New EU directive prompts a rise in companies with whistleblowing systems

The proportion of German companies with whistleblowing systems has risen from 82 percent to 97 percent over the past year, driven in part by the implementation of the EU Whistleblowing Directive into the Whistleblower Protection Act, which came into force in July 2023. This is highlighted by the new 2024 Whistleblowing Survey from the EQS Group, which surveyed more than 700 compliance officers across Europe. Companies primarily use digital channels to receive reports of unethical or illegal behavior at a central reporting office, with 74 percent having implemented a whistleblower software system.

Ensuring legal compliance is the primary driver for German companies to implement a whistleblowing system. 94 percent cited this as one of the most important reasons, an increase of seven percentage points compared to the previous year (2023: 87 percent). However, 37 percent have had their whistleblowing system in place for at least three years, significantly longer than required by the Whistleblower Protection Act.

Only about three percent of companies in Germany have not yet set up a whistleblowing system. Of these, 38 percent stated they are not affected by the Whistleblower Protection Act, likely because they have fewer than 50 employees. Half (50 percent) also cited a lack of resources as a reason, more than the European average (38 percent).

Whistleblowing as part of corporate culture

Whistleblower protection in companies is driven not only by external factors but also as an integral part of corporate culture. For respondents, developing a speak-up culture is the second most important reason after compliance for introducing a whistleblowing solution. However, the importance of corporate culture has slightly decreased compared to the previous year, from 66 percent in 2023 to 51 percent in this year's survey. Additionally, 37 percent of respondents stated that they use a whistleblowing system to prevent financial losses or reputational damage to their company.

Whistleblowing channels are generally well accepted by employees in both small and medium-sized enterprises as well as large companies: half of the companies surveyed received at least one report through their whistleblowing system in 2023, and one-fifth (21 percent) received more than ten reports. Among companies that recorded more than 50 reports, the majority were large companies with more than 10,000 employees. Most reports concerned human resources (35 percent), followed by bribery and corruption (18 percent), violations of social standards and human rights (17 percent), and IT and data protection (17 percent).

Anonymity is the market standard

The Whistleblower Protection Act does not require reporting channels in companies to allow anonymous reports. Nevertheless, 9 out of 10 companies permit anonymous reporting. Previous studies (EQS Whistleblowing Report 2021) have shown that about half of all initial reports are submitted anonymously when the reporting channel allows it. The availability of an anonymous channel did not affect the number of abusive reports made with the intention of causing harm to employees or the company.

Marcus Sultzer, a member of the executive board of EQS Group, commented on the results: "The survey results show that legal compliance remains the most important driver for whistleblower protection. This is understandable but does not sufficiently reflect the importance of whistleblowing for integrity, ethics, and a positive culture in companies. Given the increasing complexity of the global compliance landscape, companies should look beyond individual laws and consider compliance holistically and integratively. Technology can play a central role in this. Digital solutions help to meet regulatory requirements more efficiently, minimize risks, and communicate transparently with internal and external stakeholders. They can also ensure complete anonymity for whistleblowers as a single channel."

Access for external stakeholders – especially relevant in the supply chain

Nearly three-quarters of companies (73 percent) provide external stakeholders such as customers and partners access to reporting channels. This proactive approach is particularly important for companies affected by regulations related to supply chains. According to the Supply Chain Due Diligence Act (LkSG), reporting channels must be accessible to external stakeholders along the supply chain. The EU Directive on Corporate Sustainability Due Diligence (CSDDD), adopted by EU states in May 2023, also requires this.

"Many issues may not be noticed by employees but by customers, suppliers, business partners, or residents," says Marcus Sultzer. "Some companies fear that they will be inundated with baseless reports if they open their whistleblowing system. However, experience shows that this concern is unfounded. Instead, companies benefit significantly from reports from their extended network, as they can quickly become aware of issues and address them promptly."

As part of the EQS Whistleblowing Survey 2024, more than 700 compliance professionals from over 20 European countries were surveyed in June and July 2024. The respondents represent a wide range of industries and company sizes, from small and medium-sized enterprises to large companies with more than 50,000 employees. 81 percent of respondents are based in Germany, Italy, France, and Spain.