“Delay in sustainability reporting requirements does not mean businesses can sit back”

This figure makes it clear that companies face significant legal, reputational and financial risks, especially when the reporting requirements come into effect,” warns Gerarda Westerhuis, Sector Economist at ABN AMRO. “Actively engaging in social responsibility now will benefit you later. It offers a competitive edge as well as reducing future risks. The opportunities are there right now.”

Hidden costs: why quantifying works

These costs are based on the ‘true pricing’ method, which reveals the social impact of human rights violations such as underpayment, unsafe working conditions, child labour and unequal pay. True pricing makes these visible by quantifying them and converting them into financial values. The financial values are calculated based on the costs of prevention, compensation, restoration and retribution. Calculating the true price of products and services makes companies aware of social costs that were previously hidden.

Westerhuis: “The largest cost item is the equal pay gap, accounting for € 16.9 billion.” Most of this – approximately € 11.9 billion – arises abroad. The remaining € 5 billion arises here in the Netherlands. This is not unusual: 76 percent of the total hidden costs, over € 31 billion, originates from foreign partners. Although making violations visible is often complex and the violations often occur outside the Netherlands, this does not absolve Dutch businesses from their responsibility for the entire value chain, the report states.

Risks: invisible costs, tangible consequences

The sectors with the largest hidden social costs are business services (€ 7.7 billion), industry (€ 6.2 billion), trade (€ 3.8 billion) and transport & logistics (€ 3.3 billion). The costs show that these sectors are most at risk of legal, reputational and financial damage, especially when transparent reporting becomes obligatory. Although it is difficult to get a clear picture of the entire production chain, it is especially crucial for these sectors to be able to identify problems and make effective improvements.

Companies that lag in this area may risk chain liability, where organisations are held accountable for violations by their suppliers. In the long term, they could also face exclusion from the European market if products are shown to be linked to forced labour. The financial impact can be significant too, including fines and reparations, as well as missing out on investments and subsidies.

On top of all that, companies that are publicly held accountable may suffer image damage, lose clients and see employee engagement wane as a result. For instance, Boohoo's stock price plummeted by 40% in 2020 after it was revealed employees were working for them under appalling conditions and for less than the minimum wage. Major investors pulled out and reputational damage led to substantial revenue losses and higher costs for due diligence and chain oversight.

Opportunity: ESG as a strategic advantage, not an obligation

Although the introduction of the Corporate Sustainability Reporting Directive (CSRD) has been postponed to 2027 and the Corporate Sustainability Due Diligence Directive (CSDDD) to 2028, they are still in the pipeline. The obligation to be transparent about social impact is imminent. But companies now have extra time to take this responsibility seriously and avoid financial and reputational damage, says Westerhuis. “By taking action now, businesses can benefit in multiple ways. More and more consumers, workers and investors prefer organisations that operate ethically and sustainably. At the same time, factoring in social costs boosts innovation. Take for example the recycling of scarce resources as an alternative to mining, which reduces the use of child labour and forced labour.”

“ESG is strategically vital”

Chantal Korteweg, Director of Social Impact & Inclusive Banking at ABN AMRO, also underlines how important it is for businesses to take responsibility right away. “Develop policies, identify risks, take concrete action and monitor your progress. Ensure fair wages and transparent reporting are in place. Address inequality by creating equal opportunities, improving working conditions and tackling the equal pay gap. Embed respect for human rights in the production chain by implementing the UNGPs and OECD guidelines as the basis of sustainable, long-term value.”