The European Union (EU) has rolled out the Corporate Sustainability Reporting Directive (CSRD), a game-changing move that will shake up how businesses talk about and report on their sustainability efforts.
The CSRD includes 12 European Sustainability Reporting Standards (ESRS), that break up sustainability into three areas – environmental, social, and governance (ESG). Companies must carry out materiality assessments on which standards apply to them and report on these on an annual basis.
Each standard comes with its own set of reporting requirements with varying numbers of metrics and data points. Across the directive there are over 80 reporting requirements which equal to over 1100 data points.
But what does this all mean for HR?
HR come into play most notably within the areas of social and governance – with regards to the workforce in a company's sustainability efforts. The ESRS S1 in the social section and the ESRS G1 in the governance section are both likely to be standards that HR teams will be responsible for.
Read more about what CSRD means for HR.
In this blogpost we will look at the data requirements of these two standards, and how HR teams can get started and succeed in delivering on them.
Decoding ESRS S1: "Own workforce"
This standard is like a close-up look at how committed a company is to create a great place to work. It shows how the company manages different kinds of people working together and makes sure everyone gets paid fairly and is happy and healthy. Along with the standard called ESRS 2 "General Disclosures," it asks companies to describe their plans for being sustainable and how these plans fit in with the everyday running of the business, especially when it comes to the employees.
The ESRS S1 lists 17 specific disclosures that provide insight into who works for them, how the company's work affects the employees, and what steps the company takes to look after their employees and make the most of their abilities.
The standard requires the following information:
Policies for workforce: companies must share internal policies addressing human rights commitments, diversity, and inclusivity goals. This includes explaining strategies to stop discrimination and promote a diverse working environment.
Engagement with workers: companies must detail their engagement with employees regarding how being sustainable impacts them. It underscores the importance of considering worker perspectives in decision-making processes.
Remediation and concerns: organisations must describe how they deal with workforce grievances. This includes channels for employees to report concerns and the procedures in place to address and remediate them.
Action on impacts and risks: companies must describe their approach to managing both positive and negative workforce impacts, including strategies to reduce risks and maximise opportunities.
Targets for impacts, risks, and opportunities: companies must make and share clear goals that they want to reach within a certain period, relating to the workforce's well-being. This should include measures to enhance positive impacts and mitigate negative ones.
Workforce characteristics: detailed information about workers, like the type of work they do and demographics to provide a clear picture of who makes up the company's human capital.
Diversity indicators: companies must report on gender distribution within management and the broader workforce age profile, providing insights into the organisation's diversity.
Wages and social protection: companies must share information on wages and social protection measures to demonstrate that they follow fair wage standards and ensure that workers get the social protection they need for significant life events.
Training and skills development: companies must show the extent of training and professional development opportunities provided to employees.
Health and safety indicators: this includes information about systems for keeping workers safe and healthy and the metrics related to work-related injuries and illnesses.
Work-life balance indicators: companies should show how they support employees with family-related leave, breaking down the data by gender to provide insights into work-life balance initiatives.
Compensation indicators: this involves reporting on pay differences and ratios to demonstrate the company's stance on fair compensation.
Incidents and human rights impacts: any incidents, complaints, or significant human rights impacts within the workforce must be shared to show transparency in the company's operational ethics and integrity.
Decoding ESRS G1: "Business Conduct"
This standard focuses on the governance of corporate ethics and culture. It looks at an organisation's commitment to ethical business conduct. This includes how the company explains its core values, its plans to create and check on a good work culture, and the ways it handles any risks that come from the way it does business.
This standard is pivotal for HR, as it directly correlates with what the employees think about the company's values and how they show these values in their work.
The standard requires the following information:
Corporate culture strategy and implementation: the company must describe its strategy to create a positive work culture, and how it assesses and evaluates how successful these strategies are.
Business conduct policies: the company must share the processes it has in place for identifying, reporting, and investigating issues that breach its code of conduct or legal obligations. It also covers training strategies to ensure understanding and compliance with business conduct policies across the organisation.
Culture discussion and promotion: this section requires companies to disclose how often and what topics are discussed concerning corporate culture within the different levels of management. It includes the methods used to promote and communicate business conduct values throughout the organisation.
Embracing digital transformation for CSRD success
The arrival of the CSRD highlights the need for robust digital systems that can streamline data collection, ensure data integrity, and facilitate comprehensive reporting. The urgency for digital transformation is driven by the sheer scale of the data that will be required by the CSRD, and the fact that it will be data that companies must provide on an annual basis.
To be compliant, companies will have to get their data in order – and this means they will need reliable digital systems. These systems will help them to:
- Be more efficient – through automating processes and reducing errors and increasing the speed at which things are done.
- Have better data integrity – this will provide a solid start to the complex CSRD reporting.
- Have scalability – so that when the organisation grows data management is easier to handle.
- Have greater internal transparency – they will enjoy visualised data with real time insights – helping them to make more informed decisions.
Integrating HR data from a Human Capital Management (HCM) system, with financial figures, and sustainability metrics will be imperative for a holistic overview and efficient reporting. Companies that proactively adopt digital systems for CSRD compliance will be better placed to navigate the rapidly changing expectations of stakeholders and regulatory landscapes.
Launching your CSRD journey
To kickstart your CSRD activities, assess your HR requirements, select the right digital tools, map your data sources, and integrate your systems. Start with basic data collection and reporting and iterate over time to refine your processes. By doing so, you are not just complying with the present standards but also safeguarding your company for a sustainable and responsible future.
The CSRD is reshaping the business approach to sustainability reporting, with huge implications for HR. The directive requires detailed disclosure on a myriad of workforce-related aspects, from diversity to compensation and from health and safety to corporate culture. As HR practitioners navigate these requirements, they will be instrumental in steering their organisations towards a transparent, accountable, and sustainable future.
Also read the blog post: "Sustainability and the new CSRD: What does it mean for HR departments?"