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The future of the office: An ESG issue too

From energy consumption to modifying meeting etiquette, the home-working revolution is a minefield of hidden ESG issues that could create several significant long-term advantages for companies that address them sooner rather than later, writes Keith Davies, Head of Strategic Risk & Compliance.

  • Flexible working can enhance employee satisfaction, productivity and the long-term value of companies

  • Companies will need to ensure the new working models do not compromise their ESG credentials

  • The design and delivery of future working models should be at board level

While no one can know for sure what the post-pandemic office will look like and approaches will need to flex over time, it is clear that each firms’ response and resilience to the hybridisation of the workplace will be a key driver of its long-term value.

This shift is taking place against the backdrop of an ESG revolution in which social and governance issues are becoming a key consideration for investors.

Consequently, whilst firms are rightly scrutinising operational issues (such as WiFi connectivity, the effectiveness of office social distancing measures and logistical ‘rota’ arrangements for a staged, reduced return to office working), management and modern risk departments need to assess the wider drivers of long-term sustainable value.  

Indeed, as the corporate world takes its first steps out of lockdown, the coming months will test the extent to which companies – and their boards – have progressed beyond financial and operating considerations to truly consider, and support, the firm’s culture and ESG ambition.

Adopting an approach that reflects and enhances the needs of all stakeholders will have many advantages that boost long-term performance – including staff retention and productivity. Conversely, failing to adopt, or deliver, the right approach could damage the firm’s reputation and franchise value. As a result, the implementation of the future working model should be a key area of focus for boards, executive teams and chief risk officers.

 

The coming months will test of the extent to which companies truly consider, and support, their ESG ambitions

Keith Davies

Head of Strategic Risk and Compliance

Most firms have rightly recognised the importance of employee views in determining the future approach to working and management will need to overlay these preferences with wider stakeholder views and values. The final approach will need to also appropriately consider, for example, the benefits that office working creates for the firm (and shareholders) by promoting social cohesion, collaboration, on-the-job training, and the needs of new joiners, suppliers and clients, and the greater ability to secure and oversee regulatory compliance in the office environment.

Companies will also need to ensure that they implement their chosen working model in ways that do not compromise their ESG credentials and long-term profitability.

Key questions for executives

From carbon footprints to printer paper

Many are considering the impact of remote working versus office working on the company’s carbon footprint (e.g. the impact of additional household energy consumption versus  (often clean) office energy consumption, and the impact of reduced commuting, business travel, office printing, use of plastics etc).

Crucially, companies must also ensure that the implementation of hybrid working does not adversely impact their people strategy (their ‘S’) and governance (their ‘G’) arrangements.

For example, firms adopting hybrid working approaches should be considering and managing the following risks to workforce composition and engagement:

The problem of the ‘privileged present’

  • Have HR procedures been modified to manage the risk of ‘proximity bias’ whereby employees who are visible in the office get preferential treatment, promotions and pay-rises compared to those working remotely?
  • Are managers being provided with the training and tools to motivate, appraise and develop all employees equally in a hybrid world, and avoid the problem of the ‘privileged present’?

Diversity and equal pay

  • Have firms considered the potential impact of hybrid working on diversity and pay equality?
  • For example, if certain groups (say, working mothers) have a greater preference for homeworking, are they, therefore, more vulnerable to proximity bias?

Social cohesion and culture

  • Have companies put in place mechanisms to promote social cohesion and firm-wide values in a hybrid world and prevent different sub-cultures developing between office and remote workers?
  • Have leaders and managers created the necessary channels to communicate the ‘tone from the top’ equally to all employees, and to keep remote workers as informed, engaged and connected as office-based workers?

The talent pool

  • Have firms developed new mechanisms to harness the benefits of the wider talent pool that remote working could create, given that traditional office-based approaches to harness such skills may not work in the hybrid environment, both in terms of communication modes and the ability to offer opportunities to candidates with disabilities?

Governing from home

Firms will need to minimise the adverse risk that hybrid working could have on governance arrangements – including the quality of decision-making, risk management and oversight.

Governance issues that will need to be considered in the hybrid world include:

Managing risk

  • Ensuring that the management and oversight of key risks – including health & safety, cyber and other data leakage – are robust across both the home and remote working environment, and that discrepancies in approach don’t create regulatory issues or different standards of risk management or employee behaviour.
  • How can remote workers be monitored to the standard that naturally occurs within an office: could electronic surveillance tools (e.g. keyboard tracking) create significant privacy issues?
  • Have firms modified their procedures and training to ensure that governance arrangements in the hybrid environment will include all relevant employees in decision-making, and ensure that home-workers are aware of, and involved in, relevant meetings and decisions?
  • Have Chairs of future meetings been trained on how to ensure comprehensive debate and input in hybrid meetings – especially if there is a dominant group physically present together in the office?

Sanity checking

  • Have other aspects of decision making in a hybrid world been thought through? For example, how can people get a quick ‘sanity check’ on real-time decisions if people are working in different ways (and maybe at different times)?

Speaking out

  • Have procedures that support a ‘speak out’ culture been modified to ensure the psychological safety of all workers in the hybrid world (where remote workers may be less able to raise concerns ‘off-line’ than office workers) who may have to use recorded video calls or email?

The pandemic has shown that flexible working, if implemented effectively, creates a great opportunity to enhance employee satisfaction, productivity and the long-term value of companies. For such benefits to be optimised in future working models, the approach adopted by firms will need to reflect, and be implemented in ways that underpin, corporate values. Conversely, failure to do so could adversely impact environmental, social and governance drivers of long-term performance.

The design and delivery of future working models should be carefully scrutinised by Boards and risk managers as it will be a real-time test of the company’s ability to deliver purpose-led approaches and generate sustainable wealth creation by appropriately addressing the needs of different stakeholders.

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