Take Action Now: Sustainability and Human Resources (Published by Labor Law Magazine)

What does ESG have to do with Human Resources?

At first glance, not much – but far from it! For years, not only global companies have been dealing with issues that are now on everyone’s lips with buzzwords like ESG, sustainability, and green compliance. “Human Capital” is more than ever the focal point of successful management in a firm. Under the generic term “compliance”, executive boards, PR and public policy teams, HR departments and work councils (in co-determined companies) are working on increasingly complex Codes of Conduct. This did not just start with the recent ESG hype.

What are the labor law issues?

Today’s pandemic has brought topics like health and safety at work, work time rules, employee data protection but also factors such as diversity, gender equality and employee satisfaction to the forefront. The EU Commission recently codified reporting obligations on some of these issues. The Corporate Sustainability Reporting Directive (CSRD) is scheduled for adoption in the second quarter of 2022 and will become effective from 2023. It provides for far-reaching regulations and broad reporting requirements for large companies with a focus on health protection, workplace safety, social responsibilities and gender equality. These reporting obligations will affect all maters that are material to business performance or have an impact on environmental and social issues. They will cover working conditions under health and safety aspects, from work-life blance and diversity to human rights standards. The latter will be of particular importance in the area of global supply chains. The EU recently announced a Supply Chain Act which is expected to contain even stricter regulations on due diligence and reporting obligations than the German LkSG: Bonus payments to executives, for example, will be directly linked to complying with due diligence.

ESG has found its way into the daily routine of management boards and HR departments. In addition, companies are faced with constantly rejuvenating workforce which demands more in terms of workplace attractiveness and satisfaction, social environment, and an employer’s clear commitment to environmental issues and climate protection. Generation Z (birth cohorts from the late 1990s to the early 2010s) will already make up more than 70% pf the workforce in the next five years: In the often-cited “war for talent”, companies will no longer be competitive without a sustainable and credible ESG record.

No sustainability without compliance

Not only since the bribery and corruption cases involving big names in German industry and business has the issue of “compliance” been a central component of any corporate management with integrity. Any illegal behavior or accusations of corruption or bribery do immense damage to a company’s reputation and corporate culture. In order to meet the ever-increasing regulatory requirements in the 21st century, however, clear rules and unwavering adherence to strict guidelines are essential.

Compliance departments have sprouted everywhere in the last few years and compliance officers are now appointed to executive boards. Legal and HR departments do well to continuously sensitize their own management teams as well as their entire workforce to the issues of compliance. Internal (and external)  processes are laid down in binding codes of conduct and comprehensive guidelines of behavioral measures. Corporate and leadership cultures are defined or created where they do not exist. But of all this will only be successful if compliance is also exemplified and practiced in everyday life by the top management, from the C-suite “top to bottom” to minimize risks, optimize business relationships with customers, and ensure a concern for social issues within the framework of sustainable HR management.

Read the full article in Labor Law Magazine. Please refer to page 7. 

Michael Magotsch has over 30 years of experience advising global companies in all aspects of German labor and employment law. His practice focuses on labor and employment issues in relation to national and cross-border restructurings, acquisitions, redundancies, and outsourcing measures. Mr. Magotsch advises C-level executives in transition or exit scenarios as well as supervisory boards in sensitive disputes with C-level executives. Read more about Michael.

Oliver Otto is a Partner in Rimon’s Frankfurt office. He focuses on restructuring, bankruptcies, as well as banking and finance in the finance, technology, energy, and manufacturing sectors. Mr. Otto advises clients on insolvency risk on financial restructuring measures, non-performing investments, exit solutions, portfolio solutions, and debt trading. Read more about Oliver.