Implementing CSRD is only effective if built around people
The regulatory requirement for non-financial reporting obliges companies to report impacts on environment, social and governance aspects as of 2024. PwC research has shown that 87% of investors are afraid of fake pro-environmental activities in corporate reports. This may be correlated with the fact that 69.9% of Polish companies are still not ready for it, according to a survey conducted by PwC Poland in October 2023.
If you want to have a good quality report, you need to take action today
Only 26% of companies have started collecting data at all, and as many as 57% of businesses don’t even know what data they should collect. Under the new Corporate Sustainability Reporting Directive (CSRD), sustainability data will have to be externally verified and – in the future – even meet the same standards as financial data. Experts say that the entire process of preparing for non-financial reporting can take up from 18 to 24 months – to and requires hard work on identifying and obtaining appropriate data and creating new risk management processes.
We all need international standards because sustainable development issues are global and even if a company operates on the local market, it touches regulations related to sustainable development through its supply chains or end-consumers. The sustainability reporting process requires organisations to mobilise financial and human resources to meet the ambitions of internationally recognised high-quality standards. The right conditions should be created, in particular through the management system and organisational model, which favour interactive cooperation at both the operational and decision-making levels in the organisation. To make this possible and to support a business’s success in meeting its sustainability goals, the organisation needs to cooperate with its people in this respect.
The biggest challenge in ESG is the involvement of people. If this happens, the non-financial report will reflect real activities for sustainable development.
The area of social impact includes the company’s impact on its own workforce, employees in the value chain, local communities and consumers and end users. The scope and detail of reporting requirements for individual groups vary. Focus is given on privacy rights and consumer safety, as well as on social, economic and political human rights relating to local communities. But the broadest and most detailed requirements are regarding employees – both in our organisation and throughout the whole value chain.
The own workforce in particular should be the subject of special attention, for two reasons:
- Reporting requirements regarding workforce are the most extensive – touching on issues such as employment conditions, remuneration and employee safety, equal and non-discriminatory treatment, diversity and dialogue with employees.
- The CSRD Directive takes a broad approach to defining the workforce, which includes self-employed or people engaged through temporary employment agencies, as well as full-time employees. In many aspects, these groups are treated uniformly; this may mean, on the one hand, the need to take them into account as part of policies or procedures being developed for ESG purposes. On the other hand, careful consideration should be given to avoid exposure to legal or tax risks related to the functioning of these forms of employment, when meeting CSRD requirements.
Formal and informal processes need to be reviewed
The disclosure of social and human rights-related information in the area of, for example, equal treatment, working conditions or respect for human rights requires a review of whether currently existing policies and procedures adequately address the requirement to introduce a due diligence system. Therefore, it potentially requires analysing the basic regulations that most organisations have, such as work regulations, training policies and human rights policies. This also means the need for processes that are not always formalised in organisations, such as annual evaluation processes, employee engagement procedures (social dialogue) or equality and anti-discrimination policies. Finally, certain procedures may not yet exist, in particular processes related to preventing negative impacts or reporting irregularities related to impacts on communities or consumers.
Remuneration transparency and equal pay: a key area of ESG social policies
An extremely important issue, regulated not only under the CSRD, but also in a dedicated directive and some sector regulations, will be the issue of equal pay and transparency of pay. We recommend paying special attention to this topic not only for regulatory reasons, but primarily from the perspective of its significant impact on employee inclusion, motivation and retention.
What can an organisation do to become a leader in social aspects of ESG?
To wrap up, reporting related to CSRD is a challenge and a burden for many organisations; appropriate focus and resources should be allocated to fulfil it. However, the angle the business should focus on is not so much ‘how to report’, but ‘what do I report’, and ‘what do I say to the public about myself’. Qualitative and relevant actions should be made by any organisation that wants to be recognised as a true value-driver, so the first step should be to review your ESG, DE&I (diversity, equity and inclusivity) and HR strategy. Review the development, governance and implementation of your people strategy to ensure that it is robust and appropriate for your organisation and it addresses your real needs. Do not be afraid to identify and address potential negative impacts that you may have on different stakeholders, it is always better to do it sooner than too late.
Consideration should be given also to the role of HR as a support to the execution of the whole ESG strategy of the organisation. Regardless of whether we are talking about environmental impact or governance aspects, at the end of the day it is the people who are responsible for creating, planning and executing strategy in all ESG aspects. Therefore the key role of HR is to diagnose and stimulate employee’s attitudes supporting the business’s efforts in the area of sustainability.
It is crucial to understand that people are the drivers of ESG area in the organisation. The implementation of goals resulting from sustainability, formal regulations (CSRD), and thus the policies and activities implemented within the company in other ESG areas (i.e. reducing energy consumption), require the involvement of every employee, regardless of their formal connection with the ESG topic.