In today's rapidly changing world, businesses are under more scrutiny than ever before. It's not just about the bottom line anymore; companies are increasingly being judged on their environmental and social impact. In response to this shift, the European Union (EU) has introduced the Corporate Sustainability Reporting Directive (CSRD), a game-changer that will transform how businesses report their sustainability efforts. But what does this mean for Human Resources (HR) professionals? Let's break it down in plain language.
What's the CSRD all about?
The CSRD is the EU's answer to the growing demand for transparency and accountability in sustainability reporting. It's designed to make sure that companies provide clear, consistent, and reliable information about their environmental, social, and governance (ESG) efforts. Think of it as a way to separate the real eco-champions from the greenwashers.
Read more about CSRD and HR.
One key principle at the heart of the CSRD is "double materiality." This requires companies to examine sustainability from two angles: first, by assessing its financial impact, and second, by scrutinising how the company itself affects sustainability concerns.
One of the CSRD's main goals is to put an end to greenwashing, where companies paint a misleading picture of their sustainability efforts. To achieve this, the CSRD introduces tougher reporting standards and third-party audits to ensure accuracy and trustworthiness. This is a response to the demand from consumers and investors for reliable sustainability information. In short, the CSRD aims to rebuild trust and empower stakeholders to make informed choices.
The CSRD will align with existing sustainability frameworks like the Task Force on Climate-related Financial Disclosures (TCFD) and the Sustainable Development Goals (SDGs). Its aim? To establish a unified global approach to sustainability reporting
Why should HR care?
HR plays a crucial role in this new era of reporting. After all, they are the guardians of an organisation's human capital and culture. With the CSRD in play, HR professionals have a unique opportunity to contribute to a workforce that thrives within a company committed to broader societal and environmental goals.
As well as having sections of the directive that will directly apply to HR data (see below), HR will play a pivotal role in the operational changes the CSRD will bring. For many companies, implementing the CSRD means a fundamental shift in reporting and operations. New systems, routines, and internal controls are essential to meet these new sustainability reporting demands. While the transition may be challenging, it's also a chance for HR teams to drive organisational changes that promote transparency and responsibility.
A closer look at the CSRD
The CSRD consists of 12 European Sustainability Reporting Standards (ESRS), covering environmental, social, and governance aspects. Two of these standards apply universally, while the others focus on specific topics. These standards will make reporting more consistent and transparent. Plus, sustainability information will need to be submitted in a standardised digital format, making data verification and comparison easier.
The CSRD applies to companies meeting any two of these three conditions:
- Net turnover of €40 million or equivalent.
- Total assets of €20 million or equivalent.
- Workforce consisting of 250 or more employees.
Non-EU companies with a turnover exceeding €150 million in the EU are also required to comply. So, it's not just limited to EU-based businesses.
The CSRD rollout will happen in stages:
- Companies listed with over 500 employees: Start reporting in 2025 for the financial year 2024.
- Other large businesses: Begin reporting in 2026 for the financial year 2025.
- Listed small and medium-sized businesses: Initiate reporting in 2027 for the financial year 2026.
Where HR fits In
While finance departments will have overall responsibility for CSRD reporting and auditing, HR will have a crucial role to play. IT departments will also be vital in managing data flows and integration. This is a team effort involving all areas of the company, from HR to supply chain, risk management, PR, finance, marketing, and operations.
Within the CSRD framework, HR will find itself directly involved in the Social and Governance dimensions:
Social dimension: “Own workforce” addresses:
- Working conditions,
- Equal opportunities, non-discrimination,
- Other work-related rights.
HR plays a central role in ensuring optimal working conditions, promoting diversity, equity, and inclusion, and safeguarding employee rights.
Governance dimension: “Business Conduct” addresses:
- Corporate culture and business conduct
- Management of supplier relationships with suppliers
- Prevention of corruption and bribery
HR actively supports the company's efforts to uphold ethical standards through policies, training, and integrity-focused practices.
Getting started with CSRD
With the introduction of CSRD, the need for digital systems to manage operations efficiently becomes more critical. Digital systems offer numerous advantages, such as enhancing efficiency by automating manual processes, ensuring data integrity, scaling to accommodate growth, and providing real-time transparency.
To effectively manage your CSRD program, it's imperative to establish seamless data flow and integrations between various systems, including HR workforce data from Human Capital Management (HCM) systems, financial data, and sustainability metrics.
Integrating a dedicated HCM system into your CSRD reporting framework is a game-changer. Your HCM system becomes the backbone for collecting and managing crucial workforce data, from diversity statistics to employee engagement and talent development. This integration empowers you to easily access and analyse this vital information, promoting transparency and accountability in your CSRD initiatives.
Your HCM system becomes a central hub, enabling you to monitor progress, pinpoint areas for improvement, and showcase your commitment to advancing diversity, equity, and social responsibility. When selecting an HCM system, consider factors like scalability, integration capabilities, and user-friendliness to make the most of this pivotal tool in your CSRD journey.
The CSRD is ushering in a new era of sustainability reporting, and HR professionals have a pivotal role to play in this transformative era. By actively engaging with the CSRD, HR professionals can help their organisations thrive in a world where sustainability and transparency are no longer optional but essential for success. By embracing this change, HR can contribute to building organisations that are not only financially sound but also socially and environmentally responsible. It's an opportunity to shape a better future for businesses and society as a whole.
Read more about the data requirements for CSRD.