Let's recap: What is ESG?
In recent years, Environmental, Social and Governance (ESG) matters have been catapulted from a somewhat ambiguous acronym to a recurring line item on the board's agenda and a way in which organisations demonstrate their values and vision.
ESG is a framework for ensuring that organisations operate and manage their businesses in a manner that has regard for the environment in which they operate (E), social issues that arise for the organisation and its employees in the context of the workplace (S), and as a barometer of measuring how sustainable and accountable the organisation's governance structure is (G). In short, it is a tool for organisations to measure sustainability using the ESG factors.
What does ESG mean from an employment law perspective?
While a company's commitment to ESG was traditionally only thought to be of interest to investors, it is now a key consideration for employees, applicants, customers, stakeholders, regulators and the wider public who demand greater social action from businesses.
From an employer's perspective, ESG efforts are now heavily relied upon to attract and retain key talent, particularly female talent. Employees are no longer content with the offer of a permanent job and, instead, want to ensure that they are working for companies whose values align with their own and who match the sustainability efforts that they are increasingly making in their personal lives.
For employers, ESG covers a broad range of themes including the promotion of diversity, equity and inclusion, the establishment of a transparent and open work culture and the provision of a safe place to work.
Key role of Diversity, Equity and Inclusion (D,E&I) under the ESG umbrella
The promotion of D,E&I in the workplace remains at the core of many legislative developments at both Irish and EU level and is the cornerstone of ESG from an employment law perspective. It falls squarely under both the S and G components.
Mandatory Gender Pay Gap ("GPG") reporting
The introduction of GPG reporting is one of the most significant pieces of D,E&I legislation the Irish Government has enacted. It seeks to address gender representation within organisations and requires employers (currently those with 250 or more employees, reducing to 150 employees or more from December 2024 and to 50 employees or more in 2025) to publish the GPG that exists within their organisation and an explanatory statement outlining the reasons for such a gap and the measures being taken, or proposed to be taken, to reduce it (pursuant to The Gender Pay Gap Information Act 2021 and the Employment Equality Act 1998 (section 20A) (Gender Pay Gap Information) Regulations 2022).
Based on a June 2022 snapshot, in-scope employers were for the first time required to publish their data and narrative in December 2022. It is likely that organisations' 2023 data will be more heavily scrutinised given that there is now a direct year-on-year comparison available.
We have considered the key components of the GPG obligations in our earlier publication: Gender Pay Gap Reporting – Top 10 FAQs, and offer our practical advice on the key issues and challenges arising for in-scope employers in our Countdown Series:
- GPG Reporting Countdown Series - Crunching the Numbers
- GPG Reporting Countdown Series - Mind the Gap; and
- GPG Reporting Countdown Series – Communication is Key.
Equal Pay – new obligations on the horizon
The Pay Transparency Directive (Pay Transparency Directive) is the EU's latest step in seeking to address and promote D,E&I in the workplace. It came into effect on 7 June 2023 and will need to be transposed in Ireland by 2026.
The Pay Transparency Directive will introduce mandatory GPG reporting for in-scope employers across EU member states. It goes further than the existing reporting requirements in Ireland and will require the reporting of pay gaps by “categories of workers” ie., workers doing the same or similar work.
It will also introduce significant and very extensive pay transparency obligations on all employers (irrespective of headcount) which will strengthen the application of the principle of equal pay and promote equality in respect of remuneration for employees and applicants. The requirements coming down the tracks will form the bedrock of an organisation's ESG commitment to equal pay.
We have considered the key provisions of the Pay Transparency Directive here: New Law on the Way – Bringing Pay Transparency into Sharp Focus.
New family leave rights and entitlements for employees
The Work Life Balance and Miscellaneous Provisions Act 2023 (Work Life Balance Act) introduces the below listed family related entitlements (which we have considered in our earlier publication: Striking the Balance? Significant Step for Work Life Balance). Each of these new entitlements require Commencement Orders to bring them into force. We have set out the current status below:
- From 3 July 2023, the extended entitlement to breastfeeding breaks (from 26 weeks to 104 weeks following the child's date of birth) and the introduction of five days' unpaid leave for medical care purposes came into effect. Many employers updated their staff policies accordingly.
- The right to five days' paid domestic violence leave, to be paid at an employee's full rate of pay, came into effect on 27 November 2023. A new website (www.DVatWork.ie) has been launched which provides information to support employers in implementing the domestic violence leave and, helpfully, provides a template policy and a very useful guidance note.
- The right to request remote working has not yet come into force and its commencement is on hold pending the publication of the Workplace Relations Commission's applicable Code of Practice which is set to provide guidance as to how this right will operate in practice. Recent indications are that this will be published before the end of January 2024. We have considered this in more detail below.
- The right of employees to request flexible working arrangements for caring purposes is also still pending a Commencement Order and is likely to come into effect with the broader right of employees to request remote working.
These are all in addition to the statutory leave entitlements that have been introduced over the last number of years including two weeks' paternity leave and seven weeks' parent's leave (which will increase to nine weeks in August 2024) which are both eligible for State Benefit.
Hybrid and flexible working arrangements facilitate access to the workplace
In the wake of the pandemic, the vast majority of employers established remote and flexible working policies that worked for their businesses and workforces. Recent trends reveal an increased appetite on the part of employers to require more in-person attendance but, in reality, the retention and attraction of talent largely dictates the level of flexibility on offer.
The Work Life Balance Act provides employees with a right to request remote working but, as provided above, a Commencement Order is required in order to bring this right into effect.
Looking at this through the ESG lens, the facilitation of hybrid, remote and general flexible working arrangements promotes and provides access to the workplace that may otherwise be closed to certain worker cohorts. For example, many individuals with caring responsibilities or disabilities credit flexibility and remote working arrangements with providing them with the opportunity to remain in the workplace. This promotes the S component of ESG as a key component of any organisation's D,E&I efforts.
Statutory Sick Leave introduced in 2023
The Sick Leave Act 2022 (2022 Act) established a statutory sick pay scheme for all employees for the first time in Ireland. As of January 2023, employees who have 13 weeks' continuous service with the employer are entitled to be paid three days' sick leave (at a rate of 70% of the employee's usual daily earnings, up to a maximum €110 a day) for certified days. This will increase to five days' sick leave from January 2024.
In practice, many large organisations offer company sick pay schemes that are more generous than the statutory sick pay entitlement and, importantly, the 2022 Act provides that the statutory sick pay scheme will not apply to an employer who provides a company sick pay scheme which is, as a whole, more favourable than the statutory entitlement.
Establishment of a safe culture to "blow the whistle" is an important item on the ESG agenda
Managing whistleblowing complaints in compliance with the extensive legal obligations arising under the Protected Disclosures (Amendment) Act 2022 is a very important component of the S and G aspects of an organisation's ESG strategy.
Fostering an open and transparent workplace culture where employees feel safe and secure reporting wrongdoings in the knowledge that any such wrongdoings will be managed through the appropriate internal channels by the organisation is a key to feature of a company's ESG efforts. It is also a very effective tool for managing the risk of reputational damage arising from an employee blowing the whistle externally first.
Health, safety and welfare at work
Employers are under a statutory obligation to ensure, so far as is reasonably practicable, the safety, health and welfare of their employees and others at work.
Although the health, safety and welfare of employees at work is still integral to every organisation's values, we are now seeing businesses look beyond their "own house" to ensure that the businesses engaged by them and affiliated to them are also compliant with their health and safety obligations. This is key to the broader ESG agenda.
A company's ESG efforts also extends to managing and accounting for employee mental health and wellbeing in the workplace and the vast majority of organisations have established various workplace wellbeing initiatives including access to an Employee Assistance Programme, corporate wellness programmes, a stipend to cover wellbeing activities, access to exercise and / or nutrition classes, etc. The promotion of a culture committed to workplace wellbeing is a key component of an organisation's ESG agenda.
Lastly, compliance with the Code of Practice for Employers and Employees on the Prevention and Resolution of Bullying at Work and the Code of Practice on Sexual Harassment and Harassment at Work is another illustration of the company's commitment to establishing a workplace that promotes the safety, health and welfare of its employees which, in turn, promotes its ESG agenda.
Anything else coming down the tracks?
Yes! The Corporate Sustainability Reporting Directive (CSRD) is a European Directive which will require in-scope companies to publicly report extensive sustainability information (i.e., environmental, social, human rights and governance factors) to an auditable standard. EU Member States must transpose CSRD into national law by 6 July 2024 and the first cohort of in-scope companies will need to report in respect of their financial year beginning in 2024.
The CSRD is aimed at bringing sustainability reporting up to the same standard as financial reporting, thereby increasing corporate accountability. In-scope employers may also be required to make a broad array of employment related disclosures in their annual reports, which we anticipate will also lead to increased focus on a company's employment practices and policies. CSRD reporting will also provide a lens through which employees will be able evaluate how their employers and prospective employers are performing in respect of ESG.
EU legislators have also reached a provisional deal on the new Corporate Sustainability Due Diligence Directive (CSDDD), which if enacted will place a substantive duty on in-scope companies to identify and address adverse human rights (including human rights under various labour conventions) and environmental impacts on their operations, subsidiaries and value chains.
Watch this space for more updates on the CSRD and the CSDDD!