European companies and firms that supply them will soon be required by law to publish much more information in their annual reports about how they manage and develop their workforces.
Under the provisions of the EU Corporate Sustainability Reporting Directive, large EU companies with over 250 employees, will have to provide detailed information in their annual reports on their workers and those in their supply chain.
Draft reporting standards to enable organisations to comply with the directive were published by the European Financial Reporting Advisory Group (EFRAG) in November 2022.
The standards cover a range of key sustainability areas including climate change, pollution, human rights and supply chain, as well as detailed reporting requirements on an organisation’s own workforce. These will include requirements on employers to provide information on the diversity and makeup of the workforce (including contingent workers) employee voice and relations, work-life balance, investment in training and development and health and safety matters.
These draft standards will now be debated by EU policymakers, with adoption scheduled for June 2023. EU rules will directly apply in Ireland and other Member States once adopted by EU policymakers, but UK companies that supply EU companies will also need to provide the relevant data to their clients to enable them to report.
It is likely that they will be adopted and that the EU will then push for the adoption of similar standards at an international level. Investors are then likely to lobby for consistent standards across different jurisdictions, so these new EU standards are likely to be influential elsewhere.
There is an increasing focus by regulators and standard setters on human capital/workforce reporting as being central to the creation of sustainable organisations and ESG. As well as the emerging EU legislation, the US Securities and Exchange Commission has introduced new human capital disclosure requirements on the workforce.
Research by both the CIPD and the Financial Reporting Lab shows that the quality of workforce reporting among FTSE 100 companies in the UK is poor, which might also prompt the Financial Reporting Council to take further action to improve reporting practice in the UK.
The UK Government has already stated that it intends to follow new International Sustainability Reporting Standards to be developed by the International Sustainability Standard Board (ISSB), and which are likely to include workforce reporting. It will be important for employers’ views to be represented in future consultations both at an international and a national level. For example, do employers in the UK want to copy the EU approach, or to ask for more limited disclosure? Should disclosure requirements vary by size of company?
We will be discussing these issues with members in the coming weeks and months. If you would be interested to be involved, please contact me at email@example.com.
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