Companies who offer shares to workers have better sustainable practices

New research has revealed companies that offer stock shares to non-executive staff are more likely to have a greater focus on sustainability.

The study examined the impact of non-executive employee stock ownership plans (ESOP) on corporate environmental engagement.

It found that the schemes, which give workers the chance to own part of the company that employs them, help to focus a collective green mindset in the workforce.

The collaboration, between the University of Portsmouth’s Centre for Innovative and Sustainable Finance (CISF), Huazhong University of Science and Technology (HUST), and  Zhongnan University of Economics and Law (ZUEL), analysed companies in China between 2009 and 2019.

Professor Jia Liu, CISF Centre Director and Professor of Accounting and Finance at the University of Portsmouth, said: “At a time when climate change threatens the world we live in, companies must prioritise reducing their carbon footprint and contributions to pollution.

“It’s no secret that some businesses work harder than others to protect our environment, which is why it’s important to identify why that is, and find solutions to the issue.

“For this study, we turned our attention away from the executive stakeholders and decision makers and focused on the perspective of the employees, whose collective strength could have a critical influence.”

The team of researchers found that granting ESOPs promoted greater engagement in several areas. These include companies devoting more resources to environmental protection, being more open and honest about their sustainability practices, and improved environmental, social, and governance (ESG) ratings.

They say stock shares help unite members in a common interest, and empower them to put pressure on management to reduce carbon emissions. This not only benefits their own health and that of the planet, but also corporate wealth.

“Our analysis reveals that companies investing in environmental protection sacrifice short-term profit because of high initial costs, but increase long-term firm value”, explained Professor Liu.

“The more employees who subscribe to an ESOP scheme, and the longer the offers of ownership are, the more beneficial they are to a company’s sustainability and financial goals.”

The study also found the impact of ESOPs is more noticeable in companies with greater media exposure, those confronting intense labour market competition, and those in heavily polluting industries.

The paper’s co-author, Professor Dongmin Kong from the School of Economics of HUST in China, said: “Employees are among the first to suffer from corporate pollution in their work and daily lives, so arguably have a powerful incentive to demand a reduction of a company’s carbon footprint.

“But more often than not, their interactions with executives tend to be adversarial - a them versus us point of view - instead of a shared responsibility.

“We’ve found that giving staff a share of the profits, and a say in the running of things, improves their overall wellbeing at work. They were also more likely to advocate eco-friendly practices over immediate profit.”

The paper, published in the Journal of Business Ethics—an FT50 journal— says these findings suggest pressing for change from within a company might ultimately be more successful than pressure from external bodies, including governments, watchdogs, and charities. 

Professor Liu added: “Confronting the polluters with the evidence of their misdeeds seems to do little to ease the situation, as the UN’s COP26 and COP27 conferences have revealed.

“It seems a combined effort, both inside and outside an organisation, is the best course of action to help drive more sustainable and environmentally-conscious business."