Why Legal and Company Secretarial functions must take the broad view of social ESG issues
PwC Legal’s second round of interactive livestream events on the environmental, social and governance (ESG) agenda continued with a discussion on the key issues under the social banner. This article presents a summary of the insights shared.
For legal and company secretariat leaders, one difficulty with the ESG debate is that simply complying with the law may not be enough to protect the business, or even to meet its own objectives and values. It is imperative, of course, that organisations understand their legal obligations and are ready to comply with all relevant regulation – but this alone may not satisfy all stakeholders or fully mitigate reputational risk.
This is true across the ESG agenda – many organisations will want to do more on carbon emissions than regulation requires, for example, or go further on governance arrangements – but the social aspect of ESG throws up several high-profile instances. The level of compliance required from a legal perspective may just be a starting point. Take these three examples:
- Picking the right path on pay
- Making the right choices on modern slavery
- Respecting employees’ beliefs
Picking the right path on pay
Clearly, any organisation that does not meet national minimum wage laws, say, or fails to offer holiday pay in the right way, will run into legal difficulties. But while there will be a risk of reputational damage for such companies, other pay-related issues also give rise to such danger, even in the absence of a legal or regulatory mis-step.
Take gender pay. All organisations in the UK with more than 250 employees now have to publish data showing how the average pay they offer men and women varies. Very often there is a significant gap in favour of men, who are more likely in most organisations to hold senior roles.
The existence of such a gap does not mean the employer has fallen foul of equal pay legislation, which requires organisations to pay men and women the same amount when they’re doing the same work. But for an employer that pays men, say, 30% more on average than women, having this in the public domain may nevertheless be uncomfortable. Employees – current and potential – may be unhappy, as may other stakeholder groups.
In which case, the legal work on gender pay – satisfying equal pay legislation and advising on a compliant gender pay declaration, for example – must go hand-in-hand with what other parts of the organisation are doing. When the employer makes other public disclosures about pay – in the annual report, say – do they deliver a consistent message? Is there a broader story to tell about how the organisation is tackling the gender pay gap – and is there evidence to show this is working?
Work on ethnicity pay gaps throws up similar questions. Though the UK Government has not yet made it mandatory for employers to publish data here, it has said it will do so – and growing numbers of organisations are now doing so. Indeed, in polling conducted during this livestream, 29% of respondents said they had at least started work on identifying ethnicity pay gaps.
The legal function may find itself asked to advise on whether employers should publish ethnicity pay data on a voluntary basis – and how to compile it. One argument for doing so is that it will help organisations identify where they have a problem so they can begin tackling it.
Making the right choices on modern slavery
Many employers in the UK have since 2015 been required to make public statements about the steps they take to deal with modern slavery risks in their businesses or their supply chains. But while the Home Office publishes some guidance on the principles such statements should take account of, there is very little mandatory regulation on what has to be included.
The danger here is that an overly legalistic approach to the regulation may mean the company’s work on modern slavery is style over substance. Their statement may be legally compliant, even where their work on actually mitigating modern slavery risk is relatively token.
It’s a danger akin to greenwashing in the environmental space. Any employer linked to labour market exploitation or abuse, even in the extended supply chain, is accountable in the abuse and can expect significant reputational damage.
Legal and CoSec functions are in a strong position to help here. In their role advising the business on the legal requirements, they also have an opportunity to raise awareness of good practice and potential red flags – to push for an approach to modern slavery that helps to tackle it.
Respecting employees’ beliefs
With employees – particularly younger members of staff – increasingly determined not to leave their values, principles and beliefs at home when they head to the office, employers increasingly face some difficult judgements. When does it become a problem accommodating people’s views with the needs of the organisation?
In fact, the law already protects employees with certain philosophical beliefs; the position on which beliefs might qualify for such protection is nuanced, but there is plenty of scope for dispute. In one recent case, the courts accepted that veganism could be a protected belief; in which case, could a supermarket ask a vegan member of staff to work on its meat counter? Similarly, if an employee argues their strong view in the need to confront climate change constitutes a belief, could an employer ask them to fly to an overseas business meeting?
Here again, there is the potential for both legal and reputational difficulties. Even where employers decide the law is on their side, it may make little sense to risk a confrontation with staff – let alone one that prompts a public controversy.
How, then, to prioritise work in these areas? Well, complying with legal and regulatory requirements clearly needs to be the first step. Equally, the next stage might be to focus on mandatory requirements coming down the line; for legal and CoSec functions, smart horizon scanning will ensure the function is prepared to deal with what policies get introduced.
However, it will also be increasingly important for legal and CoSec to spend time with other functions across the organisation thinking about the most important social aspects of ESG, both legally and more broadly. This will vary by organisation, according to factors such as the nature of the business and who it employs. But the key is to make the effort to look at potentially relevant social themes through as many different stakeholder lenses as possible.
Don’t overlook the importance of this work. People are increasingly keen for businesses and other organisations to focus on this work. In a labour market that has never been so competitive, getting the S of ESG right in the broadest sense could prove crucial for recruitment. And it is what customers want too.
Our thanks to our panellists in this livestream session: Ed Stacey, PwC Partner and head of the Diversity & Inclusion practice, Polly Myles Senior Manager in PwC’s Disputes team, and Anna Wallace, Partner at Hanbury Strategy
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