Dear Readers,
Last month we informed you about general requirements of the CSRD Directive (here) that will gradually extend the non-financial reporting obligation from the current approximately 11,500 EU entities to the estimated 50,000. Our previous ESG ‘episode’ addressed the “E” standing for “environment” (here) Today we will explore the ESG reporting standards in the “S – social” area.
Impacts of economic entities’ operation on the corporation and its employees, society in general and affected communities have been defined in the CSRD Directive itself (here). Article 29b requires the obligated companies to “specify the information that undertakings are to disclose about the following social and human rights factors:
- Equal treatment and opportunities for all, including gender equality and equal pay for work of equal value, training and skills development, the employment and inclusion of people with disabilities, measures against violence and harassment in the workplace, and diversity;
- Working conditions, including secure employment, working time, adequate wages, social dialogue, freedom of association, existence of works councils, collective bargaining, including the proportion of workers covered by collective agreements, the information, consultation and participation rights of workers, work-life balance, and health and safety; and
- Respect for the human rights, fundamental freedoms, democratic principles and standards established in the International Bill of Human Rights and other core UN human rights conventions, including the UN Convention on the Rights of Persons with Disabilities, the UN Declaration on the Rights of Indigenous Peoples, the International Labour Organization’s Declaration on Fundamental Principles and Rights at Work and the fundamental conventions of the International Labour Organization, the European Convention for the protection of Human Rights and Fundamental Freedoms, the European Social Charter, and the Charter of Fundamental Rights of the European Union”.
Under the latest draft ESRS Standards – the backbone of the CSRD Directive – the sector standards of the “S” pillar should be as follows:
- ESRS S1: Own Workforce;
- ESRS S2: Workers in the Value Chain;
- ESRS S3: Affected Communities; and
- ESRS S4: Consumers and End-users.
Many social aspects of enterprises’ economic operation have also been included in the ESRS General Principles and Cross-cutting Disclosure Requirements.
EU Taxonomy that has issued its goals only in the environmental area so far is currently seeking to define three major objectives of the future social taxonomy, to which the DNSH principle also applies (Do No Significant Harm in relation to other EUT objectives) together with the duty to comply with minimum social guarantees. The objectives should summarise and supplement conditions of global reporting rules and should be as follows:
- Decent work for employees in a corporation as well as supplier chain staff members with partial goals such as social dialogue’s enhancement, decent work’s support, equality promotion and non-discrimination at work, and human rights’ and labour rights’ enforcement through due diligence based on a risk review;
- Adequate and decent standard of living for consumers with partial goals such as providing for healthy and safe products and services, focusing on products’ durability and reparability in designing them, and offering services that enable multi-modal experience, providing for cyber security, privacy and data protection, application of responsible marketing practices, providing for access to high-quality medical products and services, healthy, high-quality and highly nutritious food, and high quality potable water, housing, education and life-long learning; and
- Inclusive and sustainable communities for affected social groups with partial goals such as inclusive growth, promotion of equality and growth, support of sustainable living and land rights, and human rights’ enforcement in affected communities through due diligence based on a risk review.
The key to a successful elaboration of a high-quality sustainability report is the selection and disclosure of key performance indicators (the “KPIs”). In considering an enterprise’s impact on society (and vice versa), the frequently used traditional KPIs include the employee structure and stuff turnover, number of training hours per employee, employee demography, education and learning, women in management bodies, number of injuries and seriousness thereof. Additional indicators should be sector-specific.
The next article on the ESG will focus on the last pillar - governance.
If you are interested in having more information about this topic, please feel free to contact us. We will be happy to help you.
Jiří Vidiečan
vidiecan@clarksonhyde.cz
