The Importance of ESG for Employers

by Alicia Compton, Partner in the Employment & Benefits Department, William Fry LLP

The Employer’s Guide to ESG (the Guide to ESG) is a useful reminder that employers operating within the Life Sciences and Healthcare sector and all employers in Ireland have ESG (environment, social and governance) obligations.

The Guide to ESG (which surveyed over 400 employers and over 1,000 employees in Ireland) highlights that only 17% of Irish employers are aware of these obligations and have no concerns about the implementation of such obligations.

The percentage of Irish employers surveyed who have implemented specific employment policies:

• 20% – Whistleblowing / Speak-up Policy
• 26% – Remote Working Policy / Hybrid Working Policy
• 12% – Right to Disconnect Policy
• 34% – Mental Health and Wellness Policy
• 31% – None of these

ESG can impact a company’s ability to access capital markets and attract and retain key talent, both critical to companies operating within the life sciences and healthcare sectors. The Guide to ESG highlights that companies who fail to comply with new legislation and standards will face difficulty in this regard and regulatory hazards. Further, according to the European Banking Authority, companies failing to comply with ESG-related requirements expose themselves to a broad range of risks including credit, market, operational and reputational risks. In an already highly competitive sector, employers should act to ensure that they comply with their ESG obligations.

The Guide to ESG includes employee views on the most important ESG policies. The top priority of those surveyed is a hybrid and flexible working policy, with only the 25 – 34-year-olds indicating that fully remote working is a high priority. 25 – 34-year-olds prioritised training and development the least, while the over 50s prioritise gender pay gap reporting the least out of all age groups. Interestingly, strong diversity and inclusion practices were ranked as the second least important policy to 25 – 34-year-olds, just ahead of paid volunteering time.

The top ESG policy priorities of the 1000 employees surveyed:

• 38% Hybrid/Flexible Working Options
• 18% Health Insurance
• 11% Training and Development
• 11% Fully Remote Work
• 6% Dignity at Work

ESG is not a new concept, but until recently businesses focused primarily on the environmental aspect. This focus is now expanding to the social aspect, and, at the EU’s request, the Social Taxonomy Report was published in February 2022. The Commission proposes to use this report to establish a classification system to measure an employer’s ‘social’ credentials. In the future, impacted employers will likely be required to collect, measure and report on various measurables to ascertain whether certain standards have been met and, in turn, whether such an employer is deemed ‘social’ or not.

The Guide to ESG also notes that, increasingly, Irish employers will link executive remuneration to ESG metrics. 71% of employees in the survey agreed that senior management bonuses should, or possibly should, be linked to their employer achieving its ESG social targets, including reducing the gender pay gap and improving equal opportunities.

Catherine O’Flynn, Head of William Fry’s Employment & Benefits team, cautions employers: “Our survey found that 37% of employers are not focused on the increasing number of ESG obligations because they do not feel it is relevant to their organisation. However, all employment legislation comes within the remit of ESG, so it is, in fact relevant to all employers. Employees’ rights are increasingly protected by legislative developments and are further enhanced by the social component of ESG. It is difficult to defend employment claims if an employer is not compliant with legislation and relevant Codes of Practice. At a minimum, employers need to comply with current legal obligations. However, employers who want to be ESG compliant should ensure that their policies reflect all existing legislation and that they are prepared to adopt and comply with new legislation as soon as it becomes effective, if not before.

About the author

Alicia Compton is a Partner in the Employment & Benefits Department atWilliam Fry LLP. Alicia advises on employment matters with particular experience in advising on the employment aspects of corporate restructuring, the termination of employment and in relation to employment issues in the public sector.