How companies can handle that not-so-silent “S” in ESG

The “S” in ESG is arguably the most difficult to articulate and quantify. This is partly due to the understandable importance of the environmental part of ESG and the fact that the governance dimension of ESG has long been talked about, often leading to a perception that the social element is somehow less important.

Environmental issues, for example, are concrete, understandable, measurable and indeed existential. One only has to look back to the weeks following COP26, when the central bank governor wrote to regulated companies outlining his expectations on climate change and other sustainability issues. The letter prompted quite a bit of discussion and action, but less on the “S” than on the “E” and the “G” given its focus on climate change and board leadership.

S&P, one of the leading ESG rating agencies, defines the “S” pillar in relation to the social factors that pose a risk to a company’s financial performance. This manifests itself in two ways: first, how a company treats and interacts with its employees, and second, how it treats people in society.

At the European level, there is a discussion about establishing a social taxonomy similar to the “green taxonomy” of the EU.

However, defining a social taxonomy would be much more political.

Trying to find a workable definition for goals like decent work, decent living standards or inclusive communities in 27 member states is extremely difficult. This could explain why we don’t have a codification and why we probably won’t have one in the near future.

However, the lack of a robust European framework should not be used as an excuse to shirk responsibility.

For example, although employers in Ireland are already subject to a variety of labor laws that provide a framework of minimum rights for workers, the “S” in ESG involves going beyond minimum legal compliance and implementing policies and practices that promote a positive work culture and environment. The pandemic has brought this social element into sharp focus.

Companies need to focus more on the social aspects of their ESG strategies

Over the last two and a half years, we have seen a growing public expectation that companies “do the right thing” in their employees.

As a result, the HR agenda has moved up the list of priorities in boardrooms, and companies need to focus more on the social aspects of their ESG strategies.

One of the priority issues at the moment is the passage of the 2022 Remote Work Application Right Bill, which will create a legal framework on which to base the application, approval or denial of a remote work application.

Once passed, the legislation will likely require employers to have a policy outlining how to make and decide remote work requests.

Staying on the subject of remote working and flexible working, the second law employers should be aware of from an ESG perspective is an EU work-life balance directive that will introduce a set of new family-friendly rights for parents and carers. including a right to flexible working hours for employees with children up to the age of 12 and for employees with caring responsibilities.

A third piece of legislation employers should include on their agenda is the EU’s Transparent and Predictable Working Conditions Directive, which aims to promote workers’ rights by giving workers the right to request a transfer to more predictable and safer working conditions , if available.

This law also provides for limiting probationary periods to six months and forbidding exclusivity clauses in employment contracts.

But of course, the employment aspects of ESG are not just about how employers have responded to the pandemic. There can be a number of other HR-led initiatives that a company can implement to support the social aspects of its ESG strategies.

For example, a formalized and well-managed diversity, equality and inclusion policy with the right policies and procedures in place to support and encourage a diverse and inclusive organization is essential.

When done right, your business can help deeply ingrain a social culture.

The recent introduction of mandatory gender pay gap reporting in Ireland requires employers with 250 employees or more to publish the gender pay and bonus gap for their workforce to identify the cause of any gap and outline their plans to close it .

Finally, the reporting obligation extends to companies with 50 or more employees.

These reporting requirements will eventually be extended to companies with 50 or more employees.

Reporting on the gender pay gap combines social measures with measurable standards. This is a practical measure companies can take as part of their broader DE&I strategy and will also provide a quantifiable metric for ESG reporting purposes. Reporting on the gender pay gap presents an opportunity for companies to increase their ESG efforts.

Those organizations that demonstrate significant progress in this area will send a strong message on tackling the gender pay gap and its broader social impact.

Another increasingly important area in which to invest time and energy is equal pay issues, including discussions of what constitutes living wages and fair wages for workers. This is the latest ESG challenge facing employers as inflation rates rise and the cost of living soars.

From all these conversations we can begin to clearly see the increasing public focus and expectations of what constitutes ethical and sustainable business practices from a social perspective. This can often lead to a very interesting crossover between the ‘S’ and ‘G’ components of ESG.

A strong current example of this when it comes to compensation revolves around executive compensation.

While there are rules governing this area in the financial services sector, from an ESG perspective, it is important to consider what society expects of companies when it comes to executive compensation and what can be considered acceptable or unacceptable behavior that exceeds goes beyond what the legal framework designates as right or fair.

We’ve seen this come into sharp focus during the pandemic, as employees and the general public expected that all levels of the workplace hierarchy should “share the pain,” and with instances of fierce criticism of leadership when those public expectations did not met were met.

Today’s rapidly changing ESG expectations and policies require organizations to remain vigilant. Harder-to-define social concepts often operate in gray areas that, if not managed, can lead to serious reputational problems.

Laura Mulleady is a Partner in Insurance at A&L Goodbody and Chair of the firm’s ESG Steering Group.

Noeleen Meehan is a partner at A&L Goodbody’s Labor Law Group.

https://www.independent.ie/business/how-companies-can-manage-that-not-so-silent-s-in-esg-42080592.html How companies can handle that not-so-silent “S” in ESG

Fry Electronics Team

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