MDX academic explains how British firms will have to comply with new EU corporate laws covering a range of social and environmental issues
Greenwashing is the exaggeration of a company’s impact on the environment and society. Unlike financial information, companies are not required to comply with reporting standards concerning environmental, social and governance (ESG) information.
It is, therefore, perhaps not surprising that companies report their behaviour favourably without divulging the challenges or adverse impacts of their operations. This has cast a shadow over the credibility of ESG reports and their contributions to corporate accountability.
Furthermore, our research shows that companies struggle to report accurate information about workers along their value chains. Many companies agree with the general principles of labour rights, but they often fail to provide specific information supported by statistics, any steps they take to uphold labour rights, or their interactions with key stakeholders. Instead, they tend to provide general narratives which exaggerate their efforts.
The UK Modern Slavery Act (2015) has not improved the situation much. It is a relatively soft law and carries no penalties. There is very little political appetite in Britain to take on board recommendations to improve labour rights reporting.
All this may have to change in the face of new developments in the EU. The Corporate Sustainability Reporting Directive (CSRD) is a new Directive marking the beginning of a new era for reporting on a broad range of social and environmental issues, including labour rights. Given that Britain is the third largest trading partner in the EU, many British companies will have to comply.
The CSRD will mandate companies to report ESG information to the new European Sustainability Reporting Standards (ESRS). There will be penalties for non-compliance. ESRS will require companies to report on their endeavours to uphold labour rights of their employees and the workers along their value chains. ESRS requirements are closely aligned with those of the Global Reporting Initiative (GRI) standards. However, ESRS will evolve over the coming years and it’s yet to be seen if they will surpass the GRI standards in quality and adoption.
While the accounting profession is gearing towards the upcoming changes, companies and local authorities need further support and guidance on how to uphold labour rights at the bottom end of value chains in the UK. It remains to be seen how far down the value chains companies can go to report accurate information and provide assurance on the absence of modern slavery.
Dr Sepideh Parsa is Associate Professor of accounting at Middlesex University Business School. Sepideh has been appointed by the Global Sustainability Standards Board (GSSB), GRI’s independent standard setting body, to serve on the GRI Labor Project Advisory Group to revise and develop the Labor related GRI topic standards.