HR Analytics and ESG requirements: How do they fit together?

Ecological and social sustainability as well as responsible corporate behavior are increasingly becoming the focus of our society, politics and companies. The requirements that organizations must meet with regard to Environmental, Social & Governance (ESG) are constantly increasing – especially due to the European Union’s Corporate Sustainability Reporting Directive (CSRD). The directive obliges companies to publish an annual management report on the direction and principles of conduct of their business activities with regard to Environmental, Social and Governance issues.

Guide: How the HR department fulfills its ESG reporting duties

Who does the CSRD apply to?

The aim of the CSRD is to steer investments towards sustainable technologies and companies. The requirements of the EU directive apply to capital market-oriented companies that fulfill at least two of the following three conditions:

• More than 250 employees

• Net turnover greater than 40 million euros

• Balance sheet total higher than 20 million euros

Compliance with the CSRD provisions on ESG reporting will therefore also directly influence your customers’ investment decisions in the future and affects your company’s attractiveness as an employer. In times of a shortage of skilled workers, it is therefore in your organization’s best interest to position itself on ESG issues from a customer and employee attractiveness perspective.

What must be reported?

The CSRD requires companies to take a stand on the impact of their value chain and their business activities on employees, partners, suppliers and fellow human beings. The reporting must list the chances and risks that are derived from a company’s value chain for the ESG topics of environment, social and corporate governance.

It is important to disclose what approaches companies take to respect human rights and to prevent human trafficking, forced labor or child labor. Companies must also report on how any abuses relating to the aforementioned aspects are tracked and monitored. They must also provide information on whether the measures they have introduced in the event of deficiencies and violations are effective – for example, in the selection of suppliers.

The relevance of HR topics in the context of ESG

As described, ESG fundamentally relates to a company’s entire value chain and in some aspects also extends beyond the company’s own organization. This touches a range of HR-related topics.

From an HR perspective, the reporting duty includes information on employee matters, human rights and anti-corruption, as well as key figures on the workforce, suppliers, subcontractors and fellow human beings. By providing relevant data on ESG issues, the HR department makes a valuable contribution to the company and creates added value for employees and the HR organization as a whole. Many of the key figures that need to be reported in connection with CSRD and ESG are not completely new and probably already being recorded by companies today anyway.

The following excerpt provides an overview of the relevant HR KPIs that are relevant for ESG reporting:

• Employees by age and workforce structure
• Employees with illnesses, disabilities and restrictions
• Workplace-related illnesses and absences
• Time lost due to workplace-related illnesses and fatalities
• Occupational accidents with and without fatalities (must also be requested from subcontractors and suppliers because the entire value chain is considered)
• Illnesses of non-employees due to company activities
• Deaths due to illness caused by the workplace
• Family-related absences (parental leave, maternity leave, etc.)
• Reported complaints, violation of employee rights and ethical offenses

Employee-related data

The most important personal data that plays a role in ESG reporting includes the age, qualification and diversity structures of your workforce. Most companies are already recording this data in order to understand and proactively shape their strategic employee structure. Similarly, most organizations also report absence rates as they contribute to employee welfare and productivity. So you don’t have to start from scratch with ESG reporting, but can ideally already draw on existing data.

Display of the workforce by age and gender

In addition, the ESG requirements also comprise key figures that are more broadly defined. These include, for example, employees with disabilities, accidents at work with and without fatalities, family-related absences and ethical violations, as well as aggregated data from your upstream service providers and subcontractors along your value chain.

Employees with disabilities and work-related accidents

Consolidation and provision of HR data

The data collected for ESG reporting comes from various source systems and must first be consolidated and converted into the appropriate formats for reporting. Common source systems for HR data include SAP SuccessFactors, SAP HCM and SAP HXM, SAP S/4HANA and other common working time and statistics systems. The ideal solution is to create a single point of truth for the data in order to avoid parallel reporting. A data warehouse that is able to connect various systems and provide consolidated data is suitable for this purpose.

How do companies benefit from ESG reporting?

To a certain extent, ESG indicators are a numerical mirror of the company’s DNA. In their management reports, companies express that environmental, social and corporate governance issues are important to them. The continuous collection of data helps to improve your own sustainability performance and increase your attractiveness as an employer – after all, how you deal with ESG issues can significantly influence an applicant’s decision for or against your company.

The HR department has the opportunity to position itself within the organization with an additional value contribution and improve its standing. Overall, companies should not view the requirements arising from CSRD as an new annoying obligation, but rather as an opportunity to take a critical look at their own value creation processes and set the right course towards a sustainable business orientation.

Procedure for ESG reporting

With regard to the collection and presentation of personal data as part of ESG reporting, there are various pitfalls that make it difficult to comply with reporting obligations. These include, for example, a lack of awareness of the topic.

However, as the EU is driving the topic forward on a massive scale, it is only a matter of time before organizations are confronted with it. If quality-assured HR data is not yet available, this could result in considerable consolidation efforts in the future. If companies do not have a central data management platform and lack suitable forms of evaluation, the framework conditions for ESG reporting are also more difficult.

When implementing the reporting duties arising from the CSRD, a structured approach is ultimately crucial. Organizations must clarify which figures they need and which data they already collect. To this end, the relevant key figures and data sources must be clarified in advance. It is then necessary to determine how the data can be consolidated for reporting purposes.

Companies should identify the individual challenges associated with ESG reporting and position themselves successfully with regard to their own value chain and the associated effects. In general, the recommendation is to initiate the necessary measures at an early stage in order to be ready for upcoming ESG requirements and to gain momentum for your own strategic organizational design.