How is ESG changing the future of employee benefits?

Need to know:

  • Environmental, social and governance (ESG) issues are influencing employee benefit design through the emergence of new benefits and the repositioning of existing ones to highlight their ESG-related characteristics.
  • The use of online apps that provide insight into how pension funds are invested help provide feedback to employers on what is important to their employees.
  • Encouraging employees to be more proactive about ESG, for example, using an online carbon footprint calculator, creates opportunities to promote other ESG-focused benefits offerings.

In today’s competitive labour market, the decision to join or stay with an employer is increasingly influenced by the organisation’s ethical stance, and its approach to issues around the environment, society and governance (ESG). It’s no surprise, therefore, that ESG is also making an impact on the employee benefits offering.

The Aon Benefits and trends survey, published in January 2022, found that 70% of organisations had already implemented more benefits that support ESG issues, while a further 23% were considering doing so.

Richard Morgan, principal, employee benefits at Aon, says: “We are seeing pressure from employees and potential recruits in forcing employers to rethink the whole proposition around ESG.

“There is a repositioning of some existing benefits to make them more prominent from an ESG perspective, for example, cycle-to-work schemes, while new ESG-focused benefits are also emerging, the most significant one being electric vehicles offered on a salary sacrifice basis,” he adds.

Think strategically

Other benefits strategies aimed at reducing carbon emissions include cleaner commute initiatives for employees who choose public transport, carpooling, biking or walking to get to work. Locally-sourced food discounts, educational resources focused on environmental sustainability, and the promotion of environmentally-positive discounts on wider purchases also reflect the growing trend.

An organisation’s pension scheme has the greatest potential to adversely affect climate change and create negative social impact and should be the first point of call when a business considers its own ESG credentials.

Craig Williams, director of employee benefits at Broadstone, says: “Research suggests that the average UK pension pot unwittingly finances over 20 tonnes of carbon dioxide (CO2) emissions each year so mitigating against this will dwarf environmental and social gains that can be made by implementing any other benefit changes. For any business that is serious about ESG, commissioning analysis of pension scheme investment is essential.”

Digital solutions, such as Tumelo, encourage members to engage with the impact of their pension investments from an ESG perspective and allow them to influence how their money is being put to use by voting on relevant resolutions being put to the shareholders.

Mark Pemberthy, principal and benefits consulting leader at Buck Solutions, says: “As well as helping to improve employee understanding of how pension funds are invested, solutions like these also give useful feedback to employers and trustees on what is important to their employees.”

A growing number of employers are implementing flex allowances or spending accounts that employees can effectively use as an expense accounts for things that fall within the rules set out by the employer, including ESG-focused. The money could be put towards an electric car, or improvements to home insulation, but given the broad remit of ESG, it can also be used for personal development, for example, academic qualifications or vocational training.

Link to diversity and inclusion

ESG is intrinsically linked to diversity and inclusion, which continues to influence employee benefits strategies, many of which now support access to fertility treatments and gender reassignment, opening up a wider set of choices for employees.

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Organisations can enhance their ESG credentials further by educating their employees and helping them to be more proactive as individuals, as Morgan explains. “Something as simple as signposting them to a good carbon footprint calculator, such as that of the WWF, so they can see the impact of what they do, is a good place to start,” he says.

“This can be linked back to the employee benefits scheme as an opportunity to highlight things like your staff restaurant’s meat-free menu offering, your cycle to work and electric car schemes, and other ESG-focused benefits,” Morgan adds.