Central to ESG is the belief that the business community has a key role to play in society, creating value for the common good and enhancing public trust. However, many companies struggle with the social element. What does it mean and what actions should they take?
For employees, the 'S' in ESG means that their organisation stands up for the social issues they care about. For consumers, it's about companies making progress on diversity, equity and inclusion (DE&I), data security and privacy. For employers and investors, meanwhile, it can cover topical issues such as executive pay, industrial relations, organisational culture and supply chain issues to name but a few. While these topics may suggest possible actions, they present a further challenge—how can organisations measure and report on these areas?
Gender pay gap reporting
Gender pay gap reporting neatly combines a social action with a quantitative metric. It will come into effect in Ireland this year for employers with over 250 employees, with December 2022 set as the first mandatory (and annual) reporting deadline.
This is a well-defined, practical and time-bound action companies can take as part of the broader DE&I agenda. Helpfully, it will also provide a quantitative metric that can be included in ESG reporting. Quantifiable targets and KPIs in ESG reports help stakeholders trust organisations to meet their stated sustainability ambitions.
There is an opportunity for savvy organisations to leverage the mandatory reporting requirement to boost their ESG agenda. The benefits for branding are clear: gender pay gap reporting has the potential to boost the pace of change for women's equality, and companies making strides in this area will have a compelling story to tell about their positive, wider social impact. Taking a pragmatic, long-term view, ethnicity pay gap reporting will likely follow gender pay gap reporting. Investing in the latter now is a smart investment in the future. Our advice is to embrace gender pay gap reporting, and include it in your company's ESG efforts.
The link between DE&I and ESG
This approach makes sense, as ESG and DE&I have many similarities—both agendas are most effective when driven by leaders and embedded holistically within an organisation. There are also many mutual benefits:
- For organisations embarking on their ESG journey, lessons learned from DE&I can inform efforts to create leadership support, communicate with stakeholders and develop good practices.
- ESG can in turn benefit the DE&I agenda by providing another reason for leaders to engage with the topic, reinforcing the need to take a broad outlook beyond the commercial.
As a legal requirement, gender pay gap reporting will be a major focus for CEOs and boards this year, and provides a burning platform for action. So, what does gender pay gap reporting mean for companies and CEOs?
Gender pay gap reporting requirements
In practical terms, public and private organisations in Ireland with 250 employees or more will be legally required to report their gender pay gap by December 2022, based on a snapshot of data from June. This will be a short window for a complex process.
Gender pay gap reporting is the difference between the average wages of men and women (regardless of their seniority). It will require organisations to report the pay gap between male and female employees including the bonus pay gap, as well as the proportion of male and female employees receiving benefits-in-kind and bonuses.
Employers will have to publish the required information on their website. In the interest of transparency, organisations should include their gender pay gap in their ESG reporting.
A communications strategy is key
While it is imperative that companies accurately report the numbers, an effective communications strategy will be essential to engage internal and external stakeholders. When the reporting deadline arrives in December 2022, we anticipate considerable scrutiny from all stakeholders as organisations publish their gender pay gaps. When the UK introduced gender pay gap reporting in 2017, there was intense media coverage of the highest profile companies and those with the largest gaps. The reputational risk is significant and will be heightened in the short-term. But reporting is annual, so continued focus will be required to close the gap and manage the risk.
Like reporting, communications can be approached as an opportunity. For those who have invested in DE&I to date, gender pay gap reporting provides a high-profile public platform to communicate their DE&I efforts and strengthen their brand externally, thereby boosting their attractiveness as an employer. We recommend that CEOs lead communications on gender pay gap reporting and, where possible, make the link between gender pay gap reporting and ESG explicit.
Preparation is key, however. The companies that fare best will have taken early steps to understand the reasons for their gap, create a compelling narrative around the rationale, and develop a robust plan to close it. The strongest will have begun to implement their plan in advance of reporting. In a tight labour market, gender pay gap reporting will surely be a point of differentiation as candidates and employees use the data to inform career decisions.
Gender pay gap reporting is a certainty, whether we are prepared for it or not. By linking it to other strategic endeavours—be it ESG or hiring—companies give themselves the best opportunity to shore-up support and meet the challenge head on.
The three key actions to take now
Our immediate advice to organisations is as follows:
- Fully understand what must be reported: Regulations have been published and outline in detail the necessary calculations. You should review the requirements before running your numbers.
- Ensure that your data, processes and systems are ready: poor quality human capital data is a challenge for many employers. Maximise your preparation time and the accuracy of your outputs by ensuring that you have the necessary data and that it is accurate.
- Calculate your numbers as soon as possible: early calculations will increase the time available to check your figures for accuracy and re-run them if necessary.
We are here to help you
Recently published regulations provide clarity on aspects of gender pay gap reporting obligations. We're here to support you on this journey—contact us today.