The rapid growth of corporate reporting on sustainability issues in recent years has largely been welcomed by responsible investors. Yet the “alphabet soup” of corporate initiatives is regularly bemoaned as a barrier to progress.
It can appear to create confusion among sustainability leaders over what to do, while providing cover for laggard firms to do as little as possible. Companies we talk to attest to this confusion, even within the comparatively underdeveloped area of social reporting.
For some observers and participants, the way to navigate the crowded landscape is to focus exclusively on mandatory disclosure. Such a view suffers from the tendency to try to make the best the enemy of the good, which sadly remains very common in civil society.
But worse still, it ignores the experience of recent history.
Mandatory disclosure stands on the shoulders of a history of voluntary disclosure
Firstly, one of the main drivers of now-mandated climate disclosures was the success of CDP and others in normalising climate reporting. That thousands of companies already reported voluntarily to CDP acted as a powerful reassurance when regulators and policymakers considered making such disclosures mandatory.
Second, despite repeated efforts, there was little to no progress made at the United States’ SEC (Securities and Exchange Commission) on corporate disclosure throughout the entirety of the Trump administration.
The openness to reform of incoming SEC Chairman Gary Gensler is certainly welcome. But the experience of recent years shows that waiting for the right politicians is a risky strategy.
To set “mandatory” and “voluntary” approaches against one another would be counter-productive. If social reporting is to become as normalised as environmental disclosure is today, it will be necessary to learn from the most successful initiatives, regardless of their worldview.
That’s why we at the WDI were so excited to secure a secondment to EFRAG (European Financial Reporting Advisory Group) to help formulate the workforce-related elements of the European Commission’s forthcoming Corporate Sustainability Reporting Directive (CSRD).
The WDI is helping formulate impactful, worker-centric metrics for EU corporate reporting regulations
Last month we joined the Secretariat supporting the Project Taskforce on European Sustainability Reporting Standards (PTF-ESRS).
Alongside other activities focused on topics including climate, governance, SMEs and more, we have started the intensive work of compiling a series of recommended indicators to ensure companies properly account for how they treat their staff and suppliers.
This draws on WDI’s experience and expertise, acquired through developing our survey framework, an iterative, years-long process involving the input of investors, companies, trade unions and civil society.
The secondment is an opportunity to contribute to the PTF_ESRS work (European Lab PTF on European sustainability reporting standards) with impactful, worker-centric metrics for adoption within the CSRD.
WDI has previously expressed concern that the imperative to achieve greater harmonisation among standard setters could lead to a race to the bottom, or for people-related metrics to be deprioritised. One reason for introducing WDI “core indicators” this year is to focus our engagement with international standard setters. These are a subset of WDI metrics which, following a consultation exercise, are considered to be foundational for any company wanting to demonstrate how it values its people.
EFRAG has published a status report detailing work undertaken so far in developing European sustainability reporting standards. It makes for encouraging reading. An early demonstration of EFRAG’s intent was its Statement of Cooperation with Shift to develop standards in the social domain. Shift is the world’s most powerful and progressive NGO advocate for the implementation of the UN Guiding Principles on Business and Human Rights – as well as a longstanding ally of ShareAction and the WDI.
The rationale for companies to engage seriously with workforce disclosure is strengthening further
WDI’s work with EFRAG further strengthens the case for companies to report new data to us directly.
The 2021 WDI reporting period has now closed and once again we have seen solid increases in disclosures from companies across all economic sectors and geographies.
In previous years we have encouraged companies to disclose to WDI in order to get ahead of “forthcoming regulations”. Now that we have a direct role in supporting the interim technical work of the PTF-ESRS in developing the draft EU sustainability reporting standards, the rationale for companies to engage seriously with workforce disclosure is strengthened further.
It is still too early to tell whether CSRD can seize the opportunity to create genuinely comprehensive reporting standards, and whether such standards can take hold outside of Europe.
But there is reason to be optimistic. And in the shorter term, we will continue to support increasing numbers of companies preparing for mandatory reporting requirements by disclosing to WDI.