S4-SBM-3 – Material impacts, risks and opportunities and their interaction with strategy and business model

🗂️ ESRS S4 Consumers and End-users, page 34-35

9. When responding to ESRS 2 SBM-3 paragraph 48, the undertaking shall disclose:

(a) whether and how actual and potential impacts on consumers and/or end-users as identified in Disclosure Requirements ESRS 2 IRO-1 Description of the processes to identify and assess material impacts, risks and opportunities: (i) originate from or are connected to the undertaking’s strategy and business model, and (ii) inform and contribute to adapting the undertaking’s strategy and business model, and

(b) the relationship between its material risks and opportunities arising from impacts and dependencies on consumers and/or end-users and its strategy and business model.

10. When fulfilling the requirements of paragraph 48, the undertaking shall disclose whether all consumers and/or end-users who are likely to be materially impacted by the undertaking, including impacts connected with the undertaking’s own operations and value chain, including through its products or services, as well as through its business relationships, are included in the scope of its disclosure under ESRS 2. In addition, the undertaking shall disclose the following information:

(a) a brief description of the types of consumers and/or end-users subject to material impacts by its own operations or through its value chain, and specify whether they are:

i. consumers and/or end-users of products that are inherently harmful to people and/or increase risks for chronic disease;

ii. consumers and/or end-users of services that potentially negatively impact their rights to privacy, to have their personal data protected, to freedom of expression and to non- discrimination;

iii. consumers and/or end-users who are dependent on accurate and accessible product- or service- related information, such as manuals and product labels, to avoid potentially damaging use of a product or service;

iv. consumers and/or end-users who are particularly vulnerable to health or privacy impacts or impacts from marketing and sales strategies, such as children or financially vulnerable individuals;

(b) in the case of material negative impacts, whether they are either (i) widespread or systemic in contexts where the undertaking sells or provides its products or services (for example, state surveillance that affects the privacy of service users), or (ii) related to individual incidents (for example, a defect linked to a particular product) or to specific business relationships (for example, a business partner uses marketing that inappropriately targets young consumers);

(c) in the case of material positive impacts, a brief description of the activities that result in the positive impacts (for example, product design that improves its accessibility for persons with disabilities) and the types of consumers and/or end-users that are positively affected or could be positively affected; the undertaking may also disclose whether the positive impacts occur in specific countries or regions; and

(d) any material risks and opportunities for the business arising from impacts and dependencies on consumers and/or end-users.

11. In describing the main types of consumers and/or end-users who are or could be negatively affected, based on the materiality assessment set out in ESRS 2 IRO-1, the undertaking shall disclose whether and how it has developed an understanding of how consumers and/or endusers with particular characteristics, or those using particular products or services, may be at greater risk of harm.

12. The undertaking shall disclose which, if any, of its material risks and opportunities arising from impacts and dependencies on consumers and/or end-users, relate to specific groups of consumers and/or end-users (for example, particular age groups) rather than to all consumers and/or end-users.

Application Requirements

AR 5. Impacts on consumers and/or end-users can originate in the undertaking’s business model or strategy in a number of different ways. For example, impacts may relate to the undertaking’s value proposition (for example, providing online platforms with potential for online and offline harm), its value chain (for example, speed in developing products or services, or delivering projects, with risks to health and safety), or its cost structure and the revenue model (for example, sales-maximising incentives that put consumers at risk).

AR 6. Impacts on consumers and/or end-users that originate in the strategy or business model can also bring material risks to the undertaking. For example, if the undertaking’s business model is premised on incentivising its sales force to sell high volumes of a product or service (for example, credit cards or pain medicine) at speed, and this results in large- scale harm to consumers, the undertaking may face lawsuits and reputational damage affecting its future business and credibility.

AR 7. Examples of particular characteristics of consumers and/or end-users that may be considered by the undertaking when responding to paragraph 11 include young consumers and/or end-users who may be more susceptible to impacts on their physical and mental development, or who lack financial literacy and may be more susceptible to exploitative sales or marketing practices. They may also include women in a context where women are routinely discriminated against in their access to particular services or in the marketing of particular products.

AR 8. With regard to paragraph 12, the risks could arise because of the undertaking’s dependency on consumers and/or end-users where low likelihood but high impact events may trigger financial effects, for example, where a global pandemic leads to severe impacts on certain consumers’ livelihoods resulting in major changes in patterns of consumption.