CSRD Meets Pay Transparency

What’s the CSRD?

The CSRD stands for the Corporate Sustainability Reporting Directive, which entered into force on January 5, 2023. It aims to standardize sustainability reporting requirements for companies operating within the EU. The CSRD is part of the EU’s broader efforts to promote sustainable finance and corporate responsibility.

This law requires all listed and large companies (except listed micro-enterprises) to disclose information on what they see as the risks and opportunities resulting from social and environmental issues. They must also report on the impact of their activities on people and the environment.

The Corporate Sustainability Reporting Directive and the Pay Transparency Directive are two significant regulatory frameworks, each targeting different aspects of organizational accountability and transparency. Let’s break down the primary differences between them:

Scope and Focus

The CSRD is an expansion of the Non-Financial Reporting Directive (NFRD). It aims to improve and increase the scope of reporting by companies on environmental and social issues, governance, and the impact of their activities on human rights and the environment. Its primary focus is on sustainability reporting.

The Pay Transparency Directive focuses on ensuring that men and women receive equal pay for work of equal value. It aims to address the gender pay gap by requiring employers to be transparent about their pay structures and to report on gender pay gaps.

While both directives aim to increase transparency and accountability, the CSRD focuses on broad sustainability reporting. The Pay Transparency Directive focuses more narrowly on the gender pay gap (<5%) and aims to promote equality in pay between men and women.

Who is it for?

The CSRD applies to all large companies and all companies listed on regulated markets (with exceptions for micro-enterprises), affecting nearly 50,000 companies in the EU. This includes large EU and non-EU companies that have significant activities in the EU. Here’s the high-level overview of which companies must report:

The Pay Transparency Directive applies to all companies with over a hundred employees operating within the EU. Smaller companies will most likely be exempt, but may report voluntarily.

What do you need to do?

CSRD: Companies will need to integrate sustainability into their business model and strategy, and report on it in a consistent and detailed manner, according to specific standards. The first companies will have to apply the new rules for the first time in the 2024 financial year, and publish reports in 2025.

Pay Transparency Directive: Companies need to implement transparent pay policies, ensure equal pay for equal work, and address any discrepancies in pay between genders. This might include conducting pay audits and reporting on these audits. All companies of 150 employees and over will have to report by June 7, 2027 over compensation data of 2026. By 2031, the law applies to all companies of 100 employees and over.

What’s the purpose of the reports?

The aim of the CSRD is to make sustainability reporting by companies more consistent and comparable. This is seen as crucial for sustainable investment decisions and for increasing the sustainability of the European economy.

The focus of the Pay Transparency Directive is on reducing gender pay discrimination and promoting equality in the workplace, especially regarding compensation. It is part of a broader EU strategy to eliminate the gender pay gap.

What must you report on?

CSRD: Companies need to report on their sustainability impacts, risks, and opportunities in alignment with European sustainability reporting standards. This includes detailed information on their supply chains, policies, and practices related to environmental protection, social responsibility, and treatment of employees.

While your company must evaluate all the reporting standards below, I suggest you focus on Social Standards, for your own workforce and workers in the value chain. You might also need to disclose some business conduct policies on e.g. hiring, remuneration and equal opportunities as part of Governance Standards.

Pay Transparency Directive: Companies are required to report on pay gaps between male and female employees, both for basic pay and for additional compensation. Companies will be required to publish information on their pay levels and differences in pay, bonuses, and pay raises between genders. This directive also includes measures to ensure that job applicants receive information about pay levels and that employees receive adequate information about pay levels and criteria for determining pay.

How is the CSRD different from the Pay Transparency Directive?

CSRD reporting is not an HR initiative. Your company most likely has a team that ensures compliance. They will let you know what they need from you. In addition, the CSRD does not set any goals specific to HR. It stipulates that a company must have sustainable and fair work practices in place.

It assesses factors like the percentage of women in top management and the workforce, the male-female wage gap and the highest paid pay ratio (CEO to median employee compensation). HR will report on these and explain the year-on-year progress on (a subset of) the following reporting elements (that also apply to workers in the value chain):

The Pay Transparency Directive sets a specific goal: the gender pay gap can’t exceed 5%. It also includes remediation and fines in case of non-compliance. The Directive looks at the effect of company compensation policies and falls firmly within the remit of HR. I expect that HR will lead the initiative to establish Equal Pay as well as the mandatory reporting cycle.

So that’s it – a high-level comparison of the CSRD and the Pay Transparency Directive. I hope it has given you some insights on what’s ahead. And if you have questions, please reach out!

Final note: I don’t provide legal advice, and you should seek direction from your CSRD team for details.