The “S” in ESG: Navigating the Considerations vis-à-vis Working Hours

Introduction

The present employment law regime in India sets out laws that are viewed as socially beneficial statutes enacted with the objective of ensuring social welfare, offering equitable opportunities and fair treatment to employees, safeguarding their interests, and ensuring overall security and well-being of an organisation’s workforce. That said, the law sets out certain minimum standards for employers to devise and implement practices that are sustainable and adopt a conducive environment for businesses to thrive. These compliance requirements include daily and weekly working hours, leave and holiday entitlements, overtime limits, occupational health and safety measures, payment of minimum wages, end-of-service benefits, social security contributions, amongst others.

Over the years, especially since the COVID-19 Pandemic, employers have begun to realise that, for a corporate establishment’s growth, it must be committed to societal welfare, ethical practices and sustainable progress, which can be achieved by going beyond the realms of what is statutorily mandated and legally regulated. Moreover, in recent times, where digitisation is at its peak and the workforce is relentlessly catering to the evolving work environment, “right to disconnect” is another concept which is gaining traction. It enables an employee to disengage from work-related communications outside of working hours, aiming to achieve a healthier work-life integration. In view of the rising concerns around workplace stress and mental health issues in India, it is safe to emphasise that formalising such right in India and taking appropriate steps to implement it effectively would enhance overall employee well-being in workplaces, besides ensuring high level of output from them. As such, this has led employers to consider going the extra mile and adopting various measures that are over and above the minimum compliance standards, from a workforce retention, employee welfare, as well as environmental, social, and governance (ESG) standpoint.

Against this backdrop, the need to examine the “social” aspect of ESG assumes all the more relevance.

Decoding the “S” in ESG

The “S” in ESG represents the social aspect, which inter alia pertains to an organisation’s relationship with its workforce, including employee engagement, employee welfare and well-being, wage equality, diversity, equity and inclusion, health, safety and working conditions at workplace, human rights, labour and employment practices, development of workforce, etc. These aspects have a significant impact on an organisation’s holistic growth.

The Securities and Exchange Board of India (SEBI) by way of a Circular dated 10-5-2021¹, set out business responsibility and sustainability reporting requirements, currently mandatory for the top 1000 listed companies in India. By way of a Circular dated 12-7-2023², SEBI introduced a revised and updated reporting format. Such reporting requirements provide for disclosures inter alia pertaining to measures undertaken for ensuring employee well-being and maintaining a safe and healthy workplace.

It is becoming increasingly common for investors and banks to review organisations’ ESG compliance status prior to making investments or lending of loans, from a business and commercial perspective and hence, it has become imperative for companies to align their strategies and practices with the stipulated ESG standards. Incorporating internationally acceptable working conditions and integrating them with ESG metrics is not merely a matter of compliance but a strategic choice that reflects a company’s commitment to social responsibility.

Indian legal regime governing working days and hours

The current Indian labour law regime governs work schedules and provides for employers to comply with requirements inter alia concerning daily and weekly limits on working hours, rest intervals, weekly off, overtime payment requirements, and limits on the quantum of overtime hours an employee may be required to work in a specified period.

The State specific the Shops and Establishments Act (S&E) Acts also prescribe various categories of leaves such as earned/privilege leave, sick leave and casual leave, including provisions for maximum accumulation of unused earned leaves (with exception in few States which additionally allow accumulation of sick leaves, such as West Bengal) or carry forward of unused earned leaves to the next year. The Factories Act, 1948³ also prescribes earned leave and a carry forward limit in relation to the same. Apart from the prescribed leave entitlements, an employer is required to provide certain national and/or festival holidays to its employees in a particular year. As such, employers are required to be mindful while formulating and implementing their policy in this regard and ensuring compliance with the applicable laws.

Going beyond the legal limitations

Initiatives adopted by employers to rise above the baseline statutory compliance standards would not only help companies in achieving their ESG goals, but also enable them to demonstrate strong leadership and resilience, besides aiding increased productivity, better performance, innovation and inculcating a sense of job fulfilment amongst the workforce.

A report⁴ recently prepared by International Labour Organisation (ILO) states that approximately one third of the global workforce worked more than 48 hours per week in 2019. The report inter alia highlights that, “There is a substantial amount of evidence that work-life balance policies provide significant benefits to enterprises, supporting the argument that such policies are a ‘win-win’ for both employers and employees.”

We have discussed few ways in which employers are enhancing the well-being of their employees.

Hybrid working policies and flexible working hours

The COVID-19 Pandemic brought about a complete overhaul in the traditional notion of “workspace”. Although many organisations now require employees to report to work physically, several organisations have positively embraced the concept of “remote working” and “hybrid working”. Flexi-time policies, allowing employees to work remotely for a certain period or adjust their work timings as per suitability (subject to approval from their respective managers) are introduced by organisations to help them in cases of personal exigencies such as caregiving or attending to medical needs.

Overtime practices

While Indian employment laws set out daily and weekly working hour limits and also require overtime payment to be made to eligible employees for any work done beyond the prescribed number of working hours, a continued practice of requiring employees to work for exceedingly long hours may not be sustainable for employees and the employer in the long run. The existence of upper limits on permissible overtime hours and compensation made in lieu thereof should not warrant unnecessary exploitation of the same by the employers.

Different kinds of leaves

To break the traditional norms and to promote inclusivity, several Indian organisations have taken steps to offer paternity leave to its employees. More recently, organisations are extending adoption leave⁵ to same-sex partners and leave on account of gender reassignment surgeries⁶ for its employees. Several industry players in India are now extending benefits including menstrual leaves⁷ for their employees and implementing various measures for employee wellness in their employment practices and internal protocols.

As such, organisations are considering implementation of various kinds of wellness leave (such as leave on account of menstruation or menopause, gender reassignment, switch off days to avoid burnout, leave to look after one’s mental health, etc.). However, incorporating such leaves in employment policies would not be sufficient, unless employers ensure its active implementation in spirit.

Ensuring implementation of good practices

To ensure implementation of good practices and well-being of its employees, organisations can consider linking executive compensation to achievement of sustainable goals in terms of employee engagement. To measure and evaluate this, organisations can set out suitable key performance indicators for managers to ensure that they appropriately regulate the hours worked by their team members periodically. Certain organisations also organise periodic employee engagement surveys to assess employee satisfaction, etc. Organisations can also ensure that mandatory employee trainings/workshops are devised in an innovative manner (including interactive sessions, quizzes, courses with levels and incentives) so as to engage employees and enhance their learning and development. Organisations may also consider conducting comprehensive due diligence or audits from an ESG perspective, which would involve identification of gaps and goal-setting to achieve a reasonable standard of compliance. Organisations may then prepare and implement a rectification plan and work towards becoming a sustainable and ESG compliant employer.

Concluding remarks

An organisation’s most important and valued assets are its people. Employees’ collective abilities, efforts, knowledge and experience are instrumental in the growth and success of an organisation. As we move forward, employers may bear in mind the contribution that their employees bring to the table and accordingly take necessary steps to ensure their well-being. Employers’ efforts to invest in their workforce are likely to be beneficial for them in the long run, to build an efficient and productive team that is dedicated and inclined to achieve the organisation’s vision and mission.