On January 5, 2023, the EU’s Corporate Sustainability Reporting Directive (CSRD) came into force, replacing the EU’s 2014 Non-Financial Reporting Directive (NFRD). In this article we explore the latest ESG developments and their impact on pay transparency. Closing the gender pay gap is a key component of the CSRD.
Potential ESG impact on non-EU employers
More than 50,000 European organizations in EU member states must comply with CSRD requirements, but the directive also applies to foreign companies.
A study in the Wall Street Journal found that an additional 10,000 non-EU companies are affected by ESG developments. Of those companies, 31 percent are American (approximately 3,000), 13 percent are Canadian, and 11 percent are British.
Large EU organizations that meet any two of the following criteria, will be required to comply with CSRD requirements:
- Those with more than 250 EU-based employees
- Local revenue of more than €40 million
- Total assets of more than €20 million
Other companies required to comply include:
- Organizations with annual EU revenue of more than €150 million (about $163 million), and an EU branch with net revenue of over €40 million
- Companies with securities listed on an EU-regulated market
EU requirements are likely to be more demanding than US Securities and Exchange Commission (SEC) rules. The SEC currently requires all public companies to disclose information that may be material to investors.
What is the ESG impact on equal pay?
S in ESG relates to the social aspect of sustainable investment, which includes workplace equality and pay equity.
Equal pay is highlighted in the CSRD which states that standards must be developed to ensure “equal treatment and opportunities for all, including gender equality and equal pay for work of equal value, training and skills development, the employment and inclusion of people with disabilities, measures against violence and harassment in the workplace, and diversity.”
In addition, it states:
“sustainability reporting standards that address gender equality and equal pay for work of equal value should specify, amongst other things, information to be reported about the gender pay gap, taking account of other relevant Union law.”
Employers must also specify “gender diversity at top management and the number of members of the under-represented sex on their boards,” while ensuring the implementation of gender diversity policies.
While not specified, it is probable that “other relevant Union law” refers to the Pay Transparency Directive.
CSRD and the EU Pay Transparency Directive
The EU Pay Transparency Directive complements the requirements of the CSRD. Both directives are committed to goals of pay transparency and wage equality, key components of the EU Gender Equality Strategy. Key elements of the Pay Transparency Directive include the following:
- Companies must provide information about the pay level of their job listings prior to interview. The directive also imposes a salary history ban.
- Employees must be allowed to access criteria used to define salary and pay raises. They can also request information on individual and average pay levels, categorized by gender, for workers doing the same work or work of equal value.
- Where an unjustified gender pay gap of 5% or more exists, employers are required to carry out a Joint Pay Assessment (JPA) in cooperation with workers’ representatives.
- The burden of proof in cases of alleged pay discrimination is on the employer. If pay discrimination is proven, employees are entitled to compensation including full recovery of back pay and bonuses. Compensation is uncapped.
First reports under the EU Pay Transparency Act are due by June 7th, 2026.
ESG developments: Reporting dates
The WSJ highlights the following CSRD reporting requirements:
- Foreign companies with EU listings must begin reporting in 2025 if they have more than 500 employees in the EU.
- CSRD rules come into effect in 2026 for other large non-EU companies with EU listings.
- Small and midsize organizations are required to comply in 2027.
- Foreign companies not listed in the EU but subject to other criteria have until 2029 to make disclosures.
- Businesses based in the EU that reported under previous sustainability rules must follow the new requirements from 2025.
ESG impact on Ireland and UK employers
Irish employers, like all 27 EU member states, must comply with the CSRD and the EU’s Pay Transparency Directive. Ireland implemented mandatory gender pay gap reporting in 2022 that largely complies with the EU Directive, however, more comprehensive pay data reporting will be required relating to categories of worker. In addition, where a gender pay gap of over 5 percent cannot be justified on a gender-neutral basis, a joint pay assessment or JPA must be carried out.
Latest efforts to close the UK’s gender pay gap include voluntary ethnicity pay gap reporting, but progress is stagnating. More recently the UK government announced that pay transparency is now the responsibility of its Inclusion at Work Panel. Two major obstacles to UK transparency are the lack of legislation, and cultural workplace norms in the private sector.
UK employers are among the 10,000 non-EU companies affected by ESG developments.
The benefits of ESG developments
Focusing on “S” in ESG can have a positive impact on brand reputation and financial performance. Almost half of investors consider the social component of ESG the most important in their decision-making. Sustainability is important to talent retention too; nearly half of all employees have left their jobs as a result of “ethical or sustainability concerns.”
Complying with the CSRD and EU Pay Transparency Directive
On June 6th, the European Commission opened a four-week period for public feedback on a first set of sustainability reporting standards.
With the EU’s unequivocal commitment to closing the gender pay gap, we encourage employers to prepare now to comply with the CSRD and the Pay Transparency Directive.
Carrying out an intersectional pay equity audit is the only way to understand pay disparities in your compensation structure. Intersectionality is one of the key differentiators for Trusaic’s PayParity pay equity audit software. PayParity can analyze compensation through the intersection of gender, race/ethnicity, age, and disability in a single statistical regression analysis, It pinpoints the root causes of inequitable pay, not just the symptoms.
Trusaic is GDPR compliant and can assist any organization in meeting its obligations under both the EU’s CSRD and Pay Transparency Directive.
Talk to one of our pay equity experts today.
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