The role for HR in EU corporate sustainability reporting

While the CSRD is an EU directive, its impact will be broader because non-EU corporates may have connections to the EU that are caught by the CSRD. It is expected to drive up global standards of workforce reporting. First CSRD reports for large public interest entities will be published in 2025, with compliance filtering down to SMEs who will first report in 2027. Businesses subject to CSRD next year will need to take time during 2024 to put in place processes that ensure compliance.

HR teams are unlikely to be responsible for assessing whether a business needs to comply with the CSRD. However, HR will need to support on the workforce reporting aspects. It is important that HR teams are fully involved as what is reported in respect of workforce issues will impact business value, reputation and could give workers access to information previously not disclosed.

What parts of the CSRD include workforce reporting?

There are 12 reporting standards – two are overarching standards which provide the framework for disclosures and the remaining 10 standards cover various topics. One of the ten topical standards relates to disclosures around an organisation’s own workforce; another relates to disclosures regarding workers in the organisation’s value chain. These are the two reporting standards where input will be needed from HR teams, in particular.

There are some limited mandatory workforce disclosures, such as information about the role and composition of the organisation’s administrative, management and supervisory bodies, including worker representation information and gender diversity. However, most workforce reporting will be restricted to topics that are assessed as a material sustainability matter.

What workforce topics will be material sustainability matters?

Workforce topics which are potential sustainability matters include “working condition” topics such as secure employment, working time, adequate wages, and health and safety, as well as “equal treatment” topics such as equal pay, inclusion for disabled persons, and training development. However, this list is non-exhaustive – a business may consider it appropriate to add additional workforce topics.

Once the business has identified a potential sustainability matter, it then must apply materiality thresholds to decide if it is a material sustainability matter. This requires businesses to assess materiality from a twin perspective, namely:

• outside-in – financial materiality – how sustainability risks and opportunities affect the businesses’ own performance, position, and development; and
• inside-out – impact materiality – the impact on the environment and people.

A workforce matter could be material from either or both perspectives.

What disclosures are made around material sustainability matters relating to workforce topics?

If a workforce topic is a material sustainability matter, then there are mandatory disclosures to be made around related policies, actions, and targets. Metrics that may need to be disclosed include:

• characteristics of employees, for example headcount and turnover;
• details of non-employee workers, such as agency workers or contractors;
• collective bargaining;
• gender diversity;
• adequate wage information tested against benchmarks;
• income protection, such as for sickness or maternity;
• disabled numbers;
• training and skills;
• health and safety management and incidents;
• work-life balance, including Family-related leave entitlement and uptake;
• pay gaps – on a gender basis, and high paid to low paid ratio;
• workplace incidents, such as the total number of discrimination and human rights incidents.

Does the CSRD expect workforce engagement as part of the reporting process?

The framework recognises that employees and their representatives, such as trade unions, are stakeholders who can affect, and be affected by, the business. These groups will also be users of information reported under the CSRD. Therefore, the framework anticipates consultation with stakeholders and the incorporation of their views into the materiality assessments. The logic is that the workforce are well placed to inform the business whether it is positively or negatively impacted by various workforce topics being assessed.

What opt outs are there for workforce reporting?

In the first year of reporting, organisations with 750 employees or less have an option to exclude reporting on their own workforce and all businesses have an option to exclude various specific topical disclosures relating to their own workforce.

In the first two years of reporting, business with 750 employees or less have an option to exclude reporting on their value chain workers.

What can HR do prepare for workforce reporting?

HR can support by:

• developing a strategy for workforce engagement in the reporting process;
• identifying potential material sustainability matters relating to workforce topics;
• setting materiality thresholds relating to workforce topics;
• applying materiality thresholds to workforce topics;
• data collection in advance of reporting deadlines; and
• providing narrative around workforce disclosures.

Rising to the challenges of the CSRD will be a multi-disciplinary effort. Early HR participation can help ensure a business’ first report is comprehensive from a workforce perspective, as cross company comparisons will be made around the quality and content of the report.