The missing "S" in ESG: How pay equity transparency impacts your bottom line

Jun 29, 2025By Equality Pays
Equality Pays
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The missing "S" in ESG: How pay equity transparency impacts your bottom line

When we talk about ESG, the spotlight often falls on environmentla issues like carbon footprints and renewable energy—the "E." Governance—the "G"—gets its fair share of attention, too. But what about the "S"? Social governance, particularly pay equity and workforce transparency, remains the most underrated yet financially material pillar of ESG. 

And investors are starting to notice. 

In 2023, 83% of Limited Partners (LPs) said they would withhold capital from private equity firms that couldn’t demonstrate progress on pay equity and diversity. 

Why? 

Because the "S" isn’t just about ethics—it’s a financial imperative. 


Why the "S" gap is costing you money 


1. Investors vote with their wallets. In May 2023, Unilever secured a £1.2bn sustainability-linked loan from HSBC—with interest rates tied directly to its progress on gender pay equity and workforce diversity. The message was clear: strong "S" metrics = easier access to capital. 

On the flip side, Boohoo’s market value plummeted by £1bn after investors discovered labour violations in its supply chain. The fallout wasn’t just reputational—it was financial. 

2. The pay gap penalty is real.  A 2023 study by the UK Office for National Statistics (ONS) found that companies with unchecked gender pay gaps faced 30% higher turnover costs due to attrition and recruitment. Meanwhile, private equity firms that ignored "S" due diligence saw 1.2x lower exit multiples compared to peers with audited pay equity reports. 

3. Regulation is closing in. The EU Pay Transparency Directive (2024) will now impose fines of up to 2% of global revenue for non-compliance with the new legislation. And in the UK, the Financial Conduct Authority (FCA) requires LPs to disclose portfolio-wide pay equity metrics under the Stewardship Code. 

Ignoring the "S" isn’t just risky—it’s expensive. 


How to fix it (before it’s too late) 


1. Audit your pay gaps—properly. Don’t just report numbers. Benchmark against peers, identify root causes (e.g., promotion disparities in tech roles), and set public reduction targets. Tool to try: The Gender Pay Gap Dashboard lets you compare your data against industry averages. 

2. Tie executive pay to "S" metrics.  AstraZeneca now links 15% of executive bonuses to ESG-S targets, including pay equity—a move that helped them secure a higher ESG rating from MSCI.

3. Make "S" a selling point for investors.  PE firm Hg Capital achieved 1.8x higher exit multiples for portfolio companies with audited ESG-S reports. Their secret? Proactive "S" due diligence before going to market. 

The bottom line The "S" in ESG isn’t a nice-to-have—it’s a financial lever. Firms that address pay equity issues don’t just avoid penalties; they unlock cheaper capital, higher valuations, and investor trust. 

Ready to turn your "S" into a competitive advantage? Book a 30-minute consultation call to discuss how we can help you audit, benchmark, and leverage your social governance data. 

P.S. Want our free "ESG-S Exit Readiness Checklist"? You can download it here.