Sustainability begins with the people.
In the realm of corporate sustainability, the foundation of a sustainable future lies in the realisation that it is the people’s choices and behaviours that will determine the trajectory of our collective transition to a sustainable world. Within the ESG framework, the significance of the “S” (social) element becomes evident. The green transition will only succeed at the pace and scale demanded by the urgency of the climate challenge through the cultivation of a culture of sustainability across the entire value chain, brought about by key stakeholders, including employees, contingent workers, suppliers’ employees, and people in the communities.
In recognition of this, the near future holds a transformative journey for the European Union (EU), where businesses of all sizes will be impacted. Large and listed organisations will be experiencing increased pressure as a result of upcoming Corporate Sustainability Reporting Directive (CSRD) requirements. The shift in corporate social responsibility shall also bring about change in terms of stakeholders’ expectations, which will inadvertently affect SMEs not captured by CSRD.
As part of this shift, the draft European Sustainability Reporting Standards (ESRS) developed by EFRAG includes 32 social disclosure requirements. Notably, the reporting stringency on the ‘S’ in ESG has grown, demanding companies to address the complexities of social aspects more or less in line with the detail required for the ‘E’ element, outlined below.
Overview of the draft European Sustainability Reporting Standards (ESRS)
- Own workforce
- Workers in the value chain
- Affected communities
- Consumers and end-users
Own workforce
ESRS S1
Impacts, risks and opportunities management:
S1-1 – Policies related to own workforce
S1-2 – Processes for engaging with own workers and workers’ representatives about impacts
S1-3 – Processes to remediate negative impacts and channels for own workers to raise concerns
S1-4 – Taking action on material impacts on own workforce, and approaches to mitigating material risks and pursuing material opportunities related to own workforce, and effectiveness of those actions
Metrics and targets:
S1-5 – Targets related to managing material negative impacts, advancing positive impacts, and managing material risks and opportunities
S1-6 – Characteristics of the undertaking’s employees
S1-7 – Characteristics of non-employee workers in the undertaking’s own workforce
S1-8 – Collective bargaining coverage and social dialogue
S1-9 – Diversity indicators
S1-10 – Adequate wages
S1-11 – Social protection
S1-12– Persons with disabilities
S1-13 – Training and skills development indicators
S1-14 – Health and safety indicators
S1-15 – Work-life balance indicators
S1-16 – Compensation indicators (pay gap and total compensation)
S1-17 – Incidents, complaints and severe human rights impacts and incidents
Workers in the value chain
ESRS S2
Impact, risk and opportunity management:
S2-1 – Policies related to value chain workers
S2-2 – Processes for engaging with value chain workers about impacts
S2-3 – Processes to remediate negative impacts and channels for value chain workers to raise concerns
S2-4 – Taking action on material impacts, approaches to mitigating material risks and pursuing material opportunities related to value chain workers, and the effectiveness of those actions and approaches
Metrics and targets:
S2-5 – Targets related to managing material negative impacts, advancing positive impacts, and managing material risks and opportunities
Affected communities
ESRS S3
Impact, risk and opportunity management:
S3-1 – Policies related to affected communities
S3-2 – Processes for engaging with affected communities about impacts
S3-3 – Processes to remediate negative impacts and channels for affected communities to raise concerns
S3-4 – Taking action on material impacts on affected communities, approaches to mitigating material risks and pursuing material opportunities related to affected communities and the effectiveness of those actions
Metrics and targets:
S3-5 – Targets related to managing material negative impacts, advancing positive impacts, and managing material risks and opportunities
Consumers and end-users
ESRS S4
Impact, risk and opportunity management:
S4-1 – Policies related to consumers and end-users
S4-2 – Processes for engaging with consumers and end-users about impacts
S4-3 – Processes to remediate negative impacts and channels for consumers and end-users to raise concerns
S4-4 – Taking action on material impacts on consumers and end-users, approaches to mitigating material risks and pursuing material opportunities related to consumers and end-users, and the effectiveness of those actions
Metrics and targets:
S4-5 – Targets related to managing material negative impacts, advancing positive impacts, and managing material risks and opportunities
Broadly speaking, CSRD will require large companies to report on the sustainability of their own workforce, irrespective of the outcome of their double materiality assessment. Moreover, many companies will be required to go beyond their own workforce and take responsibility for the sustainability of their value chain, their relationships with consumers and clients, and the impact on the communities in which they operate. As a result, the impacts of CSRD are likely to extend to even those organisations that fall outside the directive’s regulatory mandate. To this end, the supply of ESG data will increasingly become necessary for all organisations to remain competitive and retain a market presence. With these people-related data requirements, Human Resources (HR) functions will need to step up their game to stay ahead of mandatory ESG regulations and in so doing ensure that the organisation is doing the right thing for the right reasons for its people.
It is therefore imperative that HR managers act now. One approach is in developing a People Sustainability strategy. People Sustainability strategies are becoming a priority on business agendas, addressing the intersection of employee engagement, empowerment, and corporate responsibility based on the simple concept to treat people ethically and fairly, across the value chain. Tying this to business goals improves the employee experience which will build stronger companies that are better capable of meeting the needs of customers and stakeholders and managing all sorts of business risk.
A People Sustainability strategy that unites the different people's priorities and ties them to business goals will strengthen relevance to leaders and enable a sustainable transition, with the strategic objectives needing to be reflected in clear People Sustainability goals. Moreover, a true strategic transformation is not limited to isolated or cosmetic changes to a single process or way of operating. Rather, it involves reimagining and reconfiguring the way a company treats its people across the entire organisation and the value chain. It is paramount to focus on bringing all workers along for the journey. Next, employees and other stakeholders need to understand how ESG goals link to the company’s strategy and priorities. Without this alignment, goals will lack credibility. Finally, for those organisations that fall within the mandatory reporting requirements, companies will need to report on topics such as gender representation, equal and fair pay, employee health and safety and forced child labour, which will also need to be audited.
By addressing CSRD from a strategic viewpoint, organisations can actively address social issues, engage stakeholders, and align their actions with the ever-evolving demands of the corporate landscape. And although the mandatory reporting of this type of information may be limited to large and listed organisations, the data will increasingly become critical for organisations of all sizes in the near future.
How can we help?
If you have any queries or would like to know more about ESG or how PwC can support you, please contact our local ESG team.
