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8 Drivers of Change – Sustainability

Global
01.02.23
5
Written by
Lewis Silkin, widely recognised as the UK’s leading specialist employment law practice.
Severe climate events have caused organisations’ Environmental, Social and Governance (ESG) credentials to gain in prominence, particularly as individuals increasingly look to their employers to act on wider societal issues. However, environmental sustainability has also emerged as a growing factor in values clashes within the workplace.

Climate emergency

The potentially devastating implications of the climate emergency continued to feature prominently over the last year. For example, the severe flooding in South Africa in May 2022 and in Pakistan in August; record temperatures in India in March, in Spain and France in May and June, and in the UK in July; a deadly hurricane in Florida in September; and lethal flooding and landslides in the Philippines in October. In March 2022, temperatures recorded in Antarctica were 35˚C above the norm for that time of the year. Droughts have been a feature of 2022 in the UK and in many other countries.

Following the bleak warnings in the 2021 annual report on climate change by the Intergovernmental Panel on Climate Change (IPCC), the IPCC issued its sixth assessment report, ‘Climate Change 2022: Impacts, Adaptation and Vulnerability which its chair described as “a dire warning about the consequences of inaction”.

In anticipation of the COP 27 Climate Change Conference in Egypt in October 2022, UN Secretary General António Guterres issued a stark warning to the world that the current global problems are distracting nations from “the defining issue of our time”. This coincided with the UN report on the world’s failures to take adequate steps to address this emergency.

The move to carbon neutrality has been disrupted by the Ukraine war. Reductions in the supply of oil and, particularly, gas from Russia caused energy prices to spiral and has caused some to predict winter shortages and power cuts. The disruption to supply has also increased the urgency in many countries to forge an independent energy strategy to move away from Russian oil, gas and coal. While this has accelerated attention to renewables and nuclear alternatives, it has also resulted in countries such as the UK looking again at oil and gas and even coal exploration to meet short to medium term requirements.

Technology

The past year has seen renewed attention on technological solutions to a food crisis brought about in part by the climate emergency.  In the UK, because of its post-Brexit freedom, attention on the use of technology such as genetic engineering has resurfaced. This has the potential to enable crops to adapt to climate change and even help fight climate change.

Technological developments also promise to play an important role in reducing harmful emissions. For example, developments in relation to carbon capture and storage, and advances in low impact air travel. Two of MIT’s top ten breakthrough technologies of 2022 promise to have profound implications for the emergence in the longer-term of technologies contributing to the reduction of harmful emissions and noxious chemical compounds in the atmosphere – the development of nuclear fusion technology and the creation of carbon removal factories. Governments are also taking steps to address the climate emergency in this area. For example, in 2020, the Norwegian government presented a major funding proposal to enable the large-scale implementation of carbon capture, transport and storage technologies in Norway.

Environmental, Social and Governance credentials

The Environmental, Social and Governance (ESG) credentials of organisations have continued to gain prominence. The Deloitte Global 2022 Gen Z & Millennial Survey found that for both Gen Z and Millennials, climate change was second amongst their concerns with the cost of living being rated as their top concern. The 2022 British Social Attitudes Survey published in September 2022 showed how climate change had soared to the top of people’s concerns over the last decade with 40% of those polled saying they are very concerned about the environment (up from 22% in 2010), and 45% regarding climate change as the most important environmental problem for the UK (up from 19% in 2020). With this increased attention to ESG credentials has come greater attention to claims of “greenwashing” – where organisations deceptively or unjustifiably promote their green credentials.

There has also been a political backlash, particularly in the US. This has predominately arisen where organisations have embraced environmental sustainability as a core business value.  Employers’ growing willingness to include social and political issues as part of their values proposition, partly in response to the expectations of Millennial and Gen Z employees, increases the scope for values clashes within populations in the workplace and places employers firmly at the forefront of this conflict.

The political divisions across the different states in the US have seen state legislators, which often fall clearly on one side or the other of the political divide, introduce laws either to promote or deter an ESG agenda, further entrenching these differences. This is exemplified by the introduction of laws in Texas designed to punish companies which adopt a progressive ESG approach to investments.

The issue of high pay continues to feature prominently throughout the media, not least driven by the cost of living crisis.

In relation to executive remuneration, the High Pay Centre’s annual pay survey showed that CEO pay in the UK had increased by 39% over the last year. PwC reported in November 2022 that the proportion of FTSE 100 companies in the UK with some link between ESG performance and executive pay is approaching 90% with almost half (49% up from 40% a year ago) featuring environmental metrics in long-term incentive plans.

In the UK, the Financial Reporting Council has published its Position Paper on key steps it plans to take ahead of government legislation to restore trust in audit and corporate governance. In France, in his campaign for the French presidency, Emmanuel Macron backed an EU-wide executive pay cap.

Legislative intervention to drive change across the EU has continued to evolve over the last year with the EU Commission adopting a proposal for a Directive on corporate sustainability due diligence.

The 2021 Edelman Trust Barometer Special Report and the 2022 Edelman Trust Barometer both showed that businesses around the world are now more trusted as ethical and competent than politicians or the media, increasing expectations on them. Further, in Edelman’s 2022 Special Report Trust in the workplace, employers emerged as an anchor of trust and stability. Edelman argues that this gives rise to a new employer mandate – to leverage the powerful force of employees to restore societal trust from the inside out.

The cost of living crisis is also causing employers to look at ways of mitigating its impact on their workforce as part of the social aspect of their ESG commitments with a number of employers awarding one-off bonuses. Some employers responded in a similar way during the pandemic to mitigate the worst consequences for their staff arising out of the crisis by topping up furlough payments for the least highly paid.

Green jobs

Over the last year, the focus on rights to a Green Job has grown. The ILO defines Green Jobs as “decent jobs that contribute to preserve or restore the environment, be they in traditional sectors such as manufacturing and construction, or in new, emerging green sectors such as renewable energy and energy efficiency”. A Green Job combines two key features: employment in the production of green products or services or in environmentally friendly processes; and a decent job.

This right to a decent job echoes the recommendations of Good Work review undertaken by Matthew Taylor in the UK which called for fair and decent work for all. Liberal Democrat policy  includes a promise to introduce a green jobs guarantee, “offering a well-paying green job to anyone who wants one”.

For more information about employment law

Authors
James Davies
Partner - United Kingdom
Lewis Silkin

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