Creating Value from the S in ESG: Prioritising Employees
In my last Reflection, I wrote about how African companies should view sustainability – or Environmental, Social and Governance (ESG) best practice – as a tool for creating value, rather than a form of risk mitigation or compliance with standards imposed by investors and lenders.
I define ESG simply as a company taking care of its surroundings and natural environment (E); taking care of those impacted by their business operations, including their employees (S) and; doing business with integrity and efficiency (G).
In this piece, I want to focus on how prioritising the welfare and development of all employees can improve African companies’ productivity and profitability, as well as their ability to attract and retain talented workers. This is one aspect of the ‘S’ in ESG.
Taking care of employees is perhaps more important than ever. In the past, employee relations have largely escaped the limelight as investors and society focused on environmental concerns and governance scandals. The COVID-19 pandemic, however, has shifted the focus onto how companies treat and support their employees, and this will likely remain a key issue beyond the pandemic.
Reasonable working hours, fair pay, non-discriminatory treatment and better and safer working conditions are all fundamental to creating a satisfied, engaged and productive workforce. The International Finance Corporation’s (IFC) Environmental and Social Performance Standard 2 (PS2), on labour and working conditions, provides guidance on these topics. Investors and lenders typically require companies to adhere to these performance standards. However, by viewing these standards only through a lens of risk mitigation or compliance, some African companies lose out on using PS2 to improve their bottom line.
For example, in June 2019 the International Labour Organisation launched a four-month pilot programme across four garment factories in Ethiopia to improve productivity and working conditions. The programme addressed health and safety concerns, worker-management communication and worker compensation. Over the four months, the interventions were instrumental in improving labour productivity, which increased by 27%; reducing product defects and rejections, contributing towards a saving of approximately USD 9,700; reducing worker absenteeism from 11.8% to 2.8%, and; lowering the employee turnover rate from 11.7% to 1.9%. Therefore, even over a short-time period, improving working conditions offers considerable business benefits, and such benefits are likely to be sustained over the medium to long term through enhanced productivity effects.
While a number of African companies are still grappling with implementing basic labour and working conditions, there are some on the continent that are going above and beyond to attract and retain the best talent. As competition for these skilled and talented workers increases, African companies need to think strategically about how build the workforce they need to step up, scale up and scale out© – this will mean going beyond the basics.
A knowledgeable and engaged workforce is key to a company’s competitive advantage. For this reason, companies are adopting employee attractiveness strategies. For example, in 2017 MTN launched ‘The MTN Deal’ for employees which, as Acha Leke, Mutsa Chironga and Georges Desvaux note in Africa’s Business Revolution, emphasises employee mentorship and training just as much as compensation and rewards. Between 2017 and 2018, MTN’s employee turnover rate fell from 7.1% to 4.3%. While MTN do not provided detailed information on the reasons for this reduction, I think it is no coincidence that it aligns with the introduction of the MTN Deal.
As Francis Wood pointed out in his Guest Reflection, African companies should invest more in this kind of staff development and training to build the workforce they need now and in the future. In a similar vein to MTN, Safaricom develops talent through its Internship Programme and Graduate Management Programme, which target “high-potential” individuals. As Francis stated of his experience of staff development, “The result is a level of ethics and commitment to our business that none of us partners could have foreseen.” This kind of smart investment in people will help African companies to flourish.
The COVID-19 pandemic has provided African companies with a chance to re-think and re-build their businesses. Employee welfare and development must be at the centre of this rebuilding. In doing so, African companies will create value for themselves and ensure their long-term prosperity through a productive and committed workforce. In addition, African companies will contribute towards creating a financially empowered workforce who will, in turn, contribute towards an economically empowered continent. It is a win for the company, a win for workers and a win for the continent.
- African Champions by Francis Wood
- Sustainability in African companies | From Compliance to Value
- A New Horizon | Does Covid-19 offer an opportunity for African corporates to scale up and out?