Jobseekers take a pay cut to work for sustainable companies, study shows

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The rise of social and environmentally-conscious companies isn’t just good news for the planet. It’s also a key driver in attracting talent, with a new study showing that jobseekers are even willing to take a considerable pay cut to join organisations that walk the talk.

A paper co-authored by researchers at the University of Geneva, Erasmus University Rotterdam and the Stockholm School of Economics found that workers earn about 10 per cent lower wages in firms that operate in more sustainable sectors.

Using Swedish labour market data, the authors were also able to show that firms focused on more environmentally-responsible sectors are better able to attract and retain more talented workers, as measured by their education history, experience, and military enlistment tests showing their cognitive and non-cognitive skills.

To measure a company’s sustainability, the researchers ran a survey where they asked students at Geneva University to answer several questions regarding the importance of environmental aspects in choosing an employer and to their classify economic activity in terms of their environmental sustainability. This was combined with more traditional sustainability measures, using benchmark ESG ratings where possible for publically-listed companies.

Why it’s important. While it should come as no surprise that a company’s green credentials play a major role in attracting talent, much of the evidence until now has been anecdotal, says Philipp Krueger, associate professor of responsible finance at the University of Geneva.

“We’ve gathered this exceptionally detailed data, which allows us to rule out many other alternative explanations.  You could think, for example, that it's not the sustainability of the sector but the work-life benefits that are associated with working in a specific sector. And even this we can control for as researchers and neutralise the effects.”

By showing that employees are ready to accept lower salaries for other important values, the study further shows why it pays for companies to be sustainable, and how it ultimately contributes to their bottom line.

“Through their sustainability [policies] they can reduce their wage cost because workers are willing to accept a lower wage - because they gain some non-monetary benefit from working for a more sustainable company,” Krueger said.

For millennials and Gen Z, profit and purpose go hand in hand. For the next generation of jobseekers, finding employers that integrate ethical and sustainable values in their business model - and practice them - is even more critical than for their predecessors.

According to a 2016 employee engagement survey of more than 1,000 adults, 76 per cent of millennials consider a company’s social and environmental commitments when deciding where to work and nearly two-thirds (64 per cent) won’t take a job if a potential employer doesn’t have strong corporate social responsibility (CSR) practices.

During a panel dedicated to youth’s perspective on trade at the World Trade Organization’s Public Forum in October 2019, several young entrepreneurs spoke out about the importance for their generation of making an impact as well as profit.

“For this generation, profit and purpose go hand in hand. I am not saying we are a better generation but at this time we have no other option,” said Alisée de Tonnac, one of the speakers, and co-founder and partner at Seedstars Group, a Geneva-based company which helps people in emerging markets through technology and entrepreneurship.

Daniel Metzger, a professor at Erasmus University Rotterdam and co-author of The Sustainability Wage Gap report, said their findings further underscored this trend. For companies, catering to the younger generation’s more pronounced preferences for sustainability will become an increasing focus as they look to attract better workers, he added.

“Our paper carries important policy implications for firms: we show that firms can attract talent at lower wages by investing into environmentally friendly policies and thus can potentially do well by doing good,” the co-authors state in their study.

“Consistent with this claim, we document that more sustainable firms are better able to attract and to retain workers that are more skilled—especially those with high non-cognitive skills. Overall, our results also help to explain how sustainability can potentially translate into financial profits by stressing the value of non-monetary aspects of a job for highly talented workers, which have increasingly important consequences for firms’ human resources strategies.”