The latest leap forward in Environmental, Social, and Governance (ESG) reporting within the European Union is the Corporate Sustainability Reporting Directive (CSRD). Slated to take effect from 2024, this new directive replaces the preceding Non-Financial Reporting Directive (NFRD), affecting businesses across the size spectrum.
The CSRD will have significant implications across the whole of the European commercial sector. As the compliance deadline is on the horizon, it is vital for companies to understand their obligations under the new standard and make necessary preparations to satisfy its stipulations. In this article, we delve into the details of the CSRD – including its specifics, who it will affect, when it takes effect and most importantly how Occupational Health & Safety experts can contribute with critical input into the ESG CSRD reporting.
The Corporate Sustainability Reporting Directive (CSRD) is a legal reporting obligation introduced by the European Union, requiring large corporations to report on their environmental, social, and governance (ESG) involvements. This directive replaces the EU's pre-existing Non-Financial Reporting Directive (NFRD), signposting a broader, more encompassing approach to ESG reporting requirements that will affect a wide array of companies, both within the EU and globally.
The CSRD primarily endeavors to supply investors and stakeholders with vital information about the potential investment hazards linked to sustainability issues, like workplace safety & well-being, climate change, etc. In addition, it stresses the need for corporate transparency in showcasing the varying impacts businesses have on our environment and society at large.
Deadlines for affected entities and respective criteria for CSRD reporting
| Start date | Affected Entities | Criteria |
|---|---|---|
| January 1, 2024 | Large companies (>500 employees) already subject to the Non-Financial Reporting Directive (NFRD) | Must start reporting according to CSRD for fiscal year 2024. Report to be published in 2025 |
| January 1, 2025 | Large companies not previously subject to NFRD | Must meet at least two of three conditions: More than 250 employees, 40 million EUR in turnover, or 20 million EUR in total assets. Start reporting according to CSRD for the fiscal year 2025. Report to be published in 2026 |
| January 1, 2026 | Small and medium-sized enterprises (SMEs) listed on EU-regulated markets | Applies to SMEs exceedingly at least two of these thresholds: more than 10 employees, more than 700,000 EUR in net turnover, or more than 350,000 EUR in total assets. Report to be made starting from fiscal year 2026, but they can opt out until January 1, 2028 |
| January 1, 2028 | Non-EU country companies | It applies to companies that have: a net turnover exceeding 150 million EUR in the EU, and at least one subsidiary or branch in the EU |
EFRAG (European Financial Reporting Advisory Group) provided technical advice to the European Commission to finalize the European Sustainability Reporting Standards (ESRS) as the standard for reporting CSRD and supporting respective implementation.
Below are the pertinent areas for CSRD reporting concerning social aspects, including health and safety as part of the European Sustainability Reporting Standards (ESRS):
- Own Workforce Health & Safety
- Responsible Supply chain & Human rights
- Diversity
- Communities affected
- Consumers
More specifically the metrics related to Health & Safety aspects could include:
- Incidents and Accidents at Work: Count and rates of accidents in the workplace, narrowly averted incidents, and injuries that are non-fatal and fatal,
- Occupational Health Concerns: Information on work-related health complications, such as occupational diseases or musculoskeletal disorders,
- Health and Safety Management Approaches: Details of the systems and processes adopted for administering health and safety perils, compliance with local and international legislations included,
- Education and Awareness: Information about the health and safety-oriented training offered to employees, encompassing the regularity and extent of such training sessions,
- Workplace Well-being Initiatives: Actions taken to encourage physical and mental health and overall well-being among the workforce,
- Stakeholder Engagement and Communication: The company's approach to engaging with its employees and other stakeholders concerning health and safety issues, and the methods for reporting accidents or grievances.
It is now essential for corporations within the European Union (EU) to identify and report key health, safety, training, skills development, and work-life balance indicators. Establishing a workspace that values employee well-being is a crucial step towards ensuring enduring economic resilience. Besides providing information about their own workforce, companies also have the duty to report details about workers in their value chain, customers, and the larger community.
The essence of ESG endeavors is accountability and transparency. EU businesses must demonstrate not just their commitment to ethical work practices and equitable treatment of staff, but also their devotion to partnership with suppliers and vendors that uphold similar principles, regardless of their location around the world. The effectiveness of ESG strategies often depends on productive engagement with stakeholders. Suppliers, vendors, and customers should all comprehend the bountiful benefits attached to efforts to cultivate and maintain a responsible corporate model.
Sustainability Approach as a Paradigm Shift
The necessity of harmonizing the impact of corporate activities with societal and environmental systems underlines the essence of sustainability strategies. Embedding sustainability into a company's strategic framework involves an extensive and continuous transformation process. This rearrangement is overarching as all tiers of an establishment need to consider Environmental, Social and Governance (ESG) factors in their strategic planning, operational processes, business models, and product designs.
Essential Phases in the Transformation Journey
Assessment of Current State: Begin with a thorough and honest appraisal of your corporation's current state and activities. This evaluation will serve as a factual cornerstone, factoring in the impacts on your firm as well as the concerns of stakeholders. It's crucial to consider both internal impacts (inside-out) and the external perceptions of your firm (outside-in). This perspective should also assess how business value is influenced by potential risks and opportunities, including aspects like efficiency improvements, innovation potential, resilience, and influences on reputation and legitimacy. The resulting insights can be consolidated in a materiality matrix.
Goals and Countermeasures: After the status review, identify goals and implement measures which take into consideration stakeholder interests and legal requirements. You might also want to test existing goals and measures in comparison with the present state and target attainment, presenting an opportunity for gap analysis or distance-to-target analysis.
Execution: Implement the necessary measures. This involves mapping out and defining responsibilities, budgets, resources, and a timeline in a practical roadmap.
Consistent Reviews: After execution, it's pivotal to continuously monitor if the established objectives have been met through the measures applied. Simultaneously, it's crucial to evaluate whether further modifications or measures are required.
The steps encapsulate the PDCA (Plan, Do, Check, Act) framework used commonly in management systems corresponding to the standards such as ISO 45001, ISO 14001, and ISO 50001. It's fruitful to adopt this approach of continuous improvement cycles in the context of ESG management, as the monitoring stage provides a status analysis, thereby signalling the commencement of the next cycle.
Occupational Health & Safety being a key component to be reported as part of “Social” element in the EU CSRD reporting, the Health & Safety professionals can fully contribute through their knowledge & experiences from the domain through alignment of processes, required data points, analysis and reporting. Moreover, ensuring that the reporting meets compliance from Health & Safety perspective within their organization.