Does Environment, Social and Governance (ESG) Management Reduce Employee Turnover? Evidence From South Korea

Abstract

This study analyses the effect of environmental, social and governance (ESG) management on employee turnover rates using Korean ESG evaluation data linked to administrative employment databases. Employee turnover is depicted as a distinction between involuntary turnover, which includes layoffs, and voluntary turnover resulting from changes in working conditions and accompanied dissatisfaction. The empirical analysis showed that companies with active ESG engagement had a lower probability of layoffs but a higher probability of voluntary turnover. The empirical analysis revealed similar results in models that addressed aggregation bias in firm-employee data using multilevel regression model. The results implied that the suppression of layoffs in ESG has a ballooning effect on other HR practices. Specifically, when layoffs constrained by ESG evaluations are suppressed, there exists an unintended negative effect on other HR options (such as wage reduction and relocation) in recovering from deficits, leading to an increase in voluntary turnover.