CSRD Is Here – Why Should HR Also Be Ready?

Posted on

15 Dec

2023

Dittmar & Indrenius > Insight > CSRD Is Here – Why Should HR Also Be Ready?

The EU’s Corporate Sustainability Reporting Directive (CSRD) will require all large and listed companies (except micro-enterprises) to digitally disclose not only material information on possible risks and opportunities arising from social and environmental issues to the company but also information on the company’s impact on people and the environment, simultaneously with their financial reporting.

CSRD is currently being implemented into Finnish legislation and the amended laws are intended to come into force by the end of 2023. Sustainability reporting in accordance with these new, more granular standards will apply to companies of different sizes in stages. In 2025, the requirement applies to large listed companies with at least 500 employees (information related to 2024 fiscal year). Subsequently, for information related to the 2025 fiscal year, the obligation extends to companies meeting two of these criteria: a balance sheet of at least EUR 20 million, net revenue of at least EUR 40 million, or at least 250 employees. As of reporting for the 2026 fiscal year, also listed SME companies are covered.

What is actually changing and why should HR be involved?

Due to CSRD, the number of companies covered by a statutory sustainability reporting obligation is expanding and more detailed disclosure requirements are being introduced. CSRD, compared to its predecessor (The Non-Financial Reporting Directive), aims for improved comparability and reliability in sustainability reports from different companies for investors and other stakeholders. External certification by an independent auditor will enhance accountability going forward.

HR is not typically primarily responsible for sustainability reporting. However, ESRS standards that shape the actual content of CSRD contain numerous reporting obligations related to personnel, such as working conditions, wages, working hours, equality, training, collective agreements and negotiation processes – to the extent deemed material by the reporting company. The determination of which disclosure requirements and data points must be included in the sustainability report is based on so-called double materiality assessment conducted by each reporting company. Double materiality requires disclosure if the sustainability matter is deemed significant financially, impact-wise, or both. In other words, sustainability matters can qualify as material and reportable information irrespective of their impact on the company’s financial prospects. Equal emphasis is placed on the material – actual or potential – positive or negative impacts on people (or the environment) over the short, medium, and long term. Employees, as stakeholders, shall be involved in the materiality assessment, but it is crucial not to overlook the HR team’s expertise in identifying material HR matters, especially as ESRS standards lack any direct and straightforward thresholds.

Most companies are not used to publicly disclosing details of their HR policies and practices. However, sustainability themes and proper treatment of workforce are of increasing interest to investors, partners, consumers – as well as potential recruitments. This public interest amplifies the practical significance of sustainability reporting beyond the new late fee of up to EUR 1,800 for the first non-compliant fiscal year – an administrative sanction imposed by the Finnish Patent and Registration Office for neglecting the sustainability reporting obligation.

CSRD does not, however, set any operational obligations or minimum levels to be followed for companies regarding reportable matters. Even so, the gradual introduction of the new reporting obligations sets a timeframe for companies to review their policies and ensure that the information to be reported will be available when needed. It is still possible to develop HR practices where the double materiality assessment may help identify material personnel-related impacts, risks, or opportunities, clarify policies that may not yet exist in written form, and expand HR reporting processes before material information is disclosed to the public.

Collecting reportable data and identifying material deficiencies and opportunities requires a strong contribution from the HR team. Therefore, every company should involve their HR in their sustainability reporting processes as soon as possible, if they have not already done so.

How to prepare for CSRD?

  • Sharing ESG knowledge within the organisation and familiarising yourself with the reporting standards – what is the “S” in ESG all about?
  • Specifying the responsible persons and defining responsibilities
  • Getting involved in identifying what is deemed material in terms of personnel-related matters in your organisation
  • Collecting and analysing reportable data
  • Correcting identified deficiencies and launching initiatives to build upon identified HR opportunities

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