The past few years’ events have shown a marked shift in the role that society requires businesses to play. Firms that don’t support diversity, equity and inclusion or that neglect to tackle climate change face reputational risk, legislative challenges and even falling share prices.

Given this backdrop, it’s hardly surprising that environmental and social threats are top of mind for boards. Many organizations are considering what they stand for and how to communicate these commitments. Simultaneously, risk managers are under increasing pressure to map, analyze and mitigate core people-related challenges.

 

HR departments have a significant role to play. Business responsibility starts at home, and firms must ensure their employment practices reflect their external statements on issues. Those failing to do so risk a backlash from stakeholders — including investors, consumers, the media and, of course, employees.

 

At Mercer Marsh Benefits (MMB), we have created a framework that breaks environmental and social risks into five core areas. These are the challenges that HR, risk teams and boards must embrace if they want to maintain their business’s health and reputation.

Diversity, equity and inclusion

 

Employers play a pivotal role in remaking our society into a fairer place. There has been a recent push for firms to build programs that provide equal access, opportunities and development for every employee. However, although 81% of employers are focused on improving diversity, equity and inclusion (DEI), just 38% have a multi-year strategy in place to achieve this.1 The lack of an inclusive workplace can cause reputational risk among employees, customers and other stakeholders.

 

Firms must ask themselves:

 

The environment

 

Climate change and environmental degradation can lead to a weakened brand and a damaged reputation. Investors are pushing firms to publish their net-zero transition plans and punishing those that do not. Meanwhile, new legislation in many parts of the world means institutional investors must report how they tackle environmental, social and governance (ESG) issues. Consumers are voting with their wallets and are flocking to businesses that walk the talk.

 

Climate change also affects both the severity and likelihood of natural catastrophes. For multinationals who operate in many places, some parts of their workforce are being affected by this. For instance, climate change results in more frequent and severe flooding, which claims lives and overwhelms fragile water and sanitation services. There’s a greater incidence of droughts, leading to hunger or famine, while pollution leads to respiratory illnesses, allergies and asthma.

Labor and employee relations

 

A high volume of labor grievances, or lack of desirable company purpose, can lead to a perception of an uncaring culture, higher operational costs, a suboptimal customer experience and social responsibility issues. Firms must ask themselves: What are we doing today to maintain a balance between care and costs? We found that 65% of workers say their employer doesn’t balance empathy and economics in decision-making.2

 

The pandemic has exposed many inadequacies in the typical employee benefits landscape. In particular, areas such as mental, physical and financial well-being, access to retirement provision, debt management advice and savings help were all found lacking. These gaps strain the workforce and ultimately hinder business performance. A renewed focus on these areas can improve employee relations, leading to greater engagement, productivity and retention.

Social unrest

 

Factors such as political instability and youth disillusionment often lead to productivity losses and brand damage. Organizations must acknowledge this and deliver against the expectations of multiple groups (including shareholders, employees, customers and the community) to ensure their strategy can positively drive economic, social and welfare agendas without fear of backlash. Over the coming years, it will be interesting to see how progressive employers target employment value propositions to appeal to those currently in their late teens and early twenties.

 

Growing disparities between different segments of the workforce can also cause issues for employers. The spread of COVID-19 has highlighted the health and wealth protection gap inherent in many organizations. Meanwhile, inequities among disadvantaged groups in crucial matters such as education, employment opportunities, digital technology and financial well-being have widened the protection gap further. Firms must urgently examine their HR policies, benefits and programs to ensure they are serving the needs of the entire workforce; without that reflection, they are likely to face reputational challenges.

Catastrophic personal life events

 

Catastrophic personal life events, such as death, critical illness or disability, often highlight organizational gaps in employer-sponsored benefits. This can lead to incredible personal loss and reputational issues for organizations.

 

Sadly, during the COVID-19 crisis, we have seen many examples of employee needs going unmet. We encourage firms to check to ensure that all staff members — regardless of seniority or location — have adequate life, disability, accident or medical insurance.


Conclusion

 

The most significant risk for firms that do not tackle environmental and social risks is reputational. Organizations cannot attract talent or customers if they are not making strides to support a diverse workforce or if their benefit plan is missing essential coverage.

 

Across the world, companies use benefits to build a competitive employee value proposition, meet commitments to unions and deliver tax-effective compensation. But ultimately, benefits can help mitigate risk for employers and their workforce. Using the people risk framework, business leaders can examine policies, benefits and insurances through the lens of each of these five key threats to ensure they ultimately support business success.

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1 Mercer. When Women Thrive, 2020

2 Mercer. Global Talent Trends, 2020.