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Welcome to 2023: ESG & employees still win even in economic uncertainty

Natalie Runyon  Director / ESG content & Advisory Services / Thomson Reuters Institute

· 5 minute read

Natalie Runyon  Director / ESG content & Advisory Services / Thomson Reuters Institute

· 5 minute read

Can ESG issues improve the well-being of employees in the coming year as human-centered business becomes more a part of the mainstream?

Environmental, social, and governance (ESG) issues and the power shift in favor of sought-after employees will emerge as business-as-usual topics in 2023, even amid the uncertain global economic environment. Indeed, both topics remained consistently in the top business news headlines in 2022 and in general, are a continuation of a larger trend of human-centered business.

As a result, these topics will become part of the normal course of business discourse in 2023. More specifically, here are five ESG themes that will be on the horizon this coming year:

1. ESG takes two steps closer in becoming just “business”

At its core, sustainability is about using fewer resources — natural, financial, and human — to generate increased efficiency and effectiveness in business performance, while reducing risk and identifying leveraging opportunities. John Friedman, Managing Director of ESG at Grant Thornton, advocates for the idea of calling sustainability “business” and reframing it in that way, because “no matter what you call it, it is just smart business to understand and manage those things that are levers for attracting more customers and investments [and] engaging your workforce, which all drive profitability.”

To underscore that point, a recent Deloitte study found that more than half of executives said they anticipate benefits from enhanced ESG reporting, including increased employee retention (with 52% of survey respondents citing this as a benefit), improved return on investment (52%), stronger stakeholder trust (51%), elevated brand reputation (49%), and reduction in risk (48%). Indeed, Infosys research found a strong correction between ESG and financial returns and realized financial benefits, including the lower weighted average cost of capital, according to McKinsey & Co.

2. Return to office is so 2022

Hybrid work is here to stay, and employees continue to crave flexibility. In addition, there is emerging evidence that remote working does not automatically mean a lack of engagement based on recent research of metadata gathered from virtual meeting platforms from 10 large global organizations, spoiling one of the major arguments for bringing employees back to the workplace immediately.

3. Employees still maintain an advantage over employers in major markets, albeit a smaller one

The tight labor market is likely to continue in major markets, despite the expectations of a recession in the U.S. and Europe in 2023. A key factor behind this is that labor force participation rates in the U.S. and in Europe continue to shrink over the long term. Further, attracting retirees back into the work force and shrinking net migration rates in the U.S. and the European Union are unlikely to fill in the gaps.

Moreover, one-third of European workers surveyed in mid-2022 said they were expecting to “quit their jobs, even amid the destabilizing conflict in Ukraine, rising inflation, and [as] growing fears of hiring freezes and job losses have created a difficult set of conditions for companies.” Against this backdrop, the European Commission is seeking to attract and retain foreign talent in the region through the Skills and Talents Package, a set of operational and legislative proposals to attract highly skilled foreign individuals, that was established last year.

4. Power skills get the attention of corporate boards

There is a growing need in the nation’s workplaces to rebrand so-called soft skills and instead refer to them as power skills, which can be key to motivating and engaging high-performing teams consistently, especially in the aftermath of the pandemic. In fact, “executives and shareholders are now crystal clear on the value of the human side of leadership, meaning the capability to connect with others, show empathy and compassion, be inclusive and resilient, and excel even in uncertainty.” As a result, boards of directors now want even more involvement in workforce issues.

5. The “S” rising in importance

The momentum of the human side of business has been building since early 2020. In addition, elements of the “S”  are quickly becoming a key success indicator of an ESG strategy. These include workers’ well-being, executive pay increasingly being tied to diversity, equity & inclusion goals, and pay equity and transparency, according to Brian Bueno, ESG Leader at Farient Advisors.

Jenn Ramirez Robson, Vice President of Employment Services at disability inclusion nonprofit Northwest Center, and Gayatri Joshi, former Executive Director of the Law Firm Sustainability Network and Partner at Vorgate Legal ESG Impact, both say that pay transparency and equity are emerging as issues of increasing importance, even as jurisdictions enact additional laws.

In fact, concentrating on the individual well-being aspect of ESG highlights other areas of ESG, such as a critical focus on the environment, Joshi explains. “When we can give respect and equity to all people, the S paradigm will often shift to support E.”

One aspect of how society gains greater awareness of environmental sustainability is through its impact on people, she adds. “When we don’t have equity, we don’t have equal power and choices, and it can translate to whether you can afford to live in a place free of pollution and climate risks or affording healthy food. It’s one of the reasons why the S is so important — we need all those stakeholders to have power and have a say.”

As we enter 2023, business will continue to become increasingly human-centered, and as a result, ESG and workers will keep moving to the forefront, gaining critical attention and importance throughout the coming year.

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