S1-4 – Taking action on material impacts on own workforce, and approaches to managing material risks and pursuing material opportunities related to ow

🗂️ ESRS S1 Own workforce, page 8-9

The undertaking shall disclose how it takes action to address material negative and positive impacts, and to manage material risks and pursue material opportunities related to its own workforce, and the effectiveness of those actions.
The objective of this Disclosure Requirement is twofold. Firstly, it is to enable an understanding of any actions and initiatives through which the undertaking seeks to:

(a) to prevent, mitigate and remediate negative material impacts on its own workforce; and/or

(b) to achieve positive material impacts for its own workforce.

Secondly, it is to enable an understanding of the ways in which the undertaking is addressing the material risks and pursuing the material opportunities related to its own workforce.

The undertaking shall provide a summarised description of the action plans and resources to manage its material impacts, risks, and opportunities related to its own workforce in accordance with ESRS 2 MDR-A Actions and resources in relation to material sustainability matters.
In relation to the material impacts related to its own workforce, the undertaking shall describe:

(a) actions taken, planned or underway to prevent or mitigate material negative impacts on its own workforce;

(b) whether and how it has taken action to provide or enable remedy in relation to an actual material impact;

(c) any additional actions or initiatives it has in place with the primary purpose of delivering positive impacts for its own workforce; and

(d) how it tracks and assesses the effectiveness of these actions and initiatives in delivering outcomes for its own workforce.

In relation to paragraph 36, the undertaking shall describe the processes through which it identifies what action is needed and appropriate in response to a particular actual or potential negative impact on its own workforce.
In relation to material risks and opportunities, the undertaking shall describe:

(a) what action is planned or underway to mitigate material risks for the undertaking arising from its impacts and dependencies on its own workforce and how it tracks effectiveness in practice; and

(b) what action is planned or underway to pursue material opportunities for the undertaking in relation to its own workforce.

The undertaking shall disclose whether and how it ensures that its own practices do not cause or contribute to material negative impacts on own workforce, including, where relevant, its practices in relation to procurement, sales and data use. This may include disclosing what approach is taken when tensions arise between the prevention or mitigation of material negative impacts and other business pressures.
When disclosing the information required under paragraph 40, the undertaking shall consider ESRS 2 MDR-T Tracking effectiveness of policies and actions through targets if it evaluates the effectiveness of an action by setting a target.

The undertaking shall disclose what resources are allocated to the management of its material impacts, with information that allows users to gain an understanding of how the material impacts are managed.

Application Requirements

AR 33. It may take time to understand negative impacts and how the undertaking may be involved with them through its own workforce, as well as to identify appropriate responses and put them into practice). Therefore, the undertaking may disclose:

(a) its general and specific approaches to addressing material negative impacts;

(b) its initiatives aimed at contributing to additional material positive impacts;

AR 34. Appropriate action can vary according to whether the undertaking causes or contributes to a material impact, or whether it is involved because the impact is directly linked to its operations, products or services by a business relationship.

AR 35. Given that material negative impacts affecting its own workforce that have occurred during the reporting period may also be connected with other entities or operations outside its direct control, the undertaking may disclose whether and how it seeks to use its leverage in its business relationships to manage those impacts. This may include using commercial leverage (for example, enforcing contractual requirements with business relationships or implementing incentives), other forms of leverage within the relationship (such as providing training or capacity-building on workers’ rights to entities with which the undertaking has a business relationship) or collaborative leverage with peers or other actors (such as initiatives aimed at responsible recruitment or ensuring workers receive an adequate wage).

AR 36. When the undertaking discloses its participation in an industry or multi-stakeholder initiative as part of its actions to address material negative impacts, the undertaking may disclose how the initiative, and its own involvement, is aiming to address the material impact concerned. It may report under ESRS S1-5 the relevant targets set by the initiative and progress towards them.

AR 37. When disclosing whether and how the undertaking considers actual and potential impacts on its own workforce in decisions to terminate business relationships and whether and how it seeks to address any negative impacts that may result from termination, the undertaking may include examples.

AR 38. Processes used to track the effectiveness of actions can include internal or external auditing or verification, court proceedings and/or related court decisions, impact assessments, measurement systems, stakeholder feedback, grievance mechanisms, external performance ratings, and benchmarking.

AR 39. Reporting on effectiveness is aimed at enabling the understanding of the links between actions taken by an undertaking and the effective management of impacts. Additional information that the undertaking may provide includes data showing a decrease in the number of incidents identified.

AR 40. With regard to initiatives or processes whose primary aim is to deliver positive impacts for people in the undertaking’s own workforce that are based on their needs, and with regard to progress in the implementation of such initiatives or processes, the undertaking may disclose:

(a) information about whether and how people in its own workforce and workers’ representatives play a role in decisions regarding the design and implementation of these programmes or processes; and

(b) information about the intended or achieved positive outcomes for the undertaking’s own workforce of these programmes or processes.

AR 41. The undertaking may explain whether any such initiatives are designed also to support the achievement of one or more Sustainable Development Goals. For example, an undertaking committing to SDG 8 to “promote sustained, inclusive and sustainable economic growth, full and productive employment and decent work for all” may be actively working towards eliminating forced labour or compulsory labour or supporting higher levels of productivity on activities in developing countries through technological upgrades and training of local labour, which can benefit both the specific people in its own workforce targeted by the actions, and also their local communities.

AR 42. When disclosing the intended or achieved positive outcomes of its actions for the undertaking’s own workforce, a distinction is to be made between evidence of certain activities having occurred (for example, that x number of people have received financial literacy training) from evidence of actual outcomes for the people concerned (for example, that x people report that they are able to better manage their pay and their household budgets).

AR 43. If the undertaking has taken measures to mitigate negative impacts on its own workforce that arise from the transition to a greener, climate-neutral economy, such as training and reskilling, employment guarantees, and in the case of downscaling or mass dismissal, measures such as job counselling, coaching, intra-company placements and early retirement plans, the undertaking shall disclose those measures. This includes measures to comply with prevailing regulation. The undertaking may highlight present and/or expected external developments that influence whether dependencies turn into risks. This includes consideration of impacts that may arise from the transition to greener and climate-neutral operations.

AR 44. When disclosing the material risks and opportunities related to its impacts or dependencies on its own workforce, the undertaking may consider the following:

(a) risks related to the undertaking’s impacts on its own workforce may include the reputational or legal exposure where people in the undertaking’s workforce are found to be subject to forced labour or child labour;

(b) risks related to the undertaking’s dependencies on its own workforce may include disruption of business operations where significant employee turnover or lack of skills/training development threaten the undertaking’s business; and

(c) opportunities related to the undertaking’s impacts on its own workforce may include market differentiation and greater customer appeal from guaranteeing decent pay and conditions for non-employees.

AR 45. When explaining whether dependencies turn into risks, the undertaking shall consider external developments.

AR 46. When disclosing policies, actions and resources and targets related to the management of material risks and opportunities, in cases where risks and opportunities arise from a material impact, the undertaking may cross-reference its disclosures on policies, actions and resources and targets in relation to that impact.

AR 47. The undertaking shall consider whether and how its process(es) to manage material risks related to own workforce are integrated into its existing risk management process(es).

AR 48. When disclosing the resources allocated to the management of material impacts, the undertaking may explain which internal functions are involved in managing the impacts and what types of action they take to address negative and advance positive impacts.