Why Human Resources Should Own ESG Reporting
New requirements around ESG reporting should be firmly within the domain of the HR department. Learn why, and the benefits for organizations.
Companies hoping to comply with incoming EU CSRD ESRS Own Workforce reporting requirements will need to work hard to collect and prepare the data and use the discovered narratives to drive workforce planning. For most, ESG reporting will also mean a significant organizational shift that puts the human resources department in the driver’s seat of the project.
Only HR is in a position to deliver ESG report metrics and hone policies that drive business performance while supporting socially responsible business practices, and feeding the insights and benefits of people data back into the organization.
Until now, Environmental, Social, and Governance (ESG) reporting has been defined by what companies want to share—or what they want to be seen to be sharing. With no common definition or methodologies, strategies have varied. While many initiatives have no doubt been well-intentioned, rigor within the data has often been lacking leading to misinterpretations, reduced transparency, and a lack of clarity inside and outside the company.
ESG reporting has been something that exists only as a function for compliance, largely reserved for IT teams and auditors. Now, not only must HR align with the C-Suite to set the agenda on people policies—ranging from health and safety to gender pay gaps and diversity—but it must also lead the strategy and process for how this data is captured and analyzed, and how the insights flowing from the data are fed back into the business in the most constructive way.
The impact of ESG reporting requirements
The granular nature of reporting demanded by the EU also means a cultural shift in organizations when it comes to agreeing on what good looks like. Data will change internal conversations about operations or recruitment among many other things.
Higher levels of transparency will become the new normal, meaning CEOs and other leaders may be exposed to sharper questioning about the business’s people performance. They will need commentary and a narrative to explain company plans to close gaps and fix other uncomfortable issues.
HR’s role is ESG reporting and organizational change
HR should be there to steer the business through these changes. CHROs should be setting people goals with business leaders, identifying the gaps, and committing to work together to close them. A tactical task force on this may include IT, compliance, and ESG among others. But HR should lead.
Here are 5 reasons why:
1. If HR doesn’t lead, others will
ESG, governance teams, those concerned with the employer brand, IT, compliance—there’s a long list of teams that should or could have a role in successful workforce reporting at these newly elevated levels. HR should have a leading and coordinating role to ensure that the exercise is not just an administrative overhead, but brings real business benefits and improvements.
The 30+ people measures required for CSRD ESRS S1 Own Workforce reporting, for example, cover a range of issues firmly related to HR’s purpose and reason for being—from training and disputes, to pay gaps and minority representation. Ceding overall responsibility to other functions is an opportunity missed for HR to become more central to the overall corporate decision-making process.
2. An opportunity to upskill the HR function
Taking the lead for the next phase of workforce reporting means an opportunity to build people analytics capabilities, inter-functional communications skills, and internal comms campaigning skills.
Take this chance to train leaders and managers across the business to self-serve and interrogate people data in their own way. Present insights and opportunities to support the delivery of the business strategy through people. Your organization needs people with new skills to meet the demands, and challenges, of the near future.
Make this a regular requirement for more developed, and more frequent, people reporting the launch pad for transformational upskilling in HR.
3. Build cross-functional capabilities that have historically been put on hold
More detailed and regular workforce reporting requirements mean that functions will have to work closely together to produce the necessary metrics and commentary, and also to take action to remediate or improve organizational people performance in certain areas.
HR should be a leader in these projects if the business benefits of people reporting and people metric analysis are to be realized. Only HR has the full set of levers to turn people insights into transformative action.
4. Doing the best for the business and its people
If you haven’t done this already, ESRS S1 Own Workforce reporting requirements are your opportunity to bake sustainability into the core of your strategy.
HR might previously have found itself in a position where it has been advocating for progressive change but been stonewalled due to cost or operational concerns. The new requirements also force businesses to ask difficult questions around issues they may not have had optics into until now—such as inadequate training provision for minorities, or the effects of a toxic team leader on the resignation rates of young women.
These sorts of conversations have often gone nowhere due to incomplete data or a ‘head in the sand’ mentality, but the effect on your bottom line will become clearer through data. The EU reporting framework is an excellent nudge in the right direction to formalize your people policies, save money on new hires, and create a better working environment for all.
5. Secure a place at the highest levels of corporate reporting
With people metrics becoming public information, boards are likely to become more interested, especially if their own performance becomes increasingly judged by non-financial measures. We are entering a time where the data relating to how businesses manage workforces will have parity with financial data, relevant at the highest levels of corporate life. HR leaders and teams with ambitions to drive business performance through people management will want to be a part of that.
How ready is your organization for the CSRD reporting requirements? Take our readiness quiz here and find out.
ESG reporting FAQ
What is ESG reporting?
ESG reporting is the process of measuring and disclosing a company’s environmental, social, and governance (ESG) data. The goal of ESG reporting is to provide both transparency into the company’s efforts around environmental, social, and corporate governance initiatives, and to remain compliant with the European Union’s ESG reporting requirements.
Is ESG reporting mandatory?
ESG reporting is now mandatory for all large companies and listed companies who operate in the European Union. It is not mandatory in all global regions and, instead, is often disclosed voluntarily by organizations to share their commitment to ESG standards.
On the Outsmart blog, we write about workforce-related topics like what makes a good manager, how to reduce employee turnover, and reskilling employees. We also report on trending topics like ESG and EU CSRD requirements and preparing for a recession, and advise on HR best practices like how to create a strategic compensation strategy, metrics every CHRO should track, and connecting people data to business data. But if you really want to know the bread and butter of Visier, read our post about the benefits of people analytics.