How to structure a sustainable reward strategy

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Need to know:

  • Employee benefits can play an important role in helping organisations meet their sustainability goals, as well as helping to attract and retain staff.
  • Travel-related benefits, pensions and carbon-offsetting schemes can all help employees make a difference to their carbon footprint, and that of their employer.
  • It is vital that any initiatives are communicated effectively and that employees can see the impact these are having.

With global warming and climate change now an essential part of the business landscape, all parts of organisations are under pressure to do their bit to encourage more sustainable habits. Those working in HR and employee benefits roles are no exception.

Tony Guadagni, senior principal in the Gartner HR practice, says: “Many organisations have set themselves ambitious environmental goals, and a sustainable reward strategy can provide a method of achieving those targets. [Looking] at an organisation’s carbon footprint, for example, transportation to and from the place of work is not an insignificant contribution, so encouraging sustainable transport proves beneficial for the [organisation] and its employees.”

Implementing more sustainable reward strategies can also help to attract and retain employees, says Matt Russell, chief executive officer (CEO) at Zest. “Businesses that boast a strong track record of prioritising sustainability issues are more likely to appeal to the younger generation of workers, who will soon make up the majority of the UK workforce,” he explains.

Research published by Totaljobs in December 2019 backs this up, finding that 28% of employees check an organisation’s sustainability practices before applying for a job, rising to four in 10 millennials. Additionally, half (50%) say they would consider not working for an employer with harmful practices.

Sustainable benefits

There are a number of ways in which reward and benefits can help encourage more sustainable practices and contribute to reducing an organisation’s carbon footprint. Travel is perhaps the most obvious, with electric vehicles, bikes-for-work schemes and flexible or remote working policies all having the potential to reduce emissions associated with the use of petrol or diesel cars.

Electric vehicles are one way this can be achieved, while also providing employees with a valued benefit. Robin Dargie, senior consultant at Quantum Advisory, says: “The scheme provider should be able to achieve a discount on the price of the car and can offer all-inclusive packages, including servicing, insurance and even a home charging point. Employers can help too by offering on-site charging facilities.”

Season-ticket loans can allow employees to spread the cost of a rail ticket over a set period interest free, while bikes-for-work schemes can also entice people out of their cars, at least for relatively short distances. “Substantial discounts are available on both a new bicycle and cycling equipment, with a large number of retailers participating in the scheme,” adds Dargie. “Employees can choose how much they want to spend and spread the cost over a period of time.”

Green investments

Pensions are another area where employers can have a significant impact. Mark Pemberthy, benefits consultancy leader at Buck, a Gallagher company, says: “Pension providers now publish the level of CO2 emissions associated with the underlying investments in the default investment strategy, and the range of emissions between different pension providers is significant. As well as being a powerful proof point of a sustainable workplace culture, in extreme circumstances, the potential improvement for some employers could be equivalent to the total carbon footprint of their whole workforce.”

Organisations, or employees themselves, can also actively choose to invest contributions in particular funds. “Nearly all employers have to provide a workplace pension scheme for their employees,” says Dargie. “Where this is a defined contribution pension scheme, such as a group personal pension, there will usually be an option to choose an investment that is environmentally friendly. These investments are often called ESG funds, as they are designed to consider environmental, social and governance matters. These funds can take an exclusionary approach by not investing in some industries, such as coal and oil.”

It is essential here to ensure that staff know how sustainable their organisation’s provider or investment strategy is, says Russell. “Many employees will be unaware that their pension could be having a negative environmental impact,” he explains. “It’s important that employers communicate any reductions so employees know their company is doing all it can to offer more sustainable benefits and remuneration packages.”

Refurbished options

Other measures can also have an impact. For example, employers might want to consider offering a technology scheme, says Dargie. “This would operate in a similar way to a [bikes-for]-work scheme, but offers refurbished technology,” he says. “This is clearly more environmentally friendly, and refurbished tech is cheaper than buying new, sometimes with no discernible wear and tear.”

Employers can also set up the ability for employees to donate to a charity via payroll giving,  which would allow them to support charitable initiatives of their choice while also benefiting from tax relief.

Another means of empowering employees is to offer them the time to get involved in their own sustainable causes. Rameez Kaleem, founder and managing director of consultancy 3R Strategy, says: “More organisations are making it easier for employees to raise money for charity by offering volunteer days or matching any donations or funds raised.”

Incentives for green behaviour

Employers can also help encourage staff to change their day-to-day habits, and incentivise them to do so. Oli Cook, co-founder and CEO of Ekko incentives, which provides employees with a card to monitor the impact of their purchasing activity, says: “Education and engagement around sustainability through less traditional forms can inform employees about the impact of their purchasing decisions. Through interactive carbon tracking and offsetting, contributing to reforestation projects and reducing ocean plastic, employees can see the real impact they are having on the planet, while being empowered to make positive changes.”

It is vital that employees are involved in helping to shape any sustainable reward strategy. “An open dialogue can be used to gauge their interests and ideas, asking them directly what benefits they would use or like to see offered,” adds Kaleem.

Along with feedback from potential candidates about what more they could provide as an employer, this kind of discussion can help to monitor the impact of initiatives and assess whether these provide a return on investment, he adds.

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Effective communication and promotion of benefits is also important, and this should also apply to existing benefits that have the potential to deliver significant impact if they were more widely used, as well as any new additions. For instance, Zest’s research, published in October 2023, found that 23% of employers offer a bikes-for-work scheme, but just 5% of employees have actually used this in the past 12 months. “Improved communication is vital to get this conversation started to deliver enhanced value to both employer and employee,” says Russell.

The pressure to act on reducing carbon footprints means this is an issue that will only grow in prominence in the years ahead, and it is vital that employee benefits form at least part of the mix. “National targets for environmental, social and governance will have to be met, with shareholders and investors applying pressure on organisations to achieve them,” explains Kaleem. “Those failing these targets will not only be under scrutiny from employees and potential employees, but also from governments looking to improve the environmental and social aspects of workplaces.”