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Blog  »  September 2023  »  What is ESG? - Blog
Sep 23

Posted by
Charlotte McArdle

What is ESG?

Employment related matters are becoming a focus from an environmental, social and governance (ESG) perspective. For employers, it can cover broad issues such as diversity and inclusion, pay transparency, workforce engagement, HR policies, health and safety and more.

Therefore, it is becoming increasingly important for employers to ensure that they comply with new legislation and new standards. Otherwise, employers will not only face standard regulatory risks but they may also be exposed from an ESG perspective. Indeed, many employers who are particularly ESG conscious are seeking to go further than the statutory employment law minimums.

In recent years a large number of legislative changes designed to improve employee rights and security have been made. This flow of legislative change is unlikely to abate anytime soon as the EU Social Taxonomy Report proposes a system to classify what constitutes "decent work". This includes pay transparency, paying the living wage, decent working hours, formal working relationships, equal opportunities, reduction of pay gaps and job creation for young people. With this in mind, it is inevitable that further employment legislation and disclosure requirements are likely to come in over the coming years.

Diversity and inclusion

Diversity and inclusion has in recent years generated significant media attention. Positioning the promotion of an inclusive culture at the forefront of a company's business outlook is the way forward for businesses keen to secure a fully-rounded ESG strategy.

Diversity makes good business sense. Ethnic, gender and cultural diversity in management has been shown to boost business and is linked to both profitability and value creation.

From the social standpoint there are huge expectations on companies from employees, business partners and investors to have a strong focus on diversity and inclusion in the workplace. This is particularly the case amongst the younger generations of workers who are increasingly assessing employers' diversity and inclusion credentials when weighing up employment options.

The Gender Pay Gap Information Act 2021 required employers to publish details of the mean and median hourly pay and bonuses for men and women, the percentage receiving bonuses or benefits-in-kind, explanations for any gender pay gap that arose, and measures they will take to eliminate or reduce this gap. Currently in Ireland, employers with 250 or more employees have had to publish gender pay gap reports - but by 2024, this threshold will drop to just 150 employees and then 50 employees by 2025. More details can be found here.

There is due to be further legislative development in this area as the recently agreed Pay Transparency Directive (the ''Directive'') will soon require the further expansion of statutory obligations on employers in Ireland in respect of gender equality.

Under the Directive, companies will additionally be required to report the disparity of pay between genders, based on categories of workers, who are doing the same work or work of equal value. Member States will be required to establish clear criteria to assess and compare what qualifies as value for work in line with a set of objective criteria, which include educational, professional and training requirements, skills, effort and responsibility, work undertaken and the nature of the tasks involved.

One of the other key provisions of the Directive is the concept of a ''joint pay assessment,'' which will require a company to carry out an assessment where a gender pay gap report identifies a gap of at least 5% in any category of work and where that gap cannot be justified based on gender-neutral factors. Under the Directive, additional pre-employment provisions will also be implemented, whereby employers will now be precluded from inquiring as to an applicant's salary history, while also obliging companies to disclose the initial pay range for the advertised role.

While Irish legislation has not yet been drafted or initiated, the implementation date of the Directive is expected in 2024.