Besides the ecological dimension, which we discussed in the last article, the social perspective constitutes a further relevant pillar of sustainability reporting that is considered to be an essential component by all companies.
An overview of the social ESRS
The standards falling within the social sphere include the following:
- ESRS S1 – Own workforce
- ESRS S2 – Workers in the value chain
- ESRS S3 – Affected communities
- ESRS S4 – Consumers and end-users
ESRS S1 and S2 present strong similarities in terms of their contents because the information and datapoints that have to be reported are almost identical. However, the group of persons considered is clearly different. Each of the standards is divided into the sub-topics of: working conditions, equal treatment and opportunities for all as well as other work-related rights. Unlike ESRS S1, Standards S2, S3 and S4 do not have any disclosure requirements for so-called indicators, thus qualitative statements and quantitative metrics such as, for example, gender distribution. The information required relates solely to strategies, actions and objectives. Requirements with respect to indicators will be added subsequently when further sets of standards are published.
Scope of the reporting
The information to be reported on social aspects has to be narrowed down via the materiality assessment (cf. following article). If a social standard is not included in the report because of a lack of materiality then reasons for the immateriality may be provided. Once a topic/sub-topic is declared to be material then informa-tion about the strategies, actions and objectives in this respect has to be provided in the report. The information with respect to indicators would again be subject to a materiality assessment. A report would only be required if the information provided by the indicators is relevant for understanding the respective topic/sub-topic.
Structure of the standards and disclosure requirements
Like the standards for the environmental sphere, the social standards are basically similarly structured with respect to the necessary data as regards the objective of the standard, its interactions with other ESRS and the disclosure requirements that then result. However, unlike the environmental ESRS, there are no governance aspects here. The disclosure requirements of ESRS S1 to S4 have been set up as follows:
- Strategy and business model (SBM)
- Management of the impacts, risks and opportunities (IRO)
- Metrics and targets (MT)
An insight into ESRS S1 - Own workforce
ESRS S1 focuses on the company’s own workforce. With its 17 disclosure requirements (cf. Table 1) - which are divided into 3 sub-topics and 17 sub-sub-topics - it is by far the most comprehensive of all the ESRS.
If within the scope of the overall materiality assessment (cf. following article) it is established that the ‘own workforce’ topic is material for the company then this issue has to be included in the sustainability report. In practice, however, this would presumably be true for almost every company that is subject to the reporting obligation because the own workforce plays a key role in nearly every company. Although here, according to the ESRS glossary, ‘own workforce’ is understood to mean not just those who are in an existing employment relationship, but also self-employed workers who have concluded a contract for the performance of work, and also temporary workers.
ESRS S1-1, first of all, requires the disclosure of information on strategies related to the company’s own workforce. Here the company is asked how it positions itself in the way it deals with the material impacts, risks and opportunities that have been determined. While formulating its response, the company should specifically explain, among other things, how it deals with discrimination, forced labour and child labour as well as the issue of equality of opportunity.
Subsequent to S1-2 and S1-3 (see Table), under ESRS S1-4 and S1-5, which follow, the aim is to describe what actions there will be to implement the strategy and what future targets the company has set for itself in this area. Examples of strategies as well as actions and targets can be found in the ESRS Appendix A.2 - A.4. Accordingly, actions could notably consist in reducing excessive overtime down to reasonable working time, or increasing training that is carried out in the areas of health, safety and also diversity.
ESRS S1-6 to 1-17 focus on specific indicators for the company’s own workforce. For example, ESRS S1-6 starts with a request for the characteristics of the company’s employees, such as the total number of employees. The information has to be provided in a predefined tabular format as per ESRS S1 AR 55. ESRS S1-9 requests the disclosure of diversity indicators - firstly the gender distribution at the top management level and secondly the age distribution of the employees.
ESRS S1-10 focuses on adequate wages - for companies with foreign locations, in particular, this is an issue that necessitates a differentiated approach. Wages should be analysed in relation to the applicable reference values (for example, normally the minimum wages set in the EU). The wage levels at the respective foreign branch offices may vary widely so that there has to be a clear separation here. If the company does not observe adequate wage levels, then it has to report the proportion of employees in the respective countries to whom this is applicable.
Take-away
- The ESRS S are divided into four standards.
- In view of the wide range of disclosure requirements, ESRS S1 is by far the most comprehensive of all the standards in the social sphere.
- ESRS S1 and ESRS S2 are very similar in terms of disclosure requirements and the relevant sub-topics - the key difference lies in the group of workers considered.
- Under ESRS S2, S3 and S4 companies need to provide important information about strategies and the management of the impacts, risks and opportunities (IRO), at this juncture, there are however still no disclosure requirements with respect to so-called indicators.
