What’s the employment angle to the EU’s corporate sustainability directive?

The Council of the EU has given its final approval to the Corporate Sustainability Due Diligence Directive. In practical terms, it means companies will have to report on how their business model affects their sustainability, and on how external sustainability factors (such as climate change or human right issues) influence their activities. So what’s the employment angle and what might HR’s role be? We’ll consider that.

Although the directive has not been adopted yet, businesses are now preparing for its implementation. So, reviewing their operations across the EU, determining if the directive is applicable to them, and reviewing their supply chain to understand where the main issues are going to be, both from a human rights perspective and from an environmental risks perspective.

Whilst the directive will mainly apply to businesses registered in an EU member state, it will also require companies registered in third party countries to comply with the obligations as long as they operate in the European Union and meet the relevant thresholds. Also, non-EU businesses supplying EU-businesses will often be indirectly affected by the directive.

So what’s the employment angle and why should HR professionals be interested in this? To help with that I phoned Sarah Munro who is based in Edinburgh:

Sarah Munro: “From an employment angle, which is obviously what I've been looking at, it includes an awful lot of detail that they're expecting EU companies to report on, including workforce disclosure, information on collective bargaining, diversity indicators, adequate wages, training, even work life balance, which I thought was an interesting one, and then your more usual pay gap and compensation figures. So there's a very detailed list of what they are expecting to be reporting on and how I think that might impact UK companies is that there will be a desire from investors to have a level playing field in being able to assess EU companies and UK companies. So I think there may be pressure on UK employers to report in a similar way, even if there is no actual UK regulation at the moment. Now the UK Government have said that they will bring in a UK equivalent but I've not seen anything on that to date, although the US have had something similar in place since, I think, August 2020 and that's for public companies to disclose their human capital resources and there has been some discussion in America of making more of that and asking for more detailed disclosure. So *it’s a bit of a ‘watch this space’ but there's definite moves from the EU, and the US, on more detailed disclosures on this front.”

Joe Glavina: “Of course, in light of Brexit the Directive doesn’t have a direct impact although, as you say, the UK government may bring in a UK-equivalent of the Directive but, that aside, the Directive is still highly relevant to multinationals, isn’t it?” 

Sarah Munro: “Yes, definitely, and I think it's important that there may be regulations in certain countries, and it will only affect certain businesses, but if that is the general trend and movement that we are seeing, we need to make sure that we are ready if we're a UK company with a global footprint, and we need to make sure we're compliant in the countries that we're working in. Also, for consistency, if we're reporting in one country, should we not be reporting in the other, and that's where, I think, from an employment angle, HR professionals can really help their businesses get ahead by saying, look, we have a lot of this data already, we've already been doing pay gap reporting, we collate diversity and inclusion type data, look, you can use this, and you can use it to your benefit, to be ahead of the game in any sort of sustainability reporting going forward.”

Joe Glavina: “UK employers have been doing a lot of data collecting in recent years with HR fronting that – I’m thinking particularly about gender pay gap reporting – so does that help do you think? It makes it a bit easier?” 

Sarah Munro: “I'm not sure if it's easier, but it may be higher profile because in the past gender pay gap reporting was probably seen as ‘oh, that’s their remit, they know what they're doing, we'll leave them to it’ and, of course, it was important and by law you have to do it, however, this is a much wider focus. There are so much, as anyone knows, in the news about ESG just now and if companies are wanting to report on sustainability, wanting to be attractive to investors, to retain and recruit the best people, then the focus on ESG is wider than the historic employment reporting, is how I see it, and so there's perhaps more pressure, or more desire, to achieve that excellent rating in whatever reports you have to do because of this buzz around ESG.”

There are two useful Outlaw articles on the EU Corporate Sustainability Directive that if you’re interested in reading about it in more detail. They are: ‘New corporate responsibility rules for EU companies’ and ‘Non-EU businesses should prepare for new EU rules on sustainability reporting’. We have put links to both of them in the transcript of this programme.

LINKS
- Link to Out-Law article: ‘New corporate responsibility rules for EU companies’
- Link to Out-Law article: ‘Non-EU businesses should prepare for new EU rules on sustainability reporting’