It therefore feels a little odd that the right to safe workplace appears as one of the human rights covered by the EU ESG legislation, but that is precisely how it is now positioned. Safety, and the other environmental and human rights deserve greater focus to reflect this as reporting, and due diligence obligations will bite and otherwise force the business' hand.
Many may be familiar with the obligations of the Non-Financial Reporting Directive, but equally as many will not be as it has been an area focussed on by corporate governance teams, rather than safety professionals.
With many safety and risk professionals now having at least the 'E' of ESG in their remit, reporting and growing corporate transparency is something that many businesses are having to embrace.
The EU Corporate Sustainability Reporting Directive (CSRD) (Directive EU/2022/2464) is one example of this. Entering into force in January 2023, as a Directive, member states had until July 2024 to implement it into their domestic law. As a directive, this inevitably means that there are differences across the EU, as the first rounds or reports are completed.
In Ireland, for instance, this is done through the European Union (Corporate Sustainability Reporting) Regulations 2024. These regulations amend the Irish Company law and insert a new Part 28 called 'Sustainability Reporting', which sets out the obligations of CRSD.
The CSRD mandates companies within its scope disclose on a range of environment, social and governance (ESG) matters through a double materiality lens. This means that they must report on how ESG and sustainability related matters impact on the business and how they apply to the financial health of the company. Additionally, companies in scope must also report on the material impact of how the company, through its activities, has an impact on people and planet over varying time horizons and the context of the company's upstream and downstream value chain.
Undertaking a materiality assessment is essential for deciding what information to disclose. The disclosures extend beyond the company's operations to also cover material impacts, risks and opportunities stemming from its business relationships in its global value chain. The disclosures created a need to be assured by a third party.
The CSRD is underpinned by a set of generic and topic specific sustainability reporting standards, through its related European Sustainability Reporting Standards (ESRS). The general disclosures require all reporting companies to disclose information on governance, strategy, and impact, and risks and opportunities. The topic-specific standards consist of five environmental standards related to climate, pollution, water and marine resources, biodiversity and ecosystems, and circular economy/resource use. There are also four social standards related to the company's workforce, the employees in its value chain, affected communities by its activities, and consumers and end users. Health and safety is a key component of both the social and environmental dimensions, particularly in the context of identifying, mitigating and preventing potential risks and impacts on and by people.
In terms of assessing climate-related risks and opportunities, and disclosing these under the CSRD, companies can draw on their work in meeting the Task Force on Climate-related Financial Disclosures (TCFD). In a similar context, the Task Force on Nature-related Financial Disclosures (TNFD) framework can support the materiality assessment and action planning related to prevention and remediation of environmental impacts. TNFD's LEAP (i.e. Locate your nature interface, Evaluate your impacts and dependencies on nature, Assess nature-related risks and opportunities, and Prepare your responses and reporting strategies) approach can be a useful tool for companies in conducting environmental materiality assessments required under both CSRD and CS3D. TNFD also has the added benefit of focusing not only on environmental risks but impacts and dependencies, and adopts the forward-looking approach of the TCFD on opportunities. This can be invaluable as environmental remediation and prevention action plans are developed and implemented – many of which will need to have a strong health and safety component to them.
We also look forward to the publication of the disclosure framework of the newly launched Task Force on Inequality and Social-related Financial Disclosures (TISFD) launched at Global Goals week in New York. The TISFD is expected to provide further guidance on the social dimension. With it, we are likely to see an even greater emphasis on health and safety in global value and supply chains.
We wait for what remains of the CS3D to be finalised. While there will still be duties, it looks like the CS3D will only focus on very large companies over 5000 employees and then on one step in the supply chain or possibly only the company's own impacts. There will still be obligations to identify and assess actual and potential adverse impacts – that has not changed. However, the scope of it is now much reduced and subject to a range of caveats like: 'reasonably available information'; is 'risk based'; or in the case of indirect business partner activities, 'plausible information that is objective, factual and verifiable and suggests that adverse impacts at a level of the operations of an indirect business partner have arisen or may arise'. Even the measures that required companies to walk away from poorly performing business partners have been considerably watered down to be matters of last resort.
What about non-financial reporting?
Non-financial corporate reporting is not a new concept, nor in the UK is reporting on non-financial measures with regimes existing for modern slavery, gender pay gap, as well as batteries and packaging placed on the market, to name but a few. For those operating in the EU, these duties are about to dramatically extend, though the deadline for compliance has been delayed and there are ongoing negotiations that will impact the final obligations placed on businesses.Many may be familiar with the obligations of the Non-Financial Reporting Directive, but equally as many will not be as it has been an area focussed on by corporate governance teams, rather than safety professionals.
With many safety and risk professionals now having at least the 'E' of ESG in their remit, reporting and growing corporate transparency is something that many businesses are having to embrace.
The EU Corporate Sustainability Reporting Directive (CSRD) (Directive EU/2022/2464) is one example of this. Entering into force in January 2023, as a Directive, member states had until July 2024 to implement it into their domestic law. As a directive, this inevitably means that there are differences across the EU, as the first rounds or reports are completed.
In Ireland, for instance, this is done through the European Union (Corporate Sustainability Reporting) Regulations 2024. These regulations amend the Irish Company law and insert a new Part 28 called 'Sustainability Reporting', which sets out the obligations of CRSD.
The CSRD mandates companies within its scope disclose on a range of environment, social and governance (ESG) matters through a double materiality lens. This means that they must report on how ESG and sustainability related matters impact on the business and how they apply to the financial health of the company. Additionally, companies in scope must also report on the material impact of how the company, through its activities, has an impact on people and planet over varying time horizons and the context of the company's upstream and downstream value chain.
Undertaking a materiality assessment is essential for deciding what information to disclose. The disclosures extend beyond the company's operations to also cover material impacts, risks and opportunities stemming from its business relationships in its global value chain. The disclosures created a need to be assured by a third party.
The CSRD is underpinned by a set of generic and topic specific sustainability reporting standards, through its related European Sustainability Reporting Standards (ESRS). The general disclosures require all reporting companies to disclose information on governance, strategy, and impact, and risks and opportunities. The topic-specific standards consist of five environmental standards related to climate, pollution, water and marine resources, biodiversity and ecosystems, and circular economy/resource use. There are also four social standards related to the company's workforce, the employees in its value chain, affected communities by its activities, and consumers and end users. Health and safety is a key component of both the social and environmental dimensions, particularly in the context of identifying, mitigating and preventing potential risks and impacts on and by people.
When to report on ESG matters under the CSRD? Isn't it all going to change?
Undoubtedly, there will be some change as the CSRD will be amended by the Omnibus Directive and will likely make compliance simpler. As negotiations continue, we should soon have a growing body of CSRD disclosures to identify good disclosure practices. The Directive adopts a phased-in approach to implementation starting with large public interest entities in the EU or their parent undertakings with over 500 employees on average. This first tranche of companies – all previously subject to the CSRD's precursor, the Non-Financial Reporting Directive (NFRD) – will be required to comply for financial years from 1 January 2024. Other large companies, that did not previously have to disclose under the NFRD, must comply for financial year 2025. Listed SMEs need to comply from financial year 2026. It also affects non-EU undertakings with an EU subsidiary or EU branch for financial years on or after 1 January 2028.Relationship with other sustainability standards, frameworks and due diligence regulation
There are a number of related frameworks and standards on assessing the impacts of a company's activities, and the activities of its business partners in global value chains on people and planet. Many businesses are in the midst of preparing mandatory environmental, social and governance disclosures under the CSRD, in accordance with its ESRS. Subsequently, some businesses may be tempted to postpone focusing on the voluntary Task Force on Nature-related Financial Disclosures framework and the wide-ranging environmental due diligence requirements of the EU Corporate Sustainability Due Diligence Directive (CS3D). This is a missed opportunity to enhance the quality of CSRD reporting and to benefit from a holistic approach to ESG impact assessment.In terms of assessing climate-related risks and opportunities, and disclosing these under the CSRD, companies can draw on their work in meeting the Task Force on Climate-related Financial Disclosures (TCFD). In a similar context, the Task Force on Nature-related Financial Disclosures (TNFD) framework can support the materiality assessment and action planning related to prevention and remediation of environmental impacts. TNFD's LEAP (i.e. Locate your nature interface, Evaluate your impacts and dependencies on nature, Assess nature-related risks and opportunities, and Prepare your responses and reporting strategies) approach can be a useful tool for companies in conducting environmental materiality assessments required under both CSRD and CS3D. TNFD also has the added benefit of focusing not only on environmental risks but impacts and dependencies, and adopts the forward-looking approach of the TCFD on opportunities. This can be invaluable as environmental remediation and prevention action plans are developed and implemented – many of which will need to have a strong health and safety component to them.
We also look forward to the publication of the disclosure framework of the newly launched Task Force on Inequality and Social-related Financial Disclosures (TISFD) launched at Global Goals week in New York. The TISFD is expected to provide further guidance on the social dimension. With it, we are likely to see an even greater emphasis on health and safety in global value and supply chains.
We wait for what remains of the CS3D to be finalised. While there will still be duties, it looks like the CS3D will only focus on very large companies over 5000 employees and then on one step in the supply chain or possibly only the company's own impacts. There will still be obligations to identify and assess actual and potential adverse impacts – that has not changed. However, the scope of it is now much reduced and subject to a range of caveats like: 'reasonably available information'; is 'risk based'; or in the case of indirect business partner activities, 'plausible information that is objective, factual and verifiable and suggests that adverse impacts at a level of the operations of an indirect business partner have arisen or may arise'. Even the measures that required companies to walk away from poorly performing business partners have been considerably watered down to be matters of last resort.
What next?
While many have started work on at least assessing the application of CSRD, it is just one of several laws that are being considered as part of the EU's Omnibus Directive. Already the Omnibus directive has seen a delay in the implementation dates passed, and therefore takes some pressure from business from a timetable perspective. In parallel, there are now ongoing debates regarding specific provisions and it is expected that there will be significant changes made over the coming months, all in the name of simplification.
While it is likely that the final obligations will be less onerous than the original drafts, this is a topic that you need to be starting to consider now, so that the basics can be put in place – it is likely that only about 1/3 of companies originally in scope of CS3D will remain in scope. If so, it should not be underestimated how time consuming an onerous this reporting obligation can be.
If you have any questions or would like to discuss any of these topics and what they mean for you and your business, please get in touch with our Consumer sector and Regulatory experts.
