Sustainability reporting is expanding across all industry sectors. Foremost among these is the EU’s Corporate Sustainability Reporting Directive (CSRD), which takes effect in 2024. At the same time, the IFRS is also expanding references to standards related to equal pay. What does it mean for global pay equity reporting?
Corporate Sustainability Directive Summary
EU sustainability standards are part of a broader EU commitment to achieving workplace gender equality. CSRD requires both EU and non-EU companies operating in the EU to file annual sustainability reports with their financial statements. Those reports must be prepared in accordance with European Sustainability Reporting Standards (ESRS), which we explore below.
A key social factor of the Corporate Sustainability Directive is equal treatment and opportunities for all. That includes equal pay for work of equal value, a principle enshrined in EU treaties. Pay equity reporting requirements are defined as follows:
“Sustainability reporting standards that address gender equality and equal pay for work of equal value should specify, amongst other things, information to be reported about the gender pay gap, taking account of other relevant Union law.”
It is likely, although not confirmed, that reference to other relevant EU law means the Pay Transparency Directive’s equal pay legislation.
EU organizations meeting any two of the following criteria must comply with the Corporate Sustainability Directive:
- More than 250 EU-based employees
- Local revenue of more than €40 million
- Total assets of more than €20 million
Other companies required to comply include organizations with annual EU revenue of over €150 million (about $163 million), and an EU branch with net revenue of over €40 million.
In total, the Corporate Sustainability Directive is poised to affect around 50,000 organizations, including an additional 10,000 non-EU companies. Approximately 3,000 US organizations are among that number.
EU Sustainability Standards: Pay Equity reporting and auditor requirements
More detail on EU Sustainability Standards is provided by the European Financial Reporting Advisory Group (EFRAG). EFRAG is an independent body responsible for the development of European Sustainability Reporting Standards.
In terms of pay equity reporting, ESRS Standard 1 requires organizations to disclose:
“the percentage gap in pay between women and men and the ratio between the compensation of its highest paid individual and the median compensation for its employees.”
Its objective is twofold, namely, to understand the pay gap, and to identify any “wide pay disparities.”
ESRS Standard 2 requires employers to explain their approach to identify and manage any impact on areas including:
“equal treatment and opportunities for all (for example, gender equality and equal pay for work of equal value….)”
While these are draft requirements, pay equity reporting will form a key part of the EU’s commitments to sustainability.
What does IFRS Reporting require?
While IFRS reporting does not directly reference pay equity, it refers to external standards that incorporate elements of it. Let’s look at those, and consider where pay equity reporting may be suggested based on materiality:
IFRS S1 Financial Reporting Standards on sustainability refer to both the Sustainability Accounting Standards Board (SASB) and Climate Disclosure Standard Board (CDSB). Here’s how they may impact workplace gender equality:
Sustainability Accounting Standards Board
Under IFRS S1 standards, employers are required to look at SASB’s Sustainability Reporting Framework. For example, SASB’s category on Human Capital section on Employee Engagement, Diversity, and Inclusion directly addresses a company’s ability to:
“…ensure that its culture and hiring and promotion practices embrace the building of a diverse and inclusive workforce that reflects the makeup of local talent pools and its customer base. It addresses the issues of discriminatory practices on the bases of race, gender, ethnicity, religion, sexual orientation, and other factors. “
American employers are required to categorize employees in accordance with EEO-1 Component 1 reporting.
CDSB Framework
As part of their financial reporting standards, employers may refer to the following initiatives, which also embrace workplace gender equality:
- Workforce Disclosure Initiative: (WDI) is an organization aiming to “improve corporate transparency and accountability on workforce issues” and “help increase the provision of good jobs worldwide. ”
- World Benchmarking Alliance: The Alliance’s Gender Benchmark evaluates and compares how employers drive and promote workplace gender equality and the empowerment of women.
While complex, workplace gender equality is integral to broader IFRS reporting.
IFRS reporting applies to employers reporting under current IFRS standards or GAAP.
IFRS Reporting versus Corporate Sustainability Directive
CSRD is part of EU law with specific pay equity related standard and auditor requirements. Pay equity reporting is clear within its legislation and mandated by law.
While IRFS Reporting doesn’t directly refer to pay equity reporting, its Materiality Practice Statement provides guidance for employers on making judgments in preparing reports. All organizations that report under the IFRS or GAAP standards can use the sustainability reporting framework of IFRS S1.
With the momentum in equal pay legislation and global sustainability initiatives, change in compliance requirements may be inevitable.
Pay equity reporting is the right thing to do
As we frequently state, pay equity isn’t simply a matter of compliance, it is the right thing to do. Creating a culture of pay equity fosters workplace gender equality and a more inclusive working environment. Pay equity is good for business and attracts more talent to your brand.
Further, the OECD (Organisation for Economic Cooperation and Development) states that gender equality and sustainability are “mutually reinforcing.” It also notes that slow progress on environmental goals “hampers gender equality.”
Start with a pay equity audit
An intersectional pay equity audit identifies pay disparities affecting compliance with CRSD reporting or the Pay Transparency Directive.
Trusaic’s PayParity® carries out an audit at the intersection of gender, race/ethnicity, age, disability, and more. The results help employers to identify and address the root causes of pay disparities and address pay inequity. In the context of the Corporate Sustainability Reporting Directive that includes the potential for wide disparities described in ESRS Standard 1.
A pay equity audit can also help employers in making materiality judgments when complying with financial reporting standards.
Trusaic is GDPR compliant and can assist any organization in any EU state in meeting its obligations under both the EU Corporate Sustainability Reporting Directive and the EU Pay Transparency Directive.
The GDPR applies both within and outside of Europe. Organizations that handle related data, whether they are based in the European Union or not, must comply. This is known as the “extra-territorial effect.”
CTA: Prepare for CSRD and IFRS compliance. Contact one of our pay experts today.
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