New EU ESG Rules Will Have an Impact on IRR Industry

Companies in the incentive, rewards, and recognition (IRR) field who believe the new European Union Corporate Sustainability Reporting standards have nothing to do with them: think again. The new disclosure requirements will compel thousands of US and potentially over one million organizations worldwide to explain in detail how they engage with their employees, customers, distribution, and supply chain partners, including IRR suppliers and their customers.

Because the new European Union Corporate Sustainability Reporting directive is mandatory for most EU organizations with more than 250 employees, or those who do business with them, these standards promise to have an unprecedented impact on corporate governance around the world, including on the world of Incentives, Rewards, and Recognition.

The new disclosure requirements, potentially applicable to tens of thousands of US companies and over one million companies worldwide, require companies to annually disclose for easy public access detailed information on the metrics and methods of managing and engaging their workforces and those of their supply chain and distribution partners, as well as the methods and metrics used to engage their customers, distribution partners, and communities. This includes employee turnover and the composition of the workforce and full-time-equivalent contract employees.

If an organization cannot disclose the required information because it has not adopted a general process to engage with stakeholders, “it must disclose this to be the case and provide a timeframe for establishing such a process.”

Click here for complete details and links to the four specific sets of regulations that apply to 1) an organization’s own employees; 2) those of its supply chain and distribution partners; 3) the interests of customers and distribution partners, such as wholesalers and retailers, and 4) communities.

Here’s how the regulations specifically affect the rewards and recognition field either related to what suppliers could be asked to disclose about their own organizations to European Union clients or the types of information these clients will have to disclose about their own employee and customer engagement activities to EU regulators starting in 2024 for the 2023 calendar year.

1. Any incentive or recognition company of any size doing business with a European-owned company in the US or with a company that does business with a European company likely will soon receive a questionnaire about its management practices for its employees, supply chain employees, customers and distribution partners, and communities. Such reports will likely be included in RFPs (requests for proposals.).

2. Customer and channel partner engagement. IRR firms supporting EU client customer and channel engagement programs operating in the US will now have to address how they ensure social inclusion of consumers and distribution (channel partners) in terms of access to products and services and responsible marketing practices. The new rules require disclosure of negative impacts on the reputation of a company’s products and/or services that can deteriorate its business performance, or practices that enhance trust in products and/or services that can bring business benefits, such as increased sales or widening of the future consumer base. The organization shall also disclose whether and how the perspectives of distribution partners or end-users inform their decisions or activities aimed at managing actual and potential material impacts on consumers and/or end-users. This shall include, where relevant, an explanation of the precise nature and frequency of engagement with distribution partners and end-users, including when and how, who is in charge, and how such engagement is used to improve performance.

3. Employee engagement programs. IRR firms serving EU companies active in the US may be subject to reporting requirements on their people management practices or those of their own supply chains, as well as be called upon to help their EU clients comply with EU reporting rules. Among the many explanations companies must include, several apply to rewards and recognition, including issues related to social dialog; work-life balance; health and safety; training and skills development, employee turnover, and measures to promote diversity.

Under the new rules, the organization shall disclose its general processes for engaging with its own workers and/or workers' representatives. Companies will also have to provide key information on their own workforces, including: A report by head count of the total number of employees, and breakdowns by gender and by country for countries in which the undertaking has 50 or more employees; a report by head count or full time equivalent (FTE) of permanent employees, and breakdowns by gender and by region; temporary employees, and breakdowns by gender and by region; and non-guaranteed hours employees, and breakdowns by gender and by region; total number and rate of own employee turnover in the reporting period in head count; a description of the methodologies and assumptions used to compile the data, including whether the numbers are reported: in head count or full-time equivalent (FTE) (including an explanation of how FTE is defined); and, at the end of the reporting period, as an average across the reporting period.

The organization shall disclose the gender distribution at top management and the age distribution amongst its employees; the objective of this Disclosure Requirement is to enable an understanding of gender diversity at top management level and the age distribution of its employees. The organizational shall also disclose the gender distribution in number and percentage at top management level amongst its employees; and the distribution of employees by age group: under 30 years old, 30-50 years old; over 50 years old.

The rules will require organizations to account for their activities in 2023, even though the reports will not be published until 2024.

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