People Sustainability - a core principle in companies

The terms CSR (Corporate Social Responsibility) and ESG (Environmental Social Governance) are widely known in all enterprises. All companies are required, voluntarily or obligatorily, to take sustainability-related aspects in its cooperate management into account.

However, employment and implementation of ESG criteria in companies reveal new dynamic and attention: On June 21, 2022, the EU parliament has already come to an agreement regarding sustainability reporting in companies (Corporate Sustainability Reporting Directive – “CSRD“). It is envisaged to adopt the CSRD in autumn. The reporting obligation will be extended from previously approx. 500 enterprises to approx. 15,000 enterprises.

Focusing on employees: The willing to change increases

The statutory framework increases the pressure on companies to address the sustainability topic and the social aspect. The situation in the labor market – labor shortage – enhances the pressure. Numerous studies have revealed that approx. 20-40% of all employees will change their jobs within the next 12-24 months. The findings of the Randstad Employer Brand Research 2022 study show a similar direction: Every 5th employee intends to change the job within the next 6 months, whereby the age group of the Z generation and millennials (18-34 years) show even greater willingness to change (25%). 33% of the Z generation and millennials are actively searching for a new job.

What employees expect from their employer

Enterprises must respond to the willingness to change and the dissatisfaction of employees. Dissatisfaction has several reasons. Safe workplace, an attractive salary and social benefits, pleasant working environment, financial stability and a good work-life balance – all of these features are decisive for the employees. Albeit well-being and work satisfaction take priority for the younger generation: 50% of the Z generation and millennials would terminate their job, if it would impair enjoying life (vs. 38% babyboomer). However, sustainability and purpose are already important for the young generation in selecting the employer: 38% of the employees in Germany would rather not accept the job if the company is not proactively involved in more sustainability (Randstadt labor barometer, 1st half-year 2022). 49% of the millennials and Z generation pointed out that they would not accept a job which is not in compliance with their social and ecological values. 

Why social sustainability is of major importance to enterprises

Companies must focus on the sustainability topic beyond regulatory and statutory stipulations and get actively involved. Otherwise, the labor shortage will be highly noticeable, because companies neglecting sustainability or implementing greenwashing will record higher fluctuations. Furthermore, there are potential risks to recruit new talents. Each departure of an employee is a loss in knowledge and know-how. Search for replacement is extensive and time-consuming. Investments in recruiting and onboarding are high. Investment sums in the amount of up to EUR 50,000 will incur until a new employee has been recruited and onboarded.

The economic damage

Many companies accept the economical component of high fluctuations. However, the economic damage as a result of inefficient work processes has not been really measured to date. According to the current study of the Gallup Institute 3 out of4 employees work to the rule (69%). 14% already decided to terminate the job. In turn, only 17% of the employees ensure full working capacities and keep the economy and thus the company running! These figures entail high economic damage and are an utter waste of work performance. 

HR must join the table

The aim is a holistic sustainability approach. To this end, HR department gains in importance. Without HR there will be no transformation with view to a digital and sustainable organization. HR plays an essential part to recruit adequate talents for the company. This means: HR must join the table when it comes to strategy and organizational change. 

However, this is not often the case. This shows the study of DGFP – Deutsche Gesellschaft für Personalführung e.V. – and the Boston Consulting Group (BCG) #zukunft ”Future of HR in Strategy, Sustainability and Technology“. HR is involved in the business strategy in only 60% of the companies surveyed. In 34% of the companies HR is part of the Board Members or Management. 

If in the future, the customer or technology is not the limiting factor but people, HR must provide an active strategic role. And one of the most essential strategic (future) topics is sustainability.

Sustainability must be extended and implemented in enterprises and above all deployed by HR and the employees. To approach the People Sustainability strategy at an early stage offers great chances. According to the motto “Only people who know their strengths are able to act” the focus should be on a sustainable HR management. It starts with status quo analysis. Companies may pose the following questions: What does People Sustainability mean to us? Which standards do we apply? Do we already take these standards into account today? Do we need new and additional approaches and HR tools? How do we implement and accompany such criteria as a company? 

What does sustainability mean with respect to People Management? 

Sustainable HR management means to define criteria pursuant to the Employee Lifecycle which ensure that waste of working time and manpower of employees on all hierarchy levels is prevented. The aim is to prevent waste of working time and manpower. A status quo analysis is a prerequisite in order to identify fields of action resulting in long-term improvements of criteria. Acting sustainable applies to persons who know their fields of development, understand and implement these progressively and in a targeted manner. Acting sustainably applies to persons who systematically identify and eliminate (personnel) waste and reorganize and optimize HR processes and tools to reduce it. 

An example based on the Employee Lifecycle

Strategy and controlling as well as People Analytics have an impact on the objective, tools and measures within the Employee Lifecycle facets. It will be visible via the effectiveness of measures of the Employee Lifecycle. To this end, the corporate strategy sustainably contributes to People Sustainability, if waste of manpower is prevented and systematic difference in treatment is defined. It is necessary to clarify in advance how such challenge can be approached. The corporate strategy defines the mission, vision, values and purpose. HR strategy will be permanently in place and adapted to the market in an agile manner. It is therefore recommended to establish an Environmental Social Governance (ESG) Council or a focused S(ocial) Council for instance, that is filled by colleagues in management, HR and customer management. The council determines the priorities and objectives and monitors the progress in close cooperation the ESG workgroup or the S workgroup. 

This is how sustainability strategy works in recruiting

For recruiting, sustainability may have the following meaning: There is a long-term qualitative and quantitative planning of headcount to ensure healthy growth. It ensures that the decision for recruiting and promotion is objective and comprehensive and the application pool is optimally utilized. Diverse organizations are attractive for applicants, enhance decisions and enable enterprises to be more innovative. Sustainability also means that companies not only take traditional CVs into account. They also clearly define diversity criteria: Which diversity aspects are insufficiently considered in companies? And which should be enhanced and to what extent? They invite for interviews which are conducted by persons with intense bias training.

With reference to Reward & Recognition & Benefits sustainability requires fair remuneration in order to ensure equal pay for equal performance and tasks. The gender payment gaps result in dissatisfaction which must be cured with great effort retrospectively.

High flexibility must be created within the meaning of Retain: Flexibility of workplaces and working times. People Sustainability likewise means that the agreed working time is not permanently exceeded and overtime does not become standard resulting in exploitation of people. It is high time to fairly assess working times and to remunerate employees accordingly. Tasks and roles must be customized to such an extent that they can be fulfilled within the set framework. Because employees with a good work-life balance are well balanced and happier. This also has a positive effect on working environment and satisfaction. Happy employees show higher motivation and have a positive attitude when dealing with other people (important for customer contacts and relation management), make fewer mistakes and enable good cooperation. 

What sustainability has to do with diversity and leadership

It has been proven that diverse teams are more creative and contribute to greater innovation strengths for companies. However, in some companies the management is still monocultural. The annually conducted FidAR study (an initiative for more women on supervisory boards) shows with regard to the diverse gender aspect: Since 2021, the proportion of women on the Management Board has increased by 1.7 percentage points to 14.7%. In companies which are subject to the women’s quota, the percentage stands at 16.2% (plus 2.1 percentage points since 2021). For comparison: In all other companies the percentage stands at just 12.5% (plus 1.2 percentage points since 2021). Furthermore, 93 of 183 companies under review had no women on the Management Board. In Germany, the women’s quota on the Management Board continues to stagnate (Women on Board Index 185 / 2022). 

This is not surprising if we take a look at Randstad’s Trend report New Work entitled „How diverse are German companies?“ 45% of German companies do not employ executives working part-time. Why do decision-makers ignore half of the population? Women carry out the major part of care work and thus contribute significantly to the macroeconomic benefit. Reality shows: Germany’s gender pay gap is still huge. On average, women earn about one fifth less than their male colleagues for completing the same tasks. Women often work part-time and are less likely to be promoted. Due to the shortage of skilled workers which is already prevalent, companies need to come up with creative models for leadership and work-life balance. Jobsharing is a proficient approach which has not been applied to a decent extent until now.

Board Members play an important part in implementing sustainable strategies. Have they internalized the principles of sustainability? Are they able to follow the fundamental change and prevent waste of potentials, e.g. by assigning double work or building up labor forces in their area as a status of power and reputation? It is the responsibility of executives to develop and establish efficient, cross-departmental systems and processes which contribute to prevent the loss of working time and human labor as well as to keep investments low. A sustainable Management ensures that employees feel appreciated, grow with their tasks and contribute their best self. Personal development and contributions to society and in the interests of the company can only take place where self-efficacy and security are established. 

Conclusion

We are aware that sustainable, diverse and inclusive organizations are more successful in making better decisions and promoting innovations. The value of a strong commitment in environmental sustainability and People Sustainability does not contradict economic figures. On the contrary: Without directing the focus even more on the S in ESG and on the people aspect, companies will encounter problems in finding and binding talents as well as making the right derivations for their systems and processes. This is due to the fact that Management Boards and executives will no longer be able to afford waste of working time, performance and motivation as well as wrong (people) investments, which includes disregarding certain parts of the population for recruiting. People will determine the shortage or conversely the company’s success and not customers or suppliers.