Following on from our last Podcast where we dived into the Environmental part of ESG and specific to CSRD reporting requirements, in this podcast we discuss what the 'S' in ESG means in relation to the New EU Corporate Sustainability Reporting Directive, including aspects such as social risks, labor practices and human rights, diversity and inclusion, community relations and ethical marketing and advertising.
Job title of speakers:
To gain additional insights about this subject, be sure to explore the other episodes of the CSRD series available on the Assurance in Action Podcast network.
Follow us on- Intertek's Assurance In Action || Twitter || LinkedIn.
Following on from our last Podcast where we dived into the Environmental part of ESG and specific to CSRD reporting requirements, in this podcast we discuss what the 'S' in ESG means in relation to the New EU Corporate Sustainability Reporting Directive, including aspects such as social risks, labor practices and human rights, diversity and inclusion, community relations and ethical marketing and advertising.
Job title of speakers:
To gain additional insights about this subject, be sure to explore the other episodes of the CSRD series available on the Assurance in Action Podcast network.
Follow us on- Intertek's Assurance In Action || Twitter || LinkedIn.
Rowena Curtis Intertek 0:10
Hello and welcome to the sixth in our series of podcasts dedicated to the new EU Corporate Sustainability Reporting Directive, CSRD.
I'm Rowena Curtis, UK Marketing Manager for Intertek Business Assurance. And I'm joined by Catherine Beare, Regional Director, Business Assurance UK and Iberia. Catherine going to give us an update today on what the S in ESG means in relation to the CSRD reporting requirements.
Catherine’s been in the Sustainability world for 20 years, previously working with Business in the Community - the leading CSR not-for-profit helping companies implement and improve their internal CSR programs. During her 14 years at Intertek, she's worked with all sectors, helping organizations deliver effective and risk managed responsible supply chains. Having worked globally but with more of a focus on UK and EU, Catherine has grown Intertek’s Responsible Supply Chain programmes, supporting regional expansion, bringing to market new innovative sustainability solutions and speaking at many subject matter focused events.
So Catherine, following on from our last podcast where we dived into Environmental part of ESG and specific to CSRD reporting requirements, can you start us off today with an overview in general on what is usually encompassed under social?
Catherine Beare Intertek 1:33
Sure. Thanks Rowena. So as we know, ESG is ultimately a framework that companies and organizations use to evaluate and communicate their non-financial performance. Now, there are many reporting proxies and disclosures available around the world which detail out a number of categories underneath each of the ESG areas. Now they're usually similar in nature, just I would say worded differently or some will deep dive into some aspects in more detail.
The Social risks in sustainability refer to challenges and potential negative impacts that organizations and societies may face in the social dimension of sustainability.
Now these risks can affect a company’s reputation, their operations and ultimately their financial performance and they encompass a wide range of issues. There are some of the main social risks and sustainability, and I'd like to talk about a few of those and provide a little bit more detail.
I have to start with Labor Practices and Human Rights, which is probably one of the most notable because the violations of Labor rights, including, say, child labor, forced labor discrimination and poor working conditions can lead to reputational damage.
But ultimately, legal issues and, you know, a side effect of that of course is supply chain disruptions. So we've seen a lot of media attention on these matters and rightfully as we continue to educate the world that they're not acceptable and there has been a lot of regulations in the forms of human rights, due diligence acts, modern slavery acts, etcetera. In the last few years, because the reality, unfortunately, Rowena, is that this situation that we have is still large across the globe when it comes to these points. Now these laws and regulations are designed to make companies ensure fair and ethical labor practices throughout their operations and supply chains.
There's probably one of the most notable when we talk about social impacts, another is around Diversity and Inclusion. This is taken also, you know, sort of center stage position in the last few years and failing to promote diversity and inclusion within an organization can result in discrimination lawsuits and employee dissatisfaction and, you know, missed opportunities to grow and innovate within your company.
So we have seen now a major focus to report on these matters and annual reports, and it gets used during recruitment practices to try and attract and retain the best staff and ultimately impacting the way people decide if they want to work for a company. So companies must create inclusive workplaces that reflect diverse perspectives that can change industry to industry. Of course, in terms of being more or less proactive steps needed, but nevertheless it should be a critical one for every organization.
And probably like to touch upon Community relations as well and negative impacts on local communities such as environmental pollution or displacement can lead to protests, regulatory actions and, of course, reputational damage. Now this can be a massive area for some industries and, you know, I don't know if we think of the oil and gas or mining companies, for example, that tend to go into underdeveloped areas. Not only did they need to think of the impact as I mentioned there on an environment, for example, and the disruption that will create to that society, but also about providing, say, job opportunities and integrating the locals in project that's being done and also thinking through ensuring any changes that are made don't affect them from a long-term perspective.
That's very different to say, for example, and IT company, you know, working in a city, you know, in a building block and then maybe take a different approach to perhaps the understanding of how their service is could contribute to something virtually for example. So engaging with and contributing positively to local communities or communities that are indirectly affected by your services is essential if you're again to be seen as an employer of choice, but also use part of your profits to give back to society.
Now there are lots of other areas categorized under social, for example, health and safety, even product safety and quality, supply chain risks, data privacy and security, and stakeholder relations, conflict minerals humanitarian crisis, worker strikes… I could go on and on, but maybe one more point.
I'll finish on, Rowena, is around, I guess, Ethical Marketing and Advertising, and which I would say crosses over in the governance section. And what we'll hear more on the governance piece in the next podcast. But to call this one, I think there's so much more focus now on misleading or deceptive marketing practices that can lead to consumer backlashes, even regulatory fines or legal action. So companies must ensure that their marketing and advertising efforts are transparent and honest, and we're familiar with the term greenwashing. And you know, really now social washing has become another major problem. So as people do begin to talk about what they're doing in these topics, it's important that you know they're substantiated and and honest.
So for me the top line is that the S in the ESG, it ultimately represents the social dimensions focusing and higher company impacts and interacts with people both within and outside of the organization.
Rowena Curtis Intertek 8:16
Thanks. So let's just dive into the “S” in ESG as it relates to CSRD requirements then please Catherine.
Catherine Beare Intertek 8:24
Sure. And as we know, you know, understanding and adapting to CSRD, in my opinion, is going to be a major task for a lot of companies and even those companies that have previously been reporting or disclosing information on their sustainability goals may find that their current disclosure practices could fall short of the new requirements. With many metrics, the volume and breadth of reporting requirements, you know, has expanded several-fold. When we look at what's been requested and for many companies, current social reporting not for everyone, but for some only covers their own workforce and usually quite limited on their value chains or certainly even we think about and, you know, communities it's maybe short lived to just talking about some community activities.
They do, however, under the CSRD companies now need to report on their own workforce. Workers in the value chain affected community communities and consumers and end users. So these four areas have altogether got about 40 KPIs and which is all related under this Social pillar. So let me give you a bit of insight into what's expected under each.
You know each subsection all starts with, ultimately, the materiality assessment that's been done to understand the impacts on that section and the aim is to focus the company on understanding what policies, processes, measures and responsible parties that they have in place to ensure that all the risks and impacts are being considered and are being managed now under each of these KPIs.
And ultimately, you know there is an ask for either a qualitative or quantitative response to explain what simply is today and or what is being worked on or what is not yet considered. So this in turn is aimed at showing progress at the company is making to be a truly sustainable organization.
Let's look at the own work force point, and I would talk about Employee Relations and on this point. So companies, they need to report on various aspects of employee relations, including diversity and inclusion, equal pay, employee wellbeing. And I'll just use the broader term labor practices.
So CSRD requires detailed information in each of these topics to, for example, you know, if I if I take equal pay, for example, they'll have to report on the gender pay gap and they'll have to look at employee turnover and measures that are taken to promote employee health and wellbeing.
By in a recent amendment to the CSRD requirements, only data on non-employees has been made voluntary in this section, so everything else must be reported on and it will be exposing a lot of data on a company's makeup, how advanced they are on these matters and that's significant because that could impact how people view their company, you know, from a being an employer of choice and wanting to work with them.
If we move on to look at workers in the value chain and CSRD requires companies to report on their efforts to respect and promote human rights, both again, not only within their own operations, but across their value chains. So this includes addressing issues like child labor, forced labor and fair working conditions. The supply chain, you know, qualitative and quantitative data, this is going to be new for a lot of people from many, they will have gaps on what they know within their supply chain.
And this is a huge exercise to start mapping supply chains, communicating expectations with the supply chains and then validating that data and assessing the risk identified.
And there are smaller number of KPIs listed here. True, but this will be a hardest section for many if they don't have a robust supply chain, risk management program, and I can actually give you one example. So let's take one of the KPIs processes to remediate negative impacts and channels for value chain workers to raise concerns.
So the specific objective says the objective of this disclosure requirement is to enable an understanding of the formal means by which value chain workers can make their concerns and needs known directly to the undertaking and or through which the undertaking supports the availability of such channels in the workplace of value chain workers, etcetera.
Now, as we can see, if you've not mapped your supply chain, you've not reached out to them, then you know you haven't even got near the point to making sure that there's things like work or hotlines are in place or audits for these items to be identified, so that that's really where, not a lot of KPI, but what you're going to respond on those KPIs will significantly shoe high advance to company is.
Moving on to Community Engagement, this will vary so much from industry to industry and company to company. As I've already mentioned. And again, that understanding coming from the materiality of risk will be critical to explain how far they should be involved at a Community level. So companies should report their engagement with local communities, including contributions to community development might be around the philanthropy efforts or initiatives, maybe to address certain social issues. These, umm and yeah that there's many ways that they can do that, but again it will link back to the risks you see of not being involved in the community or doing more which will determine really how deep you will get on these KPIs.
And then finally on Customer Relations, the CSRD requirements are asking companies to disclose information related to, you know, customer satisfaction, who the business directly or indirectly impacts consumers and how consumers can have a feedback channel. So we saw recently, just as the other week and the EU bringing in new legislation around the ban of Generic and Emissions Offsetting-Based Green Product Claims. And it definitely won't be long until this is extended on social matters.
So the KPIs on this area are quite specific around. You're looking at the impact you consumers and how consumers are being heard and how that that voice is being taken back into your risks. And again, I think this is gonna be interesting when you hear the next podcast on Governance, how this all ties together.
So within these 40 KPIs, there is a massive push to ensure that companies are working towards a robust set of policies and goals to tackle a wide range of criteria, both internal within their company and external in their supply chain, while also meeting consumer expectations.
Rowena Curtis Intertek 16:52
Great. Catherine, that all makes sense. In your opinion, is the social section the most critical?
Catherine Beare Intertek 17:01
I mean there's no part more significant or important than the other, I would say as we've talked about in our podcast and some more detail in the upcoming one will have on double materiality assessments. This is where the company will complete their materiality risk assessment to judge which factors are of more significance to their business. So it is unique and specific to each company and of course sectors will have similar risks but they gain can vary and so therefore some might have some of the environmental KPI have more significance and others social more significance depending on the nature of their business.
So social compliance matters when not managed right, as we know, can lead to a lot of negative publicity. So it is true that it has a lot of media spotlight over the last few years, which I mentioned is an attempt to raise more awareness and of course pressure companies to act and take ownership. So enhanced social reporting under CSRD can have a significant impact on, you know, stakeholder engagement. So it's a good thing that it's helping companies really take this to the next stage and investors, customers, employees and other stakeholders are increasingly interested on a company, social performance and, by providing comprehensive and transparent information, companies can ultimately build trust they can attract responsible investors and they can meet their customer and employee expectations.
Rowena Curtis Intertek 18:47
Thanks, Catherine. Any final comments?
Catherine Beare Intertek 18:51
Umm. I guess just, you know, in summary, the “S” in ESG as it's related to the CSRD requirements for me is about, you know, emphasizing the importance of reporting on these factors and these requirements, you know, are aiming to make sustainability reporting more consistent and comprehensive. And I think importantly transparent across not just the European Union, hopefully globally and ultimately reporting, you know, and promoting more responsible and socially conscious business practices.
Thanks, Rowena.
Rowena Curtis Intertek 19:34
Thank you very much, Catherine, for explaining about what the “S” in ESG means for CSRD reporting.
As a reminder on how Intertek can help on CSRD's, we have four ways to understand your current CSRD readiness.
We can help you undertake a gap analysis to ensure you have a clear view of your organization's current readiness, and we'll work with you to find clear action plans to address any gaps to prepare you for your first submission.
Secondly, through training, to ensure everyone understands what's required to prepare for your submission, this can be delivered to a range of different teams and functions across your organization and will be bespoke to best fit your requirements.
We can also provide auditing solutions in some markets will also be able to act as the auditor of your CSR Directive reports as one single provider supporting you from your early preparations through the audit submission.
And finally, we also have partnered with ESG Playbook, a leading SaaS reporting and solution provider, bringing in one tool all required data collection, aggregation and tracking and reporting for ESG.
For more information, visit www.intertek.com/assurance/eu-csrd.
So this concludes today's podcast. Thank you for listening and watch out for further CSRD episodes to help with your journey to compliance.