Skilled Workers Prefer Environmentally Conscious Companies
In Brazil, ESG policies boosted wages but also expanded income gaps.
- By
- May 14, 2024
- CBR - Climate Change
Money isn’t everything to people looking for work. When job seekers consider the attractiveness of prospective employers, they put considerable weight on nonmonetary factors—including a company’s commitment to environmental, social, and governance issues.
Skilled workers are particularly attracted to organizations with a commitment to ESG, according to a team of researchers that includes Chicago Booth’s Emanuele Colonnelli and Thomas Rauter. While this tends to increase overall wages and economic output, it also further widens income disparities, they find.
Companies around the world, especially in the past decadae, have faced increasing pressure to conduct business in ways that benefit not only their shareholders but the world at large. This, in turn, has given rise to a debate over the role ESG initiatives should play within profit-driven enterprises.
Analyzing data from Brazil, the researchers sought to understand the impact of ESG on the allocation of talent in the labor market, a key component in determining both a country’s economic output and its division of wealth.
They assessed how companies and job seekers separately view ESG. For companies, they relied on Dynata, a commercial market-research group, which gathered responses in July 2023 from nearly 1,100 Brazilian enterprises of all sizes regarding current and planned ESG initiatives and the motivations behind them. Eighty-one percent reported having some form of ESG practices in place, while 41 percent indicated they were “extensively” implementing them.
Meanwhile, through Brazil’s leading job-matching platform, the researchers asked prospective employees how ESG policies influenced their preferences. They received about 1,200 responses in late 2022 from users who were demographically similar to the country’s workforce as a whole.
The job seekers rated their interest in 20 hypothetical postings on the basis of wages, ESG, and other factors. While respondents were aware that the postings were fake, they were told the results would be used to match them to real positions, giving them an incentive to reply truthfully.
Research indicates that prospective employees in Brazil valued a potential employer’s environmental, social, and governance practices almost as much as, or more than, nonwage amenities. For example, a hypothetical posting from a company with an official Great Place to Work certification elicited about 80 percent as much interest as one indicating the flexibility to work from home.
Respondents had a statistically significant preference for companies whose job postings reflected an interest in advancing ESG, the researchers find. ESG increased the attractiveness of a job by the same amount, on average, as a 10 percent rise in monthly wages. The job seekers valued an employer’s emphasis on ESG policies about as much as they did a pension or food allowance and 60 percent as much as being permitted to work remotely.
Companies didn’t necessarily pursue ESG initiatives with the main goal of attracting and retaining talent, the research indicates. The most common benefit gained, cited by 59 percent of corporate respondents, was alignment with the company’s values. However, the initiatives’ popularity with workers was a definite and valuable bonus, says Colonnelli, noting that companies ranked that as more important than both easier access to finance and risk-management considerations.
But ESG preferences were unevenly spread throughout the workforce. The initiatives were effective in attracting white, highly educated individuals who identified as politically liberal or moderate. These workers were especially attracted to companies that had an ESG certification and, most notably, a designation as a B Corp, which indicates a company has achieved certain ESG standards. They expressed a strong interest in environmental issues, but not in the corporate governance part of ESG.
The other end of the labor spectrum yielded starkly different results: less-educated, non-white, and politically conservative job seekers expressed no additional interest in working for companies that emphasized ESG for any reason.
The implications of these findings go beyond the question of who works where. The sorting of labor due to ESG increased both total wages and output, the researchers find. That’s essentially because highly productive companies are often understaffed, and are “more likely to express an intention to pursue ESG activities (including becoming a certified B Corp),” the researchers write. Thus, ESG helps sort workers more efficiently, which improves wages and output.
But because skilled workers, who make up about 20 percent of Brazil’s workforce, were found to reap an outsize portion of these gains, the sorting of labor on the basis of ESG exacerbated economic disparity. The researchers estimate that ESG increased the wage differential (the wage difference between employees performing the same job) up to 4 percent relative to an ESG-less economy.
Emanuele Colonnelli, Timothy McQuade, Gabriel Ramos, Thomas Rauter, and Olivia Xiong, “Polarizing Corporations: Does Talent Flow to ‘Good’ Firms?” Working paper, November 2023.
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