Corporate Sustainability Reporting and its implications for labour law

Prof. Attila KUN, Hungary (KRE ÁJK and NKE ÁNTK)

So-called non-financial — or in other words: sustainability / CSR (Corporate Social Responsibility) / ESG (Environment, Social, Governance) / ‘triple bottom line’ / social etc. — reporting is basically about providing public information about ESG performance. For a long time, these practices have only been voluntary, usually forming part of the CSR-strategy of companies. However, in recent years, a new trend has been emerging, according to which non-financial reporting is becoming mandatory (at least to some extent, in some jurisdictions, in some way).

The preliminary question of course arises: what implications non-financial reporting might have in terms of labour law? The public accountability and transparency of corporate employment practices may possibly facilitate compliance with labour laws and holds the potential to generate a positive, upward spiral (“race to the top”) for responsible business conduct (RBC) via reputational incentives. Non-financial reporting is also a key factor for human rights due diligence (HRDD) practices. Furthermore, non-financial reporting can boost a better management of sustainability-related risks and better taking into account the interests of all stakeholders, including workers’ representatives. Non-financial reporting can also be a crucial platform for action for unions and it opens a new horizon for the promotion of social dialogue and collective bargaining.

EU law already requires certain large companies to disclose information on the way they operate and manage ESG challenges. EU Directive 2014/95/EU – the Non-Financial Reporting Directive (NFRD) – lays down the rules on disclosure of non-financial and diversity information by certain large companies (this directive amends the Accounting Directive 2013/34/EU). These rules currently apply only to large public-interest companies with more than 500 employees covering approximately 11,700 large companies and groups across the EU, including listed companies, banks, etc. In recent years, the Commission has published supplementary, non-binding operational guidelines to help companies in reporting (https://ec.europa.eu/info/publications/non-financial-reporting-guidelines_en). However, according to stakeholders, the overall quality of reporting is still not satisfactory.

On 21 April 2021, the Commission adopted a proposal for a Corporate Sustainability Reporting Directive (CSRD), which would amend and improve the existing standards of the NFRD. The proposal is innovative in many respects: it would significantly extend the scope of reporting entities, require the audit (assurance) and the digital ‘tagging ’of the reported information, introduce more thorough reporting requirements and a requirement to report according to mandatory EU sustainability reporting standards etc. The CSRD also foresees the adoption of EU sustainability reporting standards. The draft standards would be developed by the European Financial Reporting Advisory Group (EFRAG). The first set of standards would be adopted by October 2022. Social, labour-related indicators are part of the package. Nonetheless, the European trade union movement would improve the proposal in this respect.