People Sustainability: How About the "S" in ESG? | Mercer (2021)

PEOPLE SUSTAINABILITY

People Sustainability: How About the "S" in ESG? | Mercer (2021) | A groundbreaking framework that redefines the social dimension of ESG, proposing a comprehensive model based on core dimensions.

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✨ OVERVIEW

Mercer's report addresses the often-neglected social dimension of corporate sustainability by introducing People Sustainability as a distinct discipline beyond current ESG social metrics. Based on four core dimensions—Employment Foundation, Health, Wealth, and Development—the model follows Maslow's hierarchy to acknowledge human development progression within organisations. The framework provides a moral foundation and business rationale for treating employees sustainably, arguing that People Sustainability is a precondition for environmental sustainability.

🧩 CONTEXT

Stakeholder pressure on the social side of sustainability has intensified with movements like Black Lives Matter and Me Too demanding social justice. At the same time, investors scrutinise organisations through increasingly thorough ESG methodologies. Despite recent prosperity, we face alarming side effects: resource scarcity, environmental degradation, and widening wealth gaps. The pandemic has further exposed social imbalances and corporate malpractices. While sustainability has gained prominence, many organisations have missed making far-reaching changes, keeping sustainability as mere "lipstick on the pig."

🔍 WHY IT MATTERS

↳ People Sustainability enables environmental sustainability—People need decent living standards to support environmental initiatives. The report states, "Employees can only implement environmental sustainability in their business and private activities if they feel physically and mentally secure throughout the entire corporate ecosystem." Without addressing basic needs like appropriate pay and job security, environmental sustainability becomes a luxury good that many will neglect when facing trade-offs.

↳ Social metrics are underdeveloped in ESG frameworks—While environmental metrics receive significant attention, "the social metrics component has been neglected in the discourse to date." Organisations urgently need "objective and reliable metrics which can inform investors and analysts on People Sustainability performance," particularly as ESG ratings become significantly more important in investment decisions.

↳ Poor people practices create a destructive business cycle—Research by MIT Professor Zeynep Ton "impressively demonstrates the vicious circle of lacking People Sustainability: Paying low salaries, low job security and low predictability lead to operational barriers, profits decrease, which in turn lead to cuts in labour costs." Conversely, "the creation of good jobs, coupled with strong operational excellence, creates genuine efficiency gains and promotes competitiveness."

💡 KEY INSIGHTS

↳ The model addresses progressive human needs—Following Maslow's pyramid approach, the model acknowledges "the mechanisms of human progress." Beginning with the Employment Foundation (respecting "universal human rights, the basic need for a job and associated job security"), it advances through Health (where "both the psychological and physical dimensions must be actively shaped") to Wealth (providing for "earning a decent life including retirement"), culminating in Development (responding to "the need of employees to thrive – both in their professional and their social life").

↳ Sustainability transformation requires core business changes—True corporate responsibility means sustainability must be "consistently embedded in the corporate strategy." This transformational process places "sustainability at the heart of the company" and focuses on "every employee and the corporate mindset to achieve a long-term impact." Business models, organisational structures, and incentive systems must all "be aligned and driven down to the sustainable direction and actions of employees."

↳ Short-term costs yield long-term benefits—Organizations must recognise that "investments in People Sustainability can initially mean higher expenses and even short-term losses" that "may affect short-term quarterly figures or dividends." However, "recent examples (e.g. in the tech sector) show that long-term oriented investments pay off, as long as the losses are considered temporary and the long-term effects outweigh them."

🚀 ACTIONS FOR LEADERS

↳ Transform from superficial to core sustainability—Move beyond what the report calls "lipstick on the pig" approaches by embedding sustainability "at the heart of the company." This requires "acknowledging responsibility for the greater good" and creating a "corporate purpose [that] must balance interests of all stakeholders, putting sustainability at the centre of the organisation's maxims of action and way of thinking." The first steps include anchoring sustainability in "fundamental principles of the company (such as corporate values, leadership principles)."

↳ Implement the People Sustainability dimensions systematically—Start with Employment Foundation by granting "universal working conditions following basic human rights" where "job security is an integral part." Then address Health through initiatives supporting "sustainable care of health and wellbeing," advance to Wealth by providing "broad benefits and pay for a sustainable life," and finally emphasise Development through "extensive development opportunities" for professional and personal growth.

↳ Develop concrete sustainability metrics—Create "reliable indicators of the extent to which companies are shaping their corporate responsibility." This will provide "orientation and transparency to ensure sustainable change" while giving "investors and customers transparent and objective information" about your People Sustainability maturity. The coming People Sustainability Index will "provide orientation on strengths and weaknesses as well as key levers and fields of action."

🔗 CONCLUSION

The People Sustainability Model offers organisations a framework to transform the "S" in ESG from an afterthought to a driver of sustainable business. As social movements demand justice and investors scrutinise corporate practices through "thorough ESG rating methodologies," companies must "rethink how they manage their social footprint." This approach recognises that sustainability begins with people, who are both means and beneficiaries of sustainable practices. The model positions People Sustainability as a "precondition for environmental sustainability" while acknowledging its business benefits, as research shows "a strong positive correlation of sustainable people management and long-term company performance." When properly implemented, this model helps organisations move beyond what the report calls "far-reaching changes [that] have been missed, [where] sustainability has too often remained 'lipstick on the pig.'"

🎯 KEY TAKEAWAY

People Sustainability is not merely a social obligation but an essential business foundation—treating employees responsibly through the four dimensions of Employment Foundation, Health, Wealth, and Development creates the necessary conditions for both environmental sustainability and long-term business success, transforming organisations from merely appearing sustainable to being "sustainable at the core."

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