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Great Expectations

Articles Jennifer Steinmann Apr 08, 2022

Employees increasingly demand that their employers take real action on ESG issues — or risk losing talent if they don't.

Millennial and Generation Z employees have brought their ideals to the workplace and are demanding that their employers be committed to social and environmental issues. To keep their up-and-coming talent, companies must demonstrate that they are doing good.

Great Expectations 

The world has yet to see how the worker-employer relationship will fully evolve to meet the opportunities and challenges of a post-COVID-19 pandemic world. Yet, amid the uncertainty and disruption of the past two years, employees continue to demand increased accountability and transparency from companies.

The 10th anniversary edition of Deloitte’s Global Millennial and Gen Z Survey was released in June 2021 and surveyed nearly 23,000 respondents across 45 countries. It found that Millennials and Gen Zs who were surveyed are especially concerned about the climate crisis, racial discrimination and inequality, and mental health. And, they are likely to shun companies and employers whose actions conflict with their personal values.

Employers should look to meet the shifting expectations of their employees that have arisen as a result of the pandemic, extreme climate events, and a charged sociopolitical atmosphere. Leaders should work to navigate a growing, evolving list of complicated social, environmental, and marketplace issues — especially if they want to be successful in today’s ultracompetitive labor market. Internal auditors are uniquely positioned to help their organizations anticipate these risks and advise senior leaders on how to best further their organization’s social and environmental goals.

Workers Question Business Support

Many workers are not only reconsidering who they want to work for, but re-evaluating the role that they expect their employers to play in supporting their purpose and values. A 2021 Deloitte Global Human Capital survey that explored the worker-employer relationship shift finds that workers have shown tremendous resilience and adaptability over the past two years. However, the survey raises questions about whether businesses are doing enough to support their employees and address the environmental and social issues that are most important to them. For instance, less than half of surveyed Millennials and Gen Zs, 47% and 48% respectively, said business is having a positive impact on society. This marks the first time that figure has dipped below 50%, and it has dropped almost 30 points since Deloitte’s 2017 survey.

In fact, as many as 40% of the global workforce considered moving on from their current employers last year, and the talent market remains extremely competitive in 2022. Companies that don’t take a stance on the issues that matter to their stakeholders may be left vulnerable to activism and reputational damage. This has never been more important than amid today’s “Great Resignation.”

Furthermore, constant turnover is expensive, disruptive, and lowers morale. Losing top talent can negatively impact a company’s reputation and its relationships with clients and consumers. More than one-fourth of respondents to the Millennial and Gen Z survey say businesses’ positive and negative impacts on the environment have influenced their buying decisions. Significant percentages of both generations say they make decisions aligned with their values and beliefs when deciding where they want to work.

Though compensation is a top concern, as many as 44% of surveyed Millennials and 49% of Gen Zs say they have made choices over the types of work they would do based on their personal ethics or beliefs. It follows that the steps that organizations take to address these environmental, social, and governance concerns and hold themselves accountable will become increasingly important to attracting and retaining talent as Millennials and Gen Zs comprise much of the global workforce.

The focus on these issues by both employees and regulators also increases the pressure on organizations to assess, manage, and disclose their ESG positions and associated risks. While there are no current requirements for independent audits of ESG reporting, internal auditors can assess the underlying control framework and validate the accuracy and completeness of the data used in their organization’s ESG reporting. Doing so can help the organization manage risks and foster resilience.

What Employees Value

Many Millennial and Gen Z survey respondents report they devote their own time, resources, and energy toward meaningful action — increasing political involvement, aligning spending and career choices with their values, and driving change on societal issues that matter most to them. Many are deeply idealistic and know how to harness the power of social media and other digital platforms to influence opinion and drive change.

Previous surveys have found that these generations often expect businesses and governments to do more to address many of the world’s biggest challenges — and tackling the climate crisis is seen as the highest priority. In 2021, concerns over health and the prospect of unemployment understandably topped the list, but climate change still came in third, illustrating the Millennial generation’s focus on environmental issues.

However, for Gen Z, climate change remains their chief concern — even amid a global pandemic, when other threats to their health, family, and careers may have felt more imminent. In fact, approximately 60% of surveyed Millennials and Gen Zs say they fear that corporate commitments on climate change will be less of a priority as business leaders reckon with the challenges of the pandemic and returning to “normal.”

The events of the past two years have shined a much-needed spotlight on racism and discrimination. Many Millennials and, to a greater extent, Gen Zs say they believe discrimination is widespread and is likely enabled by systemic racism in major institutions. One in five respondents report that they felt discriminated against “all the time” or frequently because of an aspect of their backgrounds. Business leaders have more work to do when it comes to tackling systemic racism within their organizations; respondents ranked businesses and business leaders last among the eight choices offered in terms of who is making the greatest effort to address systemic racism.

Millennials and Gen Zs also have serious concerns about wealth inequality and discrimination. Two-thirds of Millennials and Gen Zs say they see wealth and income as unequally distributed in society.

From a talent perspective, talking the ESG talk isn’t enough. Organizations need to show how they are taking action and holding themselves accountable for these priorities, especially in today’s highly competitive market.

As The IIA’s 2021 report, Internal Audit’s Role in ESG Reporting, states, internal auditors must provide objective assurance to senior leaders and the board around these ESG concerns and the effectiveness of assessments, responses, and controls. Auditors should help identify and establish a functional ESG control environment, because failure to take action could affect an organization’s long-term prospects and outlook. Climate action and other measures of an organization’s sustainability are crucial to business performance and must be accounted for, similar to metrics of financial performance.

Executives Are Concerned Too

C-suite officers also are increasingly concerned about the climate crisis and extreme weather events, according to Deloitte’s Global 2022 CxO Sustainability Report. Indeed, 97% of the more than 2,000 executives surveyed report that their companies have already felt negative impacts of climate change. Approximately two-thirds say their companies are very concerned about climate change, and 79% see the world at a climate-change tipping point. More than eight in 10 respondents say they have been personally impacted by climate events over the past year.

While companies are under pressure from a variety of stakeholders to act on climate, 65% of C-suite respondents say they feel a large to moderate degree of pressure from their employees. More than one-third say climate change is affecting their employees’ physical and mental health. The cost of inaction extends beyond the balance sheet, and many employers recognize that their progress on this issue has great repercussions for their relationship with their employees.

Respondents say brand recognition and reputation, customer satisfaction, and employee morale and well-being are three of the top four benefits of their companies’ sustainability efforts. While 88% agree that with immediate action they can limit the worst impacts of climate change, many report they still struggle with the short-term costs of transitioning to a low-carbon future.

The report identifies five actions that organizations can take to close the gap between their ambition and their impact:

Develop new, climate-friendly products or services.

Require suppliers and business partners to meet specific sustainability criteria.

Update or relocate facilities to make them more resistant to climate impacts.

Incorporate climate considerations into lobbying and politi-
cal donations.

Tie senior leader compensation to sustainability performance.

Pursuing these five actions is the caliber of climate strategy that employees want to see because it goes beyond the walls of the organization. Moreover, this deeper approach reflects systemic changes to key elements of the business model.

Internal auditors can assess their company’s climate risk from multiple perspectives, provide a pulse check on the business, and help connect dots within the organization. Stand-alone reviews can highlight policies, controls, and responsibilities with respect to climate strategies and tactics. More focused reviews can look into specific areas, such as where stakeholders have heightened concerns or where risk appetite may be low.

Additionally, internal auditors can determine whether their organization has created a governance structure and culture that supports effective climate risk management. They are in a position to assess if and how climate strategy and risk appetite are consistently cascaded throughout the organization and whether climate-related risks are considered when business decisions are made. Furthermore, they can assess if and how the organization reports climate risk information to the board.

Bold Strategies Needed

Many employees want to see business leaders pursue bold strategies that will yield real and lasting systemic results when it comes to inequality, discrimination, mental health, and climate. The Millennial and Gen Z survey recommends several strategies that forward-thinking leaders should consider to make the most impact with these generations. 

Support Women. Leaders should acknowledge the disproportionate impact the pandemic’s knock-on effects have had on working women. By offering flexibility and resources, and investing in initiatives that alleviate some of this pressure on women, leaders can help support female employees, especially those who have taken on more responsibilities at home and are experiencing stress.

Hire Diverse Thinkers. Leaders should consider finding new talent by hiring employees for mindsets such as agility and comfort with ambiguity, instead of specific skills, to promote diversity and inclusion. By removing the barrier of a specific skill set, organizations can increase diversity of both thought and background.

Consider Employees’ Needs. Leaders should understand the financial stress that many employees face, work to destigmatize the conversation around mental health in the workplace, and encourage staff members to be transparent about their needs. The study notes that 40% of respondents report feeling stressed all or most of the time, and nearly four in 10 say they don’t think their employers have supported their well-being during this time.

Prioritize Climate Action. A meaningful response to the climate crisis can help the organization create sustainable value as well as attract and retain high-performing employees.

Building a Better World

While many workers want to be employed by organizations that share their values, retaining and attracting top talent is a priority for management. Internal auditors can help further this latter objective, given their broad purview across the business and ability to advise senior leaders on ESG risk management. Business leaders should actively help employees channel their determination to build a better world. They can contribute to the future employees seek by pursuing bold climate action, building a diverse and inclusive work environment, and being more empathetic toward the many pressures workers face.

Jennifer Steinmann

principal and Global Climate and Sustainability leader at Deloitte Consulting LLP in San Francisco.

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