The year 2023 was a year of transformation, with a wave of major legislative changes shaping the market for more responsible businesses. Among these changes, we have seen, for example, the Corporate Sustainability Reporting Directive (CSRD), which sets a new standard for corporate responsibility. However, the second half of the year saw an equally significant shift with the enactment of the Whistleblower Protection Act and the release of the European Sustainability Reporting Standards (ESRS) by the European Commission.
A closer look reveals that these seemingly disparate standards are in fact linked in a way where they reinforce each other and rarely work without one another. The Whistleblower Protection Act (or the Directive transposed by it) prescribes a basic internal framework for the protection of those who blow the whistle on criminal activity within a company. The CSRD, on the other hand, mandates companies to describe the complexity of their integrated whistleblower protection mechanisms in their sustainability reports. Finally, the ESRB standard sets out how exactly should this information be presented, and also requires companies to indicate whether they train their staff in whistleblower protection, whether the company has designated a person competent to receive whistle blows, and whether it has procedures in place to properly investigate whistleblowing. Once a company understands the need to take advantage of all the resources offered by these standards, the overall effectiveness of each standard increases.
Effective whistleblowing plays a key role in identifying risks to ESG principles, from environmental violations to labour issues. By proactively preventing them through the implementation of complex whistleblowing mechanisms, companies engage in mitigating risks that can harm the long-term sustainability of the company. By creating a safe environment, whistleblower protection becomes a cornerstone for maintaining a company structure that is consistent with ESG principles, which include transparency and accountability. Whistleblowing strengthens these aspects by both exposing hidden practices that may have an impact on, for example, the environment, the company itself or corporate governance, and by strengthening the company’s ability to self-reflect. The institution of whistleblower protection is the epitome of foresight and helps to shine a light on problems that might otherwise remain hidden and, what is more, could become pernicious and destructive for the company as a whole.
Stakeholder engagement is another key pillar of ESG-compliant companies. Whistleblowing can empower stakeholders by providing a platform to raise concerns and hold the company to account. When stakeholders have the opportunity to voice their opinions and raise their concerns, it promotes a sense of responsibility and participation in the journey towards a sustainable company. This engagement, which whistleblowing facilitates, is in line with the core ideas of ESG.
The European legal space has evolved significantly towards the integration of ESG and whistleblowing. In addition to the aforementioned regulations that provide legal safeguards for whistleblowers, encourage them to report ESG-related misconduct without fear of retaliation, and create an environment in which ethical behaviour and responsible management can thrive, there are also European regulations such as the Non-Financial Reporting Directive (NFRD) that mandate companies to disclose ESG-related information publicly. This regulation helps to create a culture of transparency, balancing the pressure between what is presented and what is actually happening. The integration of reporting channels and ESG disclosure ensures that companies not only report on the status of their commitments, but also provides a platform that allows stakeholders to verify these claims. It also helps to prevent greenwashing and other practices where a company declares its positive stance on ESG principles, but, in reality, shows no real and active commitment to enforcing them.
Whistleblowing and ESG are not to be understood as mere compliance with legislative obligations. The proactive adoption of these standards can enable companies to harness the power of self-reflection and move towards a future where transparency, sustainability and, hand in hand, trust between the company, shareholders, investors, consumers, public authorities, trust in oneself, prevail.
