ESG is a strategic framework which helps companies assess and report on the principles set out in ESG commitments. Companies comply with their sustainability due diligence obligations by preparing an ESG report.
Compliance with the social aspects of ESG based on HR activities
HR plays a key role in the social pillar of ESG where Diversity, Equity and Inclusion (DEI) are of paramount importance. As part of ESG reporting, companies are required to present in detail how they address these social issues.
The ESG rating takes into account a company's performance in terms of diversity, equity and inclusion. Therefore, a company's HR activities can have a fundamental impact on its ESG rating.
The following topics and programmes are regarded as focus areas of HR from an ESG perspective as well:
Diversity, Equity and Inclusion (DEI)
Embracing diversity, ensuring equal treatment in the employment and hiring of workers, regardless of race, gender, age, sexual orientation and other factors. The significance of ESG here refers to how the diversity and equality of the workforce contributes to the achievement of sustainability goals. Striving to create a workplace culture where each and every employee feels valued and included.
Employee wellbeing and engagement
Establishing functioning and robust health and safety protocols to protect workers in the context of health and safety. Supporting health and safety at the company constitutes an integral part of the ESG strategy.
Programmes that support work-life balance, such as providing opportunities for flexible working hours and teleworking.
Offering programmes that support mental and physical health, such as the EAP (Employee Assistance Program). This category includes providing a company doctor, a psychologist, office massage and wellness programmes.
These measures not only increase employee satisfaction, but are also key indicators for ESG reporting.
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ESG-conscious HR processes
Fair compensation, i.e. providing fair and competitive salaries and benefits. The ESG rating takes into account how a company treats its employees, including the fairness of salaries and benefits.
Protecting employees' rights, including the right to unionise and collective bargaining. Use of ethical recruitment practices, ensuring equal opportunities and fair treatment.
Equal pay for men and women for equal work or work of equal value – Rules regarding pay transparency.
Under the ESG reporting obligation, pay transparency will be a key issue that all companies will have to report on from 2027 onwards.
ESG and pay transparency – Directive (EU) 2023/970
Equal pay for men and women for equal work or work of equal value – Rules regarding pay transparency
Directive (EU) 2023/970 of the European Union adopted on 17 May 2023 requires Member States to transpose the following rules into national law by 7 June 2026:
- respecting the principle of equal pay for men and women for equal work or work of equal value;
- prohibition of direct or indirect pay discrimination based on gender;
- pay transparency and improving the enforcement of the right to equal pay.
The Directive applies to employers in the public and private sectors and to all workers who have entered into an employment contract or employment relationship as defined by the law, collective agreements and/or practices effective in each Member State.
Reporting rules regarding pay transparency
- For companies with 100 or more employees, a new reporting obligation on the pay gap between male and female employees will be introduced. The difference in pay between male and female workers cannot exceed 5%. Pay must be disclosed in job advertisements.
- For companies with 150 or more employees, the first reporting deadline will be 7 June 2027. Thereafter, depending on the size of the company, the report will have to be prepared annually (250 or more employees) or every three years (150 to 249 employees).
- A longer transition period will apply to companies with 100 to 149 employees: the first report will have to be prepared by 7 June 2031, followed by reports every three years thereafter.
Training and development
Continuous learning – arranging training programmes to develop employee skills and support career development. During audits, ESG consultants focus on commitment to continuous learning and development.
Developing leadership skills – Creating programmes to develop future leaders within the organisation.
Community engagement
Volunteer programmes – encouraging and organising employee participation in community service and volunteering. Community engagement is an important part of the ESG strategy, and these efforts are reflected in the ESG report as well.
Implementing the ESG governance aspect in HR
Code of Business Ethics
Implementing a comprehensive code of conduct that all employees must follow. According to the principles of ESG governance, transparency and accountability are essential.
Anti-discrimination policies
Enforcing strict anti-discrimination policies in order to promote a fair workplace. ESG principles include open communication and providing opportunities for reporting so that employees can report any wrongdoings in an ethical manner.
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Transparency and reporting
Open communication is a fundamental element of ESG governance principles. Therefore, encouraging open and transparent communication between management and employees is critical. These processes are presented in detail in the ESG report.
Open communication – encouraging open and transparent communication between management and employees.
Opportunities for reporting – establishing clear reporting processes for employees to report wrongdoings or unethical behaviour without fear of retaliation (whistleblowing).
Management and accountability
Fostering diversity in a company's board and management teams not only creates equality, but is also an exceptionally important consideration for the ESG rating. The composition of the board and management is key to the successful achievement of ESG objectives.
Accountability of top management
Establishing structures that make management accountable for their actions and decisions, particularly with regard to ESG objectives. These accountability processes are clearly defined in the ESG report and form part of the overall corporate governance strategy.
The role of HR in achieving ESG objectives
HR plays a key role in achieving ESG objectives, contributing to a more sustainable, ethical and socially responsible and successful business. Reviewing corporate HR policies and processes to ensure their alignment with ESG principles ensures that sustainability and social responsibility are part of the company's day-to-day operations.
ESG reporting obligations require companies to continuously monitor and report on their ESG activities.
Promoting a culture of sustainability
Involving employees in ESG-conscious activities and initiatives is essential. It is crucial that employees are also aware of the company's core ESG objectives and the fact that they too are able to contribute to the success of sustainability and social responsibility.
