How to hire the best for less

Unlock the Editor’s Digest for free

Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.

Imagine running a company that consistently attracts smart, skilled staff willing to work harder and longer for 15 per cent less than what they could earn doing the same job elsewhere.

I’m talking about lawyers, receptionists, human resources employees and IT workers. People in jobs that exist in all sorts of companies across all sorts of sectors.

Sounds unlikely? Not if you believe academics in Europe, who have uncovered what they call the sustainability wage gap: notably lower salaries earned by people in more environmentally friendly firms.

These employees earned between 9 per cent and 15 per cent less than similar workers doing the same job in oil companies, mining groups or other less sustainable businesses, the researchers found.

And interestingly, the gap has widened since 2001.

“It is growing, which is consistent with the idea that preferences for protecting the environment are strengthening over time,” says co-author Philipp Krueger, professor of responsible finance at the University of Geneva.

The wage gap is also larger for workers with high cognitive skills, such as memory and problem solving, as well as the non-cognitive abilities employers increasingly value: perseverance, motivation, social skills.

So what, if anything, does this mean for today’s business leaders?

We already know that people are more likely to accept lower wages for work they think is meaningful.

The research that Krueger and his colleagues have done suggests this includes environmentally meaningful work, and it puts a number on the magnitude of the pay cuts.

But might the green wage gap be explained by something other than a desire to save the planet?

The research, which has yet to be published in a peer-reviewed journal, is based on highly detailed data from employers and employees in Sweden, home to Greta Thunberg and the flygskam, or flight shame, anti-flying movement.

The richness of the data, which goes back to the 1990s, made it attractive to the researchers. Does it matter that it came from a country with a long history of environmental action?

Perhaps, though a 2021 survey by the IBM Institute for Business Value suggests the green wage gap exists well beyond Sweden.

It showed more than two-thirds of workers in nine nations including the US, China, Germany and Brazil were more likely to take jobs with environmentally and socially responsible organisations — and nearly half would accept a lower salary to work at such places.

So what exactly is an environmentally sustainable firm?

Krueger and co used three different measures to determine this: an organisation’s greenhouse gas emissions; environmental scores from MSCI, the global index provider; and a survey of what people deemed to be an environmentally sustainable industry.

The survey showed the sectors rated most sustainable included recycling, research and health. The least green included oil drillers, coal miners and carmakers.

Each of the three measures produced the same finding: workers in firms with higher environmental scores, or lower greenhouse gas emissions, all earned lower wages.

Conversely, firms that suffered an ESG scandal tended to increase wages — typically by about 6.5 per cent — the following year.

You might say there is some justice in these firms paying a financial penalty, in the form of higher wages, for being environmentally or socially harmful.

But there is also a darker side to the sustainability wage gap.

It turns out that employees in more sustainable sectors work longer hours, and more extreme hours, often 50 or 60 a week. It is possibly no accident, therefore, that they also have more sick days and are more likely to end up in hospital.

Still, I think the overall message here is clear.

Recruiting and keeping smart, industrious staff is likely to be easier and cheaper — at least as far as wages are concerned — if a business is genuinely environmentally sustainable.

Pretending to be greener than you actually are, on the other hand, may be more fraught than you think. 

A legal firm that, say, flaunts its concern for the environment and belongs to one of the ballooning number of net zero lawyers’ groups will have a lot of disappointed insiders if it continues to help oil companies quash climate lawsuits. A firm taking on the climate lawsuits, on the other hand, may be enjoying precisely the opposite effect.