As part of our summer 2024 employment trends series, we highlight some of the initiatives we have seen as ESG becomes a more consistent theme in the sphere of HR and compensation.
Sustainable compensation structures
We have seen some companies tying executive compensation to ESG performance metrics. This helps to align leadership incentives with the company’s ESG goals and holds senior management accountable for progress in these areas.
Since 2019, for example, BP has linked bonuses for its executives and employees to the company’s performance on several environmental targets, including greenhouse gas reduction. The company introduced a new element for the 2024-2026 directors’ incentive plan – instead of tracking sustainable emissions reductions, it will measure and reward progressive improvements in operated carbon emissions performance both over the short and long term to directly align with its net zero ambition.
In their 2024 annual study, Farient and the Global Governance and Executive Compensation Group found that nearly 90% of large companies globally now incorporate ESG measures into their incentive plans. Allstate has moved its ESG targets from its short-term incentive plan to its long-term incentive plan to give it greater prominence within the executive pay programme, while Starbucks has dropped its 2023 compensation package, which tied 7.5% of executive bonuses to a DEI goal, replacing this with a new ESG goal that will be part of a long-term incentive plan making up about 25% of bonuses.
Workplace environmental initiatives
Employers are implementing more green policies in the workplace, such as reducing waste, improving energy efficiency and encouraging sustainable commuting. For example:
- Climate Perks is a UK employee benefits scheme through which participating companies offer extra days off, known as “journey days”, to employees who choose lower-carbon transport options for vacations. This initiative encourages sustainable travel and aligns with corporate social responsibility goals. It reflects a trend towards “green benefits” in the workplace and a recognition of the environmental impact of travel.
- PwC has recently introduced a policy to restrict business class travel for UK partners and directors unless for long-haul overnight flights or “business critical” travel. This reflects a commitment to reducing the firm’s carbon footprint and aligning with sustainability goals.
- Royal Mail Group has introduced a company car salary sacrifice scheme to support its commitment to achieving net-zero emissions by 2040. Employees will have access to new and used low-emission and electric vehicles through the scheme. Similar EV salary sacrifice schemes have been implemented by Learnd and Central Co-op.
- Roadchef aims to encourage its employees to make a difference to the environment by providing them with a corporate sustainability action platform through which they can pledge to volunteer and reduce carbon emissions.
- Research by The Electric Car Scheme in February 2024 found that 48% of UK employees are more likely to feel motivated within an organisation that offers green benefits, so employers considering how to retain talent may want to explore what they can do to appeal to environmentally conscious employees.
Transparency and reporting
Companies are increasingly transparent about their ESG efforts, including those related to employment. This might involve reporting on workforce demographics, pay equity, health and safety records, and other relevant metrics. As mentioned in our blog on pay transparency and equity trends, Labour has committed to the introduction of disability and ethnic pay gap reporting (in addition to the existing gender pay gap reporting requirements).
