ESG is increasingly being discussed in the public arena. The issue of ESG is also being raised in the context of the ongoing implementation of whistleblower protection systems in organisations.
What is ESG?
The three letters stand for the following concepts E – Environmental, or environmental issues; S – Social, or social issues; and G – Governance, or corporate governance issues. In short, ESG is a set of criteria that organisations use to assess their environmental and social impact and to manage their own organisation.
New European legislation, in the form of regulations and directives being incorporated into the legal systems of individual EU member states, requires large organisations to report on ESG issues.
In light of the above, ESG has recently become a key element of business strategies, both because of the reporting requirements imposed on organisations and because of the increasing attention paid by investors, customers and other stakeholders to an organisation’s sustainability, social responsibility, governance and culture.
In this context, the role of whistleblowers is particularly important. Whistleblowers, i.e. individuals who report or disclose wrongdoing in organisations, play an important role in ensuring transparency and ethical business conduct. In the ESG context, their role is particularly important, especially in light of European sustainability reporting standards such as ERSR G1-1.
The role of whistleblowers in ESG
Whistleblowers are key actors in Area G, Corporate Governance, within the ESG framework. Through them, irregularities such as corruption, fraud or environmental violations are brought to light. Through their actions, organisations gain the ability to respond quickly to potential risks, minimise risks and improve their organisational governance practices at the same time.
European Sustainability Reporting Standards
The European Commission has developed a set of standards to standardise sustainability reporting across the European Union. These standards are a key component of the CSRD (Corporate Sustainability Reporting Directive), which makes sustainability disclosure (reporting) mandatory.
The ESRS consists of 12 standards, including 2 cross-cutting (general) standards and 10 thematic standards covering environmental, social and corporate governance issues.
Among these standards is ESRS G1-1, which covers business policy and culture, and requires companies to disclose information on their business ethics, anti-corruption and whistleblower protection practices.
What ERSR G1-1 means for whistleblowers?
ERSR G1-1 requires organisations to implement and report on whistleblower protection policies. Organisations must provide safe channels for whistleblowing and protect whistleblowers from retaliation. In practice, this means that organisations must:
- Create safe reporting channels: organisations should provide a variety of whistleblowing options, such as anonymous phone lines, online platforms or secure email boxes.
- Define processes and procedures: an effective whistleblower protection system requires clearly defined procedures for receiving and following up on reports, in line with the provisions of the Whistleblower Protection Act, which comes into force in Poland on 25 September 2024.
- Monitor and report on effectiveness: Companies must regularly assess the effectiveness of their whistleblower protection policies and include this information in their ESG reports.
Benefits of implementing a whistleblower policy
There are many benefits to implementing an effective whistleblower protection policy. First, it increases transparency and trust in the organisation, which is crucial for investors and business partners, but also for the perception of the organisation by an increasingly informed public. In addition, companies that effectively protect whistleblowers are better prepared to manage risk and respond more quickly to potential crises, and they build their positive image as a trustworthy employer, which is also an important element for organisations in today’s rapidly changing world and problems with employee availability.
Summary
Whistleblowers play a key role in ensuring ethical business conduct. There are many benefits to implementing a whistleblower protection system within an organisation, particularly in an ESG context, as it
- enables the detection and prevention of wrongdoing;
Whistleblowers are able to expose activities that are against the law or the ethics of the organisation. Reports from whistleblowers enable the organisation to respond quickly to reported problems and implement appropriate changes. - increase the transparency of the organisation’s activities;
The whistleblower protection system contributes to the transparency of the organisation’s activities and this builds trust among investors, customers and other stakeholders. - enhances the culture of ethical and responsible business conduct;
Organisations that support whistleblowers and take their reporting seriously demonstrate their commitment to ethical and responsible business conduct. This also leads to an improved corporate culture and greater employee engagement. - Protects the organisation
The early detection of problems uncovered by whistleblowers can help an organisation avoid serious legal and financial consequences. The organisation can take corrective action before problems escalate. - supports sustainability
A whistleblower protection system supports ESG objectives by helping organisations to operate to the highest ethical and legal standards. Furthermore, the implementation of a whistleblower protection system is one of the elements required to implement ESG in an organisation and is subject to ESG reporting.
In addition, the implementation of whistleblower protection can be a good start for organisations to begin the implementation of the ESG-System, that have not yet done so, but will be obliged to do so under the legislation, or for organisations that, although they will not be directly obliged to implement ESG, will indirectly need to implement ESG in order to stay in the supply chains of their business partners who are obliged to implement ESG.
Author:
Łukasz Błażejewski, Attorney at law (PL)
