It’s tough to navigate the European Sustainability Reporting Standards (ESRS), especially when you have to get your head around the ESRS G1: Business conduct.

With an increasing emphasis on ethical practices, anti-corruption measures, and responsible business operations, ESRS G1 is a cornerstone ensuring your organization upholds transparency and integrity.

At its core, ESRS G1 goes beyond a regulatory requirement – it persuades companies to take the right steps when it comes to corruption, competition, and lobbying. Corporate misconduct can often lead to reputational damage, financial penalties, and loss of stakeholder confidence. Complying with ESRS G1 helps prevent such issues and strengthen relationships with customers, suppliers, and employees.

But what exactly is ESRS G1, and how can businesses approach its interpretation effectively? In this article, we’ll break down the essentials of ESRS G1, explore its key requirements, and provide practical steps to help you implement it correctly.

What is ESRS G1 exactly?

Businesses conduct reporting within the Corporate Sustainability Reporting Directive (CSRD) framework. ESRS G1 is the last out of the 10 topics and guides companies in assessing, managing, and disclosing their approach to ethical business practices. These approaches include anti-corruption measures, fair competition, and responsible lobbying. 

The role of ESRS G1 in an organization is to bring transparency and accountability that can lead to trust and sustainable economic performance.

The 6 ESRS G1 Disclosure Requirements and how to interpret them

There are a total of six ESRS G1 disclosure requirements a company must disclose:

1. ESRS G1-1: Business conduct policies and corporate culture
2. ESRS G1-2: Management of relationships with suppliers
3. ESRS G1-3: Prevention and detection of corruption and bribery
4. ESRS G1-4: Incidents of corruption or bribery
5. ESRS G1-5: Political influence and lobbying activities
6. ESRS G1-6: Payment practices

Let’s dive into each of these disclosures one by one.

Disclosure Requirement G1-1: Business conduct policies and corporate culture

ESRS G1-1 requires companies to disclose their policies regarding business conduct matters and their approach to fostering corporate culture. 

The disclosure of these policies will give you insights into how companies identify, assess, manage, and fix risks related to business conduct.

Key elements to disclose include:

1. Mechanisms for identifying, reporting, and investigating concerns: The organization must report on its approach to identify and address unlawful behavior or actions that violate the code of conduct or internal rules. Clarification on whether reporting accommodates both internal and external stakeholders.
2. Anti-corruption and anti-bribery policies: The company must disclose existing policies aligned with the United Nations Convention against corruption. If no such policies exist, the company will have to make it clear and provide a plan and timeline for implementation.
3. Whistleblower protection mechanisms: List all the details of established whistleblower channels. Also, mention what measures the company is taking to protect whistleblowers from retaliation. Lastly, ensure compliance with Directive (EU) 2019/1937.
4. Policies on whistleblower protection: If no policies exist for whistleblower protection, make sure you disclose it and provide a plan for future implementation.
5. Follow-up on whistleblower reports: The organization must report on procedures for investigating business conduct incidents, including corruption and bribery cases. Their primary focus must be on promptness, independence, and objectivity.
6. Animal welfare policies: Where applicable, disclose any policies related to animal welfare.
7. Training on business conduct: Description of the company’s training policies – target audience, frequency, and depth of coverage.
8. Functions at risk regarding corruption and bribery: This involves identifying functions at risk and ensuring compliance with relevant legal requirements, such as Directive (EU) 2019/1937.

Note: Companies subject to national laws transposing Directive (EU) 2019/1937 on whistleblower protection may demonstrate compliance by stating their adherence to these legal requirements.

Disclosure Requirement G1-2: Management of relationships with suppliers

ESRS G1-2 needs companies to disclose how they manage supplier relationships and how relationships impact their supply chain. The goal is to explain the procurement process, highlighting fair treatment of suppliers and steps taken to manage sustainability risks.

Here are the key elements of the disclosure:

1. Supplier relationship management: Describe the approach the company takes to build and maintain strong supplier relationships, such as regular communication, performance evaluations, or collaboration initiatives.
2. Fair payment practices: Describe policies to prevent late payments, particularly to SMEs.
3. Sustainability criteria: Explain whether and how social and environmental criteria are factored into supplier selection processes.

ESRS G1-2 ensures that all the suppliers for a company are treated fairly so that there’s little to no impact on the supply chain.

Disclosure Requirement G1-3: Prevention and detection of corruption and bribery

Here, companies must disclose the systems they use to prevent, detect, investigate, and respond to allegations of corruption and bribery. 

Important aspects of the disclosure include:

1. Procedures for managing corruption and bribery incidents: To manage corruption and bribery, the company must:some text
   • Describe the procedures it will take to prevent, detect, and address allegations of corruption and bribery.
   • Confirm if the investigators or committees handling these allegations operate independently or include management.
   • Explain the processes to report outcomes to administrative, management, and supervisory bodies.
   • State clearly and outline implementation plans if there’s no procedure to handle corruption allegations.
2. Policy communication: Mention how corruption and bribery policies are communicated to relevant stakeholders. Also, confirm that the policies are accessible and their implications are clearly understood.
3. Training on anti-corruption and anti-bribery:some text
   • Clarify the nature, scope, and depth of training programs the company offers.
   • Disclose the percentage of functions at risk covered by these training programs.
   • Mention the extent of training provided to administrative, management, and supervisory members.

ESRS G1-3 ensures stakeholders understand the organization’s commitment to preventing and addressing corruption and bribery through clear procedures and effective training programs.

Disclosure Requirement G1-4: Incidents of corruption or bribery

ESRS G1-4 requires companies to share details of corruption or bribery incidents during the reporting period. The objective is to provide transparency regarding the nature, outcomes, and actions to respond to such incidents so there’s accountability and compliance in the organization.

Key aspects of disclosure:

1. Mandatory disclosure:some text
   • Disclose the number of convictions and fines imposed for anti-corruption and anti-bribery law violations. 
   • List the actions the company takes to address breaches in procedures and standards related to anti-corruption and anti-bribery.
2. Optional disclosure: Here, the company has to disclose the following:some text
   • Total number and nature of confirmed incidents of corruption or bribery.
   • Number of confirmed incidents where employees were dismissed or disciplined for corruption or bribery-related offenses.
   • Number of confirmed incidents involving business partner contracts terminated or not renewed due to violations related to corruption or bribery.
   • Details of public legal cases related to corruption or bribery involving the company or its employees. Additionally, the outcomes of cases initiated in previous years but concluded in the current reporting period.
3. Scope of incidents: Include incidents involving actors in the value chain only when the company or its employees are directly involved.

When you address and mitigate incidents of corruption and bribery, it often leads to enhanced accountability and trust in the organization.

Disclosure Requirement G1-5: Political influence and lobbying activities

This disclosure provides transparency on the undertaking’s activities and commitments related to exerting political influence, including political contributions and lobbying activities. It highlights the impacts, risks, and opportunities linked to these efforts.

You must disclose things like:

1. Oversight responsibility: Identification of representatives in administrative, management, and supervisory bodies responsible for overseeing political and lobbying activities.
2. Political contributions: Total monetary value of financial and in-kind political contributions, aggregated by country or geographical area and categorized by type of recipient/beneficiary. 
3. Lobbying activities:some text
   • Main topics addressed through lobbying efforts and the company’s key positions on these topics.
   • Explanation of how these activities relate to the undertaking’s material impacts, risks, and opportunities, as identified in the materiality assessment.
4. Registration in transparency registers: Disclosure of registration in the EU Transparency Register or equivalent national registers, including the register's name and identification number.
5. Previous public administration roles: Information on administrative, management, and supervisory body members who held public administration roles (including regulators) in the two years before their appointment during the current reporting period.

This disclosure ensures accountability by clarifying the undertaking’s political and lobbying efforts, oversight, and alignment with transparency standards.

Disclosure Requirement G1-6: Payment practices

To comply with ESRS G1-6, companies must provide insights into their contractual payment terms and performance. The primary focus must be on how payment practices impact SMEs.

Here are the key aspects you need to clarify:

1. Average payment time: The average number of days the company takes to pay an invoice from when the contractual term starts.
2. Standard payment terms: A clear explanation of the organization's standard payment terms, stated in the number of days for each main category of suppliers, along with the percentage of payments that comply with these terms.
3. Legal proceedings: Clarify the number of ongoing legal proceedings related to late payments.
4. Additional contextual information: If representative sampling is used to calculate the average payment time, disclose this fact and describe the methodology employed.

ESRS G1-6 brings transparency in payment practices, promotes fairness, particularly for SMEs, and addresses issues of late payments.

Practical steps for implementing ESRS G1 disclosure requirements

Implementing ESRS G1 requires a structured approach integrating governance and sustainability in business operations. Any company trying to do so must evaluate governance practices, address risks, and align with ethical standards to meet disclosure requirements. Here are the steps you can take to implement ESRS G1 the right way.

1. Conducting a double materiality assessment for G1

To effectively implement ESRS G1, companies must conduct a double materiality assessment focusing on governance-related issues critical to sustainability and business resilience. This process requires evaluation of the impacts, risks, and opportunities (IROs) across six key sub-topics:

Corporate culture: Assess if company culture fosters ethical behavior, inclusivity, and alignment with sustainability goals. Analyze practices that promote diversity, equity, and transparency and develop mechanisms that ensure adherence to ethical standards at all organizational levels.

Protecting whistleblowers: Evaluate policies and mechanisms to protect whistleblowers who report misconduct or unethical practices. Make sure these systems are leak-proof, prevent retaliation, and are trustworthy.

Animal welfare: For industries that interact with animals, assess company policies and practices to minimize animal harm. Consider compliance with ethical standards, humane treatment measures, and initiatives to reduce animal testing.

Political engagement: Review the political activities of the company, like lobbying or campaign contributions, to ensure alignment with governance standards and sustainability goals. Assess transparency in disclosures and potential risks of misaligned political engagement affecting reputational or operational outcomes.

Relationship management with suppliers, including payment practices: Examine the approach the company takes to fostering ethical supplier relationships. This includes evaluating supplier codes of conduct, payment terms, and practices that support fair treatment and sustainability across the supply chain.

Corruption and bribery: Assess anti-corruption policies, controls, and employee training; examine monitoring and reporting systems for detecting bribery. Also, ensure alignment with international standards to promote integrity and prevent unethical practices.

By evaluating these subtopics, companies can identify the governance issues that are most relevant to their operations. This structured approach helps prioritize action and aligns corporate governance with long-term sustainability and business performance goals.

2. Develop policies addressing business conduct, ethics, and integrity

To meet ESRS G1-1, companies should establish comprehensive policies promoting ethical business practices, anti-corruption, and responsible corporate governance. These policies should clearly outline the company’s commitment to transparency, legal and regulatory compliance, and promoting an ethical culture throughout its operations and value chain.

3. Create an action plan

To implement ESRS G1 effectively, companies should develop an action plan outlining specific measures to support ethical governance and integrity. This action plan should address issues like strengthening board accountability, enhancing transparency, and building organizational capacity for compliance and ethical practices.

Key actions include:

• Establishing comprehensive governance frameworks that define oversight responsibilities.
• Rolling out company-wide training programs on governance and ethical behavior.
• Introducing robust whistleblower mechanisms and conducting regular audits to monitor governance risks.

4. Set clear targets

Establish measurable targets that drive accountability and track progress toward improved governance and ethical practices. Targets may include metrics such as achieving zero incidents of corruption, ensuring 100% participation in ethics training, or reducing the time taken to resolve whistleblower reports.

Remember, these targets must align with the company’s governance policies and be linked to recognized frameworks like the OECD Guidelines for Multinational Enterprises or ISO 37001 (Anti-Bribery Management Systems). 

5. Monitor and report on metrics

To successfully implement ESRS G1, companies should monitor and report on key governance and ethics metrics. Regular monitoring enables companies to assess the effectiveness of governance frameworks, identify areas for improvement, and demonstrate accountability.

6. Assess and disclose financial risks and opportunities related to governance

To fully comply with ESRS G1, companies must assess and disclose the financial risks and opportunities associated with governance and ethical practices. 

This involves identifying potential costs, such as fines for non-compliance, legal fees, or reputational damage, and opportunities, such as improved investor confidence, better access to capital, or enhanced employee retention.

Disclosures should quantify these financial implications where feasible or provide qualitative insights when quantification is not possible. 

Companies should outline the methodologies and assumptions, demonstrating how governance-related risks and opportunities are integrated into broader financial planning and decision-making. This approach enhances transparency and supports stakeholders' informed decision-making.

Select the right software for ESRS G1 reporting

Understanding and reporting on ESRS G1 is a task in itself. However, to comply with CSRD, you will need robust software designed for efficient data collection, analysis, and reporting on governance-related metrics such as business conduct, risk management, and stakeholder engagement.

Coolset helps users achieve CSRD compliance by simplifying the reporting process and clarifying governance-related disclosures. Try out our software below, or book a demo here.

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