The EU Corporate Sustainability Reporting Directive (CSRD) is a new comprehensive reporting directive that will reshape the way businesses disclose their sustainability efforts.
The CSRD covers a broad range of areas such as impact on climate, diversity and inclusion, worker rights, business culture and conduct. These areas fall into three main topics - environment, social, and governance. The CSRD has replaced the current Non-Financial Reporting Directive (NFRD) and is mandatory for medium and large organisations in the EU, as well as large global companies operating in the EU.
There are two major areas within the CSRD that fall in HR's remit. These are the ESRS S1, which covers “Own workforce” and the ESRS G1 which covers "Corporate culture and business conduct". Therefore, it is important to stay up to date with the new requirements and ensure that you are able to gather the necessary information and data regarding your workforce and your organisations business conduct.
ESG (Environment, Social, Governance) reporting is closely related to CSRD since they both cover reporting of non-financial data regarding sustainability.
However, the new CSRD is an expanded and more prescriptive set of rules and reporting standards, which makes it easier for investors, government, and the public, to evaluate a company’s sustainability efforts and impact.
The new standards are called the European Sustainability Reporting Standards (ESRS), and these must be followed when reporting on sustainability.
Companies that fail to report and comply with the CSRD risk getting fines of up to 10 million Euros, or 5% of annual revenue.
The CSRD is mandatory for all large European companies and those listed on the EU-regulated markets, including EU subsidiaries of non-EU parent companies.
CSRD applies to all organisations that have any two of the following; more than 20 million EUR in assets, a net turnover of 40 million EUR, or 250+ employees.
The CSRD covers a wide range of different metrics and data within Environmental, Social, and Governance aspects. In total there are circa 82 disclosure requirements and 1144 metrics.
Within the area of Social, there are a large number of HR data points. For example, annual total compensation, base pay, pay gap between men and women, maternity and family related leave, number of sick days, hours spent on overtime and so on.
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The deadlines for implementation of CSRD are:
*1 Jan. 2024 for companies with over 500 employees that are already subject to the Non-Financial Reporting Directive (NFDR). Reports are due in 2025.
1 Jan. 2025 for companies that fulfil 2 of the 3 requirements:
Reports are due in 2026.
1 Jan. 2026 for listed SMEs, as well as for small and non-complex credit and insurance institutions. Reports are due in 2027.
* All companies can opt to omit some of the reporting requirements in the first year. Companies with 750 or less employees have additional phase-in options over the first two years.
The two areas which directly impact HR are the sections ESRS S1 (Own Workforce) and ESRS G1 (Business conduct). Both of these areas will require documentation of policies and processes, as well as specific data points and numbers about the workforce.
This means two things: Good quality HR master data is now more important than ever and HR has now moved all the way up to the boardroom. No longer can companies claim to be a great place to work or having a healthy work-life balance without providing documentation to back it up.
Future generations of talent and investors will be looking for these numbers when evaluating your organisation - so do not underestimate the importance of CSRD.
Obviously, the process of gathering and registering CSRD related data can be done manually, but since you will have to report on these numbers each year (and track the progression and development of these numbers) you should consider investing in a digital HR solution for master data which supports the reporting standard (if you haven't' done so already).
Further the CSRD will require companies to tag their sustainability information digitally, so that it can be available in the upcoming European Single Access Point (ESAP) database.
At CatalystOne we have many years of experience providing our customers with a master data solution for all relevant HR data, such as those required for CSRD.
Let us show you how you can take the next step on your HR digitalisation journey and at the same time prepare for CSRD.
