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IMPACTS OF ESG ON EMPLOYEE RETENTION DURING COVID-19 1 Impacts of ESG on Employee Retention During the COVID- 19 Pandemic: A Study of Employee Generational Differences Tyler Simmons,
[email protected] BaoTram Tran,
[email protected] Joley L. Luppi,
[email protected] A Special Project Paper Submitted in Partial Fulfillment of the Course Requirements for BUS 581 – Graduate Special Project Central Connecticut State University New Britain, Connecticut July 25, 2022 Faculty Advisor: Dr. C. Christopher Lee, School of Business mailto:
[email protected] mailto:
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[email protected] IMPACTS OF ESG ON EMPLOYEE RETENTION DURING COVID-19 2 TABLE OF CONTENTS Page Abstract …………………………………………………………………… 3 Introduction …………………………………………………………………… 4 Literature Review ………………………………………………………………… 7 Research Methodology …………………………………………………………… 17 Results …………………………………………………………………………… 24 Discussion …………………………………………………………………………… 29 Conclusion …………………………………………………………………………… 34 References …………………………………………………………………………… 35 Appendix …………………………………………………………………………… 38 IMPACTS OF ESG ON EMPLOYEE RETENTION DURING COVID-19 3 Impacts of ESG on Employee Retention During the COVID-19 Pandemic: A Study of Employee Generational Differences Tyler Simmons, BaoTram Tran, and Joley L. Luppi ABSTRACT Purpose: The retention of quality talent serves to increase profitability, productivity, and efficiency and sustain competitive advantages. As a result of the COVID-19 ‘Great Resignation’ and other retention challenges, business leaders continue to implement various strategies to mitigate increased turnover and improve retention. This research examines environmental, social, and corporate governance ESG and its ability to impact employee retention, as a whole and by generation (Gen X versus Gen Z), through the strategic and targeted implementation of business initiatives. Design/methodology/approach: From a self-administered online questionnaire via Amazon Mechanical Turk, 716 responses are used to test our hypotheses via multiple regression and correlation analysis. Findings: Employee retention varies based on the type of ESG initiatives businesses adopt. Social ESG has the highest impact on retention, followed by environmental ESG. Additionally, employee generation affects which ESG should be prioritized. For Gen Y, social ESG has the highest impact on retention, followed by environmental ESG. For Gen Z, environmental and then social ESG influence retention. Originality/value: This study is among the first to examine how different ESG initiatives impact retention and employee generation moderates the connection. Research limitations/implications: Due to time and resource constraints, this study used limited sample data and one moderator and regression model. Future studies should increase the sample size, moderators (such as job type, job location, firm size, etc.), and other analytical methods (such as structural equation model, PLS-SEM, path analysis, factor analysis, etc.). Practical implications: ESG initiatives can benefit businesses that are looking to strengthen their retention outcomes and improve business-specific factors that lead to increased profitability as well as employee satisfaction and engagement. Social implications: These study results increase empirical evidence within management literature and may contribute to promoting ESG initiatives in the business community. Keywords: Employee retention; Environmental, social, corporate governance; ESG; Employee generation; Regression analysis IMPACTS OF ESG ON EMPLOYEE RETENTION DURING COVID-19 4 CHAPTER 1 INTRODUCTION As businesses aim to increase profitability, productivity, and efficiency in the modern era, employee retention, or the ability for businesses to retain quality employees, represents a significant, ongoing business investment in human capital with which businesses maintain a vested interest. While employees may see high turnover rates during the COVID-19 ‘Great Resignation’ and question their importance within the larger context of business operations, the long-term employment of employees represents an important business resource that should not be underestimated. To succeed in competitive markets, businesses must retain their employees in order to help the business grow. According to Cloutier et al. (2015), long-term employee retention has the potential to foster stability in the business environment, support the ongoing development of business resources, and sustain profitability through both increasing the likelihood of higher profits while reducing unnecessary expenditures related to high staff turnover. Through long-term employee retention, a business can expect to maintain the productivity levels and institutional knowledge present within its human resources to steadily increase or sustain profitable business operations while avoiding the associated direct and indirect impact of employee turnover, inclusive of brain drain, increased expenses for recruiting and training, and decreased interim productivity. Further, Singh et al. (2022) emphasize that employee retention is a competitive advantage. Retaining skilled employees has emerged as an essential element for a sustained competitive advantage that never depreciates. As related to some of the more indirect issues inherent in lower employee retention and increased employee turnover, Basnyat et al. (2020) highlight the negative impact to employee morale, team dynamics, and consumer experiences and perceived value, which may impact profitability as a result. Collectively, increasing employee retention and decreasing employee turnover are essential requirements for long-term successful business operations. To improve the likelihood of favorable results such as long-term employee retention, businesses have adopted Environmental, Social, and Corporate Governance (ESG) standards to increase holistically favorable and socially conscious outcomes as well as promote appropriate business behavior. These common ESG factors help a business to succeed. Environmental strategies focus on the way that the business ensures safe environmental practices. Social strategies focus on the relationships between the business and its connected social circle, inclusive of its employees, supply chain, customers, and the greater community in which it operates. Finally, Corporate Governance strategies focus on the effectiveness and efficiency of the leadership structure of that business. In their assessment of the importance of ESG factors in modern business dynamics, Zumente and Bistrova (2021) note that businesses have begun to shift their focus toward more long-term value creation and sustainability strategies. Businesses that embrace the ESG concept and incorporate its standards yield better environmental impact results, more favorable societal perceptions, and higher overall expected returns for its owners. Additionally, the study by Khan (2019) suggests that, although ESG contains nonfinancial performance measures, new corporate governance and ESG metrics could predict stock performance in global stock markets. In this study, the corporate governance variables were identified as ownership dispersion, shareholder orientation, and institutional strength. Favorable practices related to these variables demonstrate the good corporate governance measures that are inherent in sustainable businesses with efficient capital usage, preservation, and growth. Further, Ikram et al. (2021) explain that the internal corporate responsibility activities of an organization increase employee commitment. In IMPACTS OF ESG ON EMPLOYEE RETENTION DURING COVID-19 5 turn, this increased commitment results in higher employee retention. The adoption of favorable ESG standards by a business is an essential factor in creating a business that attracts and retains quality employees. To explore some of the implications of employee retention on business operations, this research intends to examine the extent to which Environmental, Social, and Corporate Governance (ESG) factors affected employee retention in the workplace during the COVID-19 pandemic period. Additionally, this research aims to consider the impact of ESG factors on employee retention as related to any differences between two generations of employees, specifically Gen Y and Gen Z. Based upon an analysis of collected data, this study intends to assess whether: (1) favorable environmental ESG factors impact employee retention, (2) favorable social ESG factors are positively related to employee retention, and (3) favorable corporate governance ESG factors have a positive relation to higher employee retention. A substantial amount of prior research exists concerning the intersection between positive Environmental ESG factors and employee retention (Shetty & Gujarathi, 2013; Benn et al., 2015; Likhitkar & Verma, 2017; Wagner, 2013). Further, numerous studies have been conducted on the positive relationship between Social ESG factors and employee retention (Bode et al., 2015; Cycyota et al., 2016; Kuratko et al., 2017; Sanusi & Johl, 2022). Finally, a significant amount of research has reported empirical evidence of the positive impact of Corporate Governance on employee retention (Doh et al., 2011; Hirota et al., 2010; Vincent & Marmo, 2018; Wulf & Singh, 2011). While the body of research that explores the individual impacts of Environmental, Social, and Corporate Governance ESG factors on employee retention exists, there is a gap of knowledge concerning the intersection of all three ESG factors and how they collectively affect employee retention in the workplace. Furthermore, this gap in research extends to the study of any differences of such ESG impacts between two generations, notably Gen Y and Gen Z employees. At present, no literature has reported the generational differences of the impact of the three ESG variables on employee retention in the workplace during the COVID-19 pandemic. As such, this research seeks to fill this gap in knowledge and highlight the implications and significance of this research focus for continued future research. Due to the lack of available literature on this topic, the purpose of this research paper focuses on creating an understanding of the connections between employee retention and ESG factors. Specifically, this paper will examine whether positive ESG factors collectively contribute to employee retention. Furthermore, through research conducted via an empirical study, this paper intends to investigate the generational differences of the impacts of the three ESG factors on employee retention in the workplace during the COVID-19 pandemic