Board Diversity, Modern Slavery And Pay Parity: The Social Disclosure Trifecta

Board Diversity, Modern Slavery And Pay Parity: The Social Disclosure Trifecta

Though the S in ESG – social – has a lot of emotional appeal, firms have so far been unable to translate that into commercial impetus. This paradox is largely due to the lack of tangibility and quantifiability of social aspects, their cross-cutting and confusing nature, and the lack of a coherent framework to navigate the broad ambit of social regulations (see Placing The ‘S’ Firmly At The Heart Of ESG).

The recent Verdantix report, Strategic Focus: Unpacking The S In ESG Regulations, provides an overview of the S in ESG as a concept, as well as in regulations and disclosures. One of our key findings is that, despite differences across jurisdictions in the way regulations inform and enforce social disclosures, there are several recurring themes and notable jurisdictional developments related to them:

• Board diversity: Provisions for disclosing diversity at the board level exist as part of social regulations as well as governance regulations. In November 2022, the EU adopted the Women on Boards Directive, which aims to introduce transparent recruitment procedures in organizations, so that at least 40% of non-executive director posts – or 33% of all director posts – are occupied by women. The US Securities and Exchange Commission (SEC) has a Corporate Board Diversity Rule as part of its regulatory agenda for 2023. The Financial Conduct Authority (FCA) in the UK has also confirmed its intent to require firms to report information and disclose against targets on the representation of women and ethnic minorities on their boards and executive management teams.
• Modern slavery: Amongst all relevant human rights disclosures, modern slavery disclosures have garnered the most regulatory attention. In the UK, the Modern Slavery Act 2015 requires certain organizations to produce a slavery and human trafficking statement each year, setting out the steps they have taken to ensure modern slavery is not taking place in their business or supply chains. In May 2023, Canada also adopted legislation targeting modern slavery across supply chains, requiring firms to disclose measures to prevent and address violations linked to any step of the production, distribution, and import of goods within and into Canada.
• Pay parity transparency: Within social disclosures, pay parity transparency, especially with respect to gender, is rising in prominence. The EU Council has adopted new rules for pay transparency, under the Pay Transparency Directive, with certain EU firms required to share information about how much they pay men and women for work of equal value and to act if the gender pay gap is greater than 5%. Australia, France, South Africa, Spain, Sweden and the UK all also have country-level provisions for disclosures around pay parity.

The C-Suite and sustainability executives should use these touchpoints to underpin effective social strategy for progress in terms of social impact and performance. At Verdantix, we will continue to monitor the evolving regulatory environment for social disclosures. If you’re interested in understanding this regulatory landscape further, see Strategic Focus: Unpacking The S In ESG Regulations.