting. As employers continue to review what their future working model will look like, climate impact is a huge part of this.

Review pay and reward

If you can measure the reduction in carbon, can you then incentivise employees around carbon reduction? We are starting to see this issue and other environmental targets being considered and built into executive level compensation. In October 2021 research was published that 61% of FTSE 100 bonus plans now have some form of ESG component. We are also beginning to see shareholder pressure on companies to link pay and climate pledges which is likely to drive momentum in this area. 

But check your enthusiasm

As companies increasingly publish their commitments to reduce emissions and take steps around the environment, they run the risk of being exposed to allegations of greenwashing if their green promises are not matched with reality. In the future we may increasingly see claims where workers expose overblown commitments and seek to rely on the statutory protections given to whistleblowers relating to damage to the environment. Although it’s rarely been relied on in the past, this may change as environmental issues gain greater prominence. This is a clear threat underlining the importance for employers to commit to and act on tangible and deliverable ESG measures.

Overall we recommend that employers plan their approach on climate action and communicate the strategy and goals to employees before asking them to change their behaviour. Ultimately this is about shifting a culture and embracing a different way of thinking and behaving. Tackling climate change is going to involve action at all levels. Employers who are serious about making a difference will need employees to be part of their climate solution.