Businesses must better understand their ESG obligations to employees
Employers are not fully adhering to ESG-related employment legislation and guidance, write William Fry lawyers Catherine O'Flynn and Eimear O'Leary
All employers have social obligations to their employees. These vast obligations range from ensuring employees receive a minimum wage to implementing whistleblowing procedures, all of which fall under the ESG (environmental, social and governance) umbrella.
However, a recent survey of more than 1,000 employees and 400 employers conducted by William Fry in conjunction with Behaviour and Attitudes, highlights that only 17% of employers understand their obligations. This should serve as a wake-up call to employers to implement policies to satisfy their legally-mandated ESG obligations to their employees.
An EU Social Taxonomy will be published in the near future, which will assess and ascertain certain employers' social credibility. Presently, an employer's ESG social obligations include adherence to the Organisation of Working Time Act, Terms of Employment (Information) Act and Employment Equality Acts.
Find out how key jurisdictions are responding to the ESG movement. Click here to read the ESG Law Over Borders ESG comparative guide
Significant recent and upcoming developments in domestic and EU employment legislation set the baseline for an employer's social obligations. These legal developments prioritise employee welfare, which place additional obligations on employers. By way of example, recently introduced regulations amended the Terms of Employment (Information) Act to alter the information and associated timelines within which employers must provide that information to an employee, after commencement of their employment.
The regulations also introduced new restrictions prohibiting probationary periods in excess of six months and allowing parallel employment, subject to certain exemptions. These changes require employers to update their template employment contracts and associated policies. At a minimum, all employers need to comply with existing employment law obligations. ESG-proactive employers will surpass this threshold and focus on social objectives that are not (or are not yet) legally required.
The survey results suggest that employment legislation and guidance are not being fully adhered to, with only 12% of employers surveyed following the Workplace Relations Commission guidance and implementing a Right to Disconnect policy. From a risk perspective, it is difficult to defend employment claims if an employer is not compliant with all employment legislation and relevant codes of practice. Employers need to be aware of the risks of failing to comply with ESG, which include credit, market, operational, reputational, liquidity and funding risks. From a practical perspective, employers with low ESG social standards may also struggle with recruitment and retention of employees.
To be a proactive ESG employer, employers should consider the social needs of their employees and implement policies and practices beyond the legal minimum. Employees can guide employers on priority social policies through employee consultation, or by the employer examining best practices within their industry.
The survey shows that the social wants of employees differ depending on age and geographical location, so an employer should not implement a ‘one box fits all’ approach but rather take time to consult with employees. All age groups in our survey prioritised hybrid and flexible working, yet there was significant differences outside this. The 25-34 age group prioritised training and development the least, while the over-50 age group prioritised gender pay gap reporting the least. Examples of social policies that a proactive ESG employer can implement include flexible working, enhanced sick pay, mental health policies or setting an organisation-wide minimum wage as the living wage.
54% of employers do not measure the effectiveness of certain policies
Employers will be aware that there is little point in having a policy if it is not being adhered to. If employers have implemented proactive policies, they should measure the impact of these policies by recording and analysing data. Recently, gender pay gap legislation highlighted the importance of collecting and analysing data to assess the impact of an organisation's equality policies. Similarly, proactive ESG employers should collect data to ensure they have met self-set objectives; although they must remain cognisant of GDPR (General Data Protection Regulation), especially when special categories of data are being processed such as regarding race, health or sexual orientation.
The survey shows that 54% of employers do not measure the effectiveness of certain policies which they have introduced. The survey further highlights a level of distrust among employees, with only 56% of employees being willing to share their data with their employers on an anonymous basis to measure and improve the effectiveness of their employment policies. Employers will need to gain their employees' trust to collect relevant data and have effective policies.
Every employer should be mindful of upcoming legislative changes. They should ensure that they are compliant with the current laws before the introduction of this wave of new social obligations, including legislation regarding adequate minimum wages and pay transparency. Proactive ESG employers should analyse how they can be a socially responsible employer by consulting with their employees. If employers have made the effort to implement discretionary policies, they should measure their effectiveness to ensure they are having the desired effect on their workforce.
Catherine O'Flynn is a partner and head of employment and benefits law at William Fry in Dublin. Eimear O'Leary is an associate in the the firm's employment and benefits department, also in Dublin.
The GLP Law Over Borders ESG guide is edited by Ulysses Smith, of Debevoise & Plimpton, and features contributions from leading law firms including: Bruchou & Funes de Rioja (Argentina), McKinney Bancroft & Hughes (Bahamas), Pinheiro Neto Advogados (Brazil), Carolina Queiroga Nogueira (Chile), Zhong Lun Law Firm (China), Debevoise & Plimpton (EU , Germany and US), Hannes Snellman Attorneys (Finland), Legance (Italy), City-Yuwa Partners (Japan), Von Wobeser y Sierra (Mexico), De Brauw Blackstone Westbroek (Netherlands), Rodrigo, Elías & Medrano (Peru), Kim & Chang (South Korea), Hannes Snellman Attorneys (Sweden), MME Legal (Switzerland), and Herbert Smith Freehills (UK)
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