Social sustainability and pay gaps – reflections from company meetings

In mid-March we attended several conferences and met with companies within various sectors. As always, the aim of investor meetings is to deepen our knowledge of companies, when it comes to their mission, strategy, ambitions, and guidance. A possibility to ask the small and big questions, the “whys” and understand the “hows”.

Investor meetings are also a great platform for engagement with top management. We decided to take this opportunity to talk about diversity, inclusion, and equity (D&I E), with a focus on pay gaps and strategies to reach neutrality. Not only are these topical questions for equality and deeper ESG analysis but also issues to report in PAI (Principle Adverse Impact) reporting. PAI reporting will be mandatory for the investor community from June 2023 by the latest, however available data is scarce. For companies these will be compulsory when the new CSRD reporting standard is live from 2024 onwards.

There was quite a big dispersion in answers between companies and geographies, with the Nordic companies leading the pack. Approximately 50% all companies we met were quite advanced with processes in place and work being done, but for some, questions on D&I E policies and pay-gaps was clearly a newer topic. These are the moments when you feel that investor questions and engagement really make a difference.

For a company it all of course starts from strategy and culture and is really a matter of walking the talk. Data collection and transparency with reporting is important in order to be able to have measurable means to improve. This we have already seen with for example CO2-data. Step one is data collection followed by setting the baseline, defining a strategy, milestones, and timelines to be reached.

When it comes to equality it’s not only a matter of percentage of female/male representation in top management and boards anymore, this seems to be clear. We were pleased to see strategies for more diverse representation in place thanks to talent management and equality strategies as well as a lot of discussions around gender, religion, nationalities, and sexual orientation. Several reported that external resources are being used to help form D&I E-policies and strategies, not the least to help with reporting.

What wasn’t as clear for many companies was the pay gaps and the strategies to bring them closer to neutrality. A lot of data is being collected and strategies to collect data is emerging, however due to different payroll related legislation data collection seems to be trickier than what was first thought. A clear window of opportunity for consultants and payroll providers if you ask us.

Several companies said that data collection is under work and baselines are being set. One company, that is quite in the front line with this, had done a thorough study to compare pay differences between similar positions in a company with 50/50 representation in line managers, top management, and the board. The differences were too big to fix quickly, but now a 3-year plan for narrowing the gap is put in place and monitored. Some companies also mentioned certifications on equal pay (in countries where you can be certified).

Countries like the US and UK already today require companies to publish gender pay gap data. These requirements, however, focus on aggregate pay differences based on gender, but not head-to-head comparisons based on actual work done. Under the EU CSRD reporting standard a lot more granularity around gender pay gaps will need to be reported, proven, and assured. This is great news for all stakeholders.

We continue our dialogue with companies and the engagement in order to receive better reporting and transparency, hopefully sooner than later. 

Janna Haahtela, Portfolio Manager
Marcus Björkstén, Portfolio Manager

Markus Larsson, Portfolio Manager

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