This report is a result of research conducted by FCLTGlobal in collaboration with the CPP Investments Insights Institute and the ESG Initiative at the Wharton School, University of Pennsylvania. A working group comprised of FCLTGlobal members provided additional perspectives. The research builds on Walking the Talk: Valuing a Multi-stakeholder Strategy, a first-of-its-kind report published in 2022 that set forth the rationale for pursuing a multi-stakeholder approach to business by highlighting the value of delivering tangible outcomes to stakeholders (i.e., the walk) and presenting the firm as committed to stakeholder harmony (i.e., talk). Stakeholders examined in that foundational report included communities, customers, employees, the environment, government, shareholders and suppliers.
The intent of this report is to make the case that following through on employee-centric commitments as stated in annual reports is associated with long-term value creation. Our goal is not to imply causation. While we conclude that companies walking the talk in their employee orientation create value, the causation debate remains open for further research.
Key takeaways include:
- Over a three-year period, committed employers – companies that back up talk about investing in employees with action – are associated with a 4.0% higher return on invested capital (ROIC) on an absolute basis than counterparts that did neither.
- Similarly, over the short-term (within one year), companies that are committed employers are associated with better outcomes than companies that neither communicate nor demonstrate committed investment in employees:
- 1.2% higher contemporaneous annual ROIC on an absolute basis,
- 0.5% higher contemporaneous annual sales growth on an absolute basis,
- 2.8% lower annual employee turnover on an absolute basis.
- Investing in employees is about the sum of the parts: no individual sub-component (e.g., increasing wages; improving diversity, equity and inclusion (DEI); addressing benefits; monitoring employee health & safety) contributed directly to value creation, but taken as a whole, these sub-components are correlated with long-term value.
- A suite of measures that creates a high-performing, inclusive workplace where employees feel valued and inspired to do great work is associated with higher sales and lower costs and, by extension, superior returns.
- Geographic and pre-/post-COVID analysis suggest a sharp uptick in the prevalence of employee-friendly talk in the U.S. pre-pandemic was not matched by similar levels of action, while levels of talk and action in Europe remained steady.
Download The people factor: How investing in employees pays off
Canada Pension Plan Investment Board (CPP Investments™) is a professional investment management organization that manages the Fund in the best interest of the more than 21 million contributors and beneficiaries of the Canada Pension Plan. CPP Investments is a co-founder of FCLTGlobal and launched the CPP Investments Insights Institute to create enduring value by using CPP Investments’ global investing expertise, partnerships, and convening power to advance how the global investment ecosystem addresses climate change, technology disruption and evolving stakeholder expectations.
The mission of the Environmental, Social and Governance (ESG) Initiative is, consistent with the vision of Joseph Wharton, to harness the power of business to “solve the social problems incident to our civilization.” The ESG Initiative conducts research that investigates the intersection of ESG factors and business and further advances Wharton’s best-in-class education of current and future practitioners, enabling them to serve a world undergoing tremendous change.