The start of 2024 marks a new era for sustainability reporting. Companies covered by the new Corporate Sustainability Reporting Directive (CSRD) are now entering a revolutionary new era as the regulation comes into force. One of the standards within the directive , ESRS S1, will require in-depth reporting on the company's own workforce. This means that companies need to review and revise their processes and systems, to ensure that they have the prerequisites to report according to this new regulation. In this blog post, we take a closer look at the challenges and opportunities that come with this directive, as well as why digital systems are critical to facilitate and streamline sustainability reporting.
HR and ESRS S1: sustainability reporting for own workforce
A crucial and essential part of this directive is ESRS S1 - Own workforce. This standard will place higher demands on transparency regarding the well-being and working conditions of employees. This, in turn, places higher demands on companies' sustainability efforts, not only in terms of the environment but also people.
For the HR department, this is both a challenge and an opportunity. The demand for increased transparency requires HR to actively engage in ensuring fair working conditions, equal treatment, and a safe working environment. The implementation of ESRS S1 reporting will also require HR to develop more detailed reporting on the various information requirements that are imposed.
A proactive and strategic HR department is essential to not only meet the new requirements but also to strengthen the company's brand as a responsible and sustainable employer. By actively working to create an inclusive work environment and by transparently reporting on efforts and progress, HR can also attract and retain talent and increase the company's overall sustainability efforts. ESRS S1 is thus not just a task for HR to tick off, but an opportunity to position itself as a driving force behind the company's sustainability strategy and its employer branding.
CSRD challenges corporate sustainability reporting
For many companies, CSRD will present a significant challenge and a potentially rude awakening. The directive is comprehensive and the various standards contain a large number of information requirements. Companies that currently lack an overview of their sustainability work, employee data and lack a good reporting structure will have a tough time in the beginning.
In addition, a number of studies conducted in recent years show an increased satisfaction among employees of companies that have sustainable work practices. This highlights the importance of active sustainability work – regardless of reporting requirements. A company with active sustainability work can also open doors to new business opportunities and attract talent to a greater extent than their competitors.
The digitalisation of HR: streamlining sustainability reporting
In the digital era, an HCM system with HR master data in place becomes indispensable to handle the new information requirements that the CSRD brings. An HCM system enables automated processes, data collection, and reporting. Centralising people-related information makes it easier for companies to meet reporting requirements and ensure that policies and data are up-to-date and complete.
Digital systems and processes are also the basis for seamless data flows and integrations between different systems, which is highly relevant when several different types of data are to be collected in one report.
Further, CSRD reporting will be part of the annual financial report, this means that companies will have to report on all data points on an annual basis. This is another reason why it is important to establish reporting procedures at an early stage.
Preparing for ESRS S1: three tips for implementation
It may seem odd that HR needs to review its policies and data, as many associate CSRD reporting with something a sustainability department or finance department is responsible for. But since ESRS S1 encompasses your own workforce and data points linked to it, it is HR that holds this information. In other words, HR needs to prepare for reporting on ESRS S1 to comply with EU legislation.
Here we share three steps to prepare reporting according to ESRS S1 and thus ensure that the company meets the new requirements for reporting on its own workforce.
Step 1: Conduct a materiality analysis
Conducting a materiality analysis is the first step towards identifying the data points needed for accurate reporting. By identifying areas where the own workforce has a material impact, it becomes clear what reporting is required under ESRS S1.
Conducting a materiality analysis makes it possible to identify and assess the impacts, risks and opportunities that in turn determine the areas where the company has a significant sustainability impact.
Step 2: Conduct a GAP Analysis
After completing the materiality analysis, the next natural step is to conduct a gap analysis. A gap analysis is a way to analyse and understand what the conditions for reporting and data collection look like today, what needs to be in place in the future and how HR can work to get there. How should the company and HR collect the required information?
Simply put, it is about comparing existing policies, available data and reporting structure with the requirements of CSRD and ESRS S1. For many HR departments, this will mean establishing or updating policies as well as ensuring high-quality access to HR master data. Having an HR system with employee data in place thus becomes a hygiene factor.
Step 3: Establish reporting structures
The data points that HR contributes to CSRD reporting are only one part of a bigger requirement. As the directive requires company-wide reporting that includes subsidiaries and extended information from the value chain, it means that many parties must collaborate and work together.
The information disclosed in the reporting will be audited and therefore requires inclusion of real data about the companies' value chains, strategy, policy, and process in the various areas of sustainability.
To facilitate the work of the HR department, it is therefore important that you, together with other stakeholders, set up a reporting structure at an early stage where you jointly review how the information should be sent and to whom.
CSRD reporting will need to be integrated with financial reporting, and it needs to be digitally tagged and in machine-readable format (XHTML). Having a digital system in place will make the work easier for everyone involved.
Sustainability work as a competitive advantage
Working strategically with sustainability issues helps to increase the company's credibility and position as an attractive employer. Although CSRD may seem overwhelming at first glance, it will over time increase transparency and contribute to better sustainability work. Therefore, see the work as an investment for a more sustainable and successful future, for the company and for the planet.
