From The Trenches
CSRD Hub Newsletter #8
September 2024

We’re back from summer holidays and picking back up with the social standards. Up now: S3 – affected communities. 

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An important note on this standard: It’s not the typical “social impact” and “how we’re giving back” reporting.

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While many companies have long reported on communities through the lens of philanthropic efforts and local community engagement, this standard is much more focused on company impacts (including negative) and risks and opportunities that arise from a company’s operations, products or services, and relationships in communities all along the value chain. 

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This means thinking about activities and relationships broadly – from extraction of raw materials, to the communities in which companies operate, all the way to how use and disposal of products can affect communities. 

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Looking at the sub-topics addressed, we can see the focus is very much one in line with human rights: Communities’ economic, social and cultural rights, communities’ civil and political rights, rights of indigenous people. 

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It’s not that many company community efforts such as volunteering programs and local grant efforts won’t be relevant or material, but it’s critical to focus on how companies ensure they address both negative impacts as well as dependencies on communities across the entire value chain. 

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First things first: Who is included under “community?”

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Quick answer: It’s not just local communities where the company has its main operations. 

These may include local communities living near sites or facilities, those in the supply chain, communities involved in the extraction of raw materials, and indigenous peoples. 

And remember, this includes those who may be affected by the company’s activities and relationships, as well as dependencies on these communities.

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What is required?

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Along with how companies define community, they will need to take a broader lens toward material information to report in line with S3.

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• Negative and Positive Impacts: Companies must disclose any material negative impacts on these communities, such as environmental damage or health risks, including whether these impacts are systemic or related to specific incidents. This involves understanding how specific characteristics or contexts make some communities more vulnerable to harm. Additionally, they should mention any material positive impacts, like capacity-building activities that benefit local livelihoods.

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• Risks and Opportunities: Businesses need to describe the risks and opportunities stemming from their impacts and dependencies on affected communities. For example, negative relationships with affected communities may disrupt the operations or harm its reputation, while constructive relationships can bring business benefits, such as greater ease of recruiting locally.

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• Impact Management Policies: Companies must outline their policies for managing impacts on affected communities. This includes any policies specifically geared toward indigenous peoples and how they align with international standards like the UN Guiding Principles on Business and Human Rights.

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• Engagement Processes: Firms are required to disclose their processes for engaging with affected communities. This involves detailing how they consider community perspectives in decision-making, the methods of engagement, and the efforts to include marginalized groups or indigenous communities.

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• Remediation Processes: If negative impacts are identified, companies must explain how they provide or cooperate in remediation. This includes describing grievance mechanisms available to communities and how the company tracks and monitors these concerns.

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Companies tackling the topic

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Metsa Group

Metsa Group has aligned its S3 disclosure (page 69) closely to the disclosure requirements and datapoints. Notable is their table of specific IROs tied to the S3 topic. They have also done a nice job of detailing policies, actions, and targets via a clear structure that is repeated across all sections.

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Jeronimo Martins

Under the S3 section, Jeronimo Martins provides a detailed and well-structured disclosure on affected communities, with links to relevant sources and policies. They also report transparently that some actions and policies will be improved and implemented to address material IROs sufficiently.

This is a great example of a report structured directly around ESRS.

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Yara

Yara has a nicely structured report with early alignment to ESRS content. The affected communities section (182-188) includes potential negative impacts and risks with a narrative tied to the specific sub- and sub-subtopics under S3. 

If you are looking for a report that blends transparency while weaving in ESRS specific topics, this report is a good one.

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Keep up with the latest

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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!

• EU Regulations beyond CSRD: PWC released an updated overview of sustainability-relevant EU regulations, including the CSDDD and SFDR.

• Digital tagging: On 30 August 2024, EFRAG published its XBRL Taxonomy for ESRS Set 1, which enables the digital tagging of ESRS statements.

• Corporate Sustainability Due Diligence Directive (CSDDD) and links to CSRD: This overview, provided by CDP, provides a great summary of the CSDDD along with its links to CSRD as an opportunity to satisfy reporting requirements.

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Become smarter in CSRD with SmartCSRD:

 

All CSRD Hub members now have access to SmartCSRD, a chatbot designed to answer your CSRD-related questions. Users are asking insightful questions and getting valuable support for their CSRD projects. Check out some of the brilliant queries being explored!

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Q: what topical disclosure requirements does MDR-M refer to?

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Q: what are specific regulations on climate change in the chemical sector?

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Q: what are NUTS codes?