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From the Trenches
CSRD Hub Newsletter #7

August 2024

CSRDCS

Welcome to the August edition of the CSRD HUB Newsletter.

Continued hands-on journey through the Topical Standards: Understanding S2


We continue our work with companies looking at how to assess materiality and report on material information related to their IROs under the full set of ESRS Topical Standards, this time S2 – workers in the value chain.


Given increasing focus on due diligence and regulations such as the CSDDD, German Supply Chain Act, and others, S2 is likely to prove material for a large number of companies. This is due to increasingly strict regulations, which not only impose legal but also social and ethical requirements.


Indeed, new research shows that S2 is the most used Topical Standard behind the “usual suspects” of E1, S1, and G1, so it is a timely opportunity to learn more.


We are taking a closer look at this standard and some of the most critical elements to keep in mind when thinking about impacts, risks, and opportunities related to them. And of course, we have a few examples to share.


First things first: Who is a “worker in the value chain?”


Quick answer: It’s not just suppliers.


Workers in the value chain include all employees in the company's upstream and downstream value chain who are or may be significantly affected by the company but are not part of the company's own workforce. A few important items to unpack


• Workers in the value chain include workers of suppliers (direct and indirect) upstream, as well as workers downstream, such as employees of customers.


• Self-employed contractors to a company, or those provided by companies “engaged in employment” activities are covered by Own Workforce.


What is required?


S2 standard focuses on the well-being and rights of workers across every stage of the value chain, focusing on impacts on value chain workers related to a company's activities, products, and services, as well as related risks and opportunities. Examples of the types of information that might be provided for material IROs could include


• Forced labor and child labor: Disclosing the steps taken to prevent and address forced labor and child labor in the supply chain, including supplier audits, certifications, and remediation efforts.


• Wages and working conditions: Providing information on wage levels, working hours, benefits, and occupational health and safety practices for value chain workers.


• Diversity and inclusion: Reporting on the diversity of the workforce in the value chain, including gender, age, and other relevant characteristics.


• Freedom of association and collective bargaining: Describing the company's support for workers' rights to freedom of association and collective bargaining.


• Grievance mechanisms: Outlining the processes in place for workers to raise concerns and seek redress.


Companies tackling the topic


Schibsted


On pages 69-71 of its annual report, Schibsted provides clear and transparent disclosures related to S2, including in the form of tables supported by narratives. The information follows the specific DRs specifically, and is easy to read and understand.
This a great example of a report structured directly around ESRS.


Univar


On pages 64-67 of their annual report, Univar uses the specific disclosure requirements to outline the importance of value chain workers and their focus on supporting better conditions.


As a bonus, they’ve developed an easy-to-follow ESRS index that actually points directly to the relevant pages.


Toyota Material Handling


Toyota Material Handling has provided one of the easiest-to-navigate ESRS-structured reports we have seen. Page 58 has a fully linked overview of its S2 disclosures, which begin on Page 72 and are structured directly based on the standard. One thing they have done really well: They focus not only on suppliers, but on customers’ workers who use their products. This downstream focus is a critical aspect of S2.


If you are looking for a report that blends transparency against the ESRS structure combined with good visuals and relevant stories as proof points, this report is a must read.


News and resources to know and use


We know that there is no shortage of content released each week related to ESRS, so we are focused on curating a few that we think add new perspectives and insights. We hope you find them helpful, too!


Ten Waypoints for CSRD – Double Materiality


We appreciate it when financial markets-focused organizations weigh in on CSRD, because it provides a new (and often very pragmatic) angle on the rigor that is expected in this new world of sustainability reporting.


This report from the Dutch Authority for the Financial Markets AFM outlines 10 principles for transparent reporting on the double materiality analysis, which includes details on stakeholder engagement, use of due diligence, and the need to be transparent around value chain and business activities when defining and reporting on IROs.


CSRD Materiality Analysis Early Adopter Insights


This quick overview from the University of Cologne and others includes some interesting nuggets about how early adopter companies are applying double materiality, including the use of the AR-16 full set of ESRS Topics to help identify IROs (69% of companies) to classification of IROs along the value chain (only 25% of companies). The report is worth a flip, as many will recognize a common set of challenges that the analysis has captured in numbers across a set of companies in different sectors and geographies.


Tip: Page 22 includes a list of reports used and included a few new to us. Be aware, however, that many of these address DMA more in “label” than “practice.”


EFRAG Watch


A few updates and resources from EFRAG are also worth a look.


EFRAG Releases New ESRS Q&A Explanations Covering the January-July 2024 Period


EFRAG has released its latest batch of Q&A Responses in this handy compendium. See Appendix I (starting on page 148) for list of 25 new answers provided in July. Notably, the majority focus on climate and emissions, so worth a read if you are focused on those areas.


EFRAG Releases Study on Early Implementation of ESRS: Insights from Selected EU Companies for Q2 2024


This report, which EFRAG acknowledges is not a compendium of best practice, simply highlights some examples of how early adopters have put ESRS requirements into practice.


Please note: While it makes for interesting reading, this should not be seen as a how-to on implementation, but rather a set of practices that many companies have taken as they seek to satisfy ESRS.

 

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