Commission Delegated Regulation (EU) 2023/2772 of 31 July 2023 supplementing Directive 2013/34/EU of the European Parliament and of the Council as regards sustainability reporting standards

9.This Standard should be read in conjunction with ESRS 1 General requirements and ESRS 2 General disclosures.

Disclosure Requirements

10.The requirements of this section should be read in conjunction with and reported alongside the disclosures required by ESRS 2 chapter 4 Impact, risk and opportunity management.

11.The undertaking shall describe the process to identify material impacts, risks and opportunities related to resource use and circular economy, in particular regarding resource inflows, resource outflows and waste, and shall provide information on:

(a) whether the undertaking has screened its assets and activities in order to identify its actual and potential impacts, risks and opportunities in its own operations and its upstream and downstream value chain, and if so, the methodologies, assumptions and tools used in the screening;

(b) whether and how the undertaking has conducted consultations, in particular, with affected communities.

12.The undertaking shall describe its policies adopted to manage its material impacts, risks and opportunities related to resource use and circular economy.

13.The objective of this Disclosure Requirement is to enable an understanding of the extent to which the undertaking has policies that address the identification, assessment, management and/or remediation of its material impacts, risks and opportunities related to resource use and circular economy.

14.The disclosure required by paragraph 12 shall contain the information on the policies the undertaking has in place to manage its material impacts, risks and opportunities related to resource use and circular economy in accordance with ESRS 2 MDR-P Policies adopted to manage material sustainability matters.

15.In the summary, the undertaking shall indicate whether and how its policies address the following matters where material:

(a) transitioning away from use of virgin resources, including relative increases in use of secondary (recycled) resources;

(b) sustainable sourcing and use of renewable resources.

16.Policies shall address material impacts, risks and opportunities in its own operations and along its upstream and downstream value chain.

17.The undertaking shall disclose its resource use and circular economy actions and the resources allocated to their implementation.

18.The objective of this Disclosure Requirement is to enable an understanding of the key actions taken and planned to achieve the resource use and circular economy-related policy objectives and targets.

19.The description of the resource use and circular economy-related actions and resources allocated shall follow the principles defined in ESRS 2 MDR-A Actions and resources in relation to material sustainability matters.

20.In addition to ESRS 2 MDR-A, the undertaking may specify whether and how an action and resources cover:

(a) higher levels of resource efficiency in use of technical and biological materials and water, particularly in relation to critical raw materials and rare earths as listed in the Raw Materials Information System;

(b) higher rates of use of secondary raw materials (recyclates);

(c) application of circular design, leading to increased product durability and optimisation of use, and higher rates of: Reuse, Repair, Refurbishing, Remanufacture, Repurposing and Recycling.

(d) application of circular business practices such as (i) value retention actions (maintenance, repair, refurbishing, remanufacturing, component harvesting, upgrading and reverse logistics, closed loop systems, second-hand retailing), (ii) value maximisation actions (product-service systems, collaborative and sharing economy business models), (iii) end-of-life actions (recycling, upcycling, extended producer responsibility), and (iv) systems efficiency actions (industrial symbiosis);

(e) actions taken to prevent waste generation in the undertaking’s upstream and downstream value chain; and

(f) optimistation of waste management in line with the waste hierarchy.

21.The undertaking shall disclose the resource use and circular economy-related targets it has set.

22.The objective of this Disclosure Requirement is to enable an understanding of the targets the undertaking has adopted to support its resource use and circular economy policy and to address its material impacts, risks and opportunities.

23.The description of the targets shall contain the information requirements defined in ESRS 2 MDR-T Tracking effectiveness of policies and actions through targets.

24.The disclosure required by paragraph 21 shall indicate whether and how the undertaking’s targets relate to resource inflows and resource *outflows, including waste* and products and materials, and, more specifically to:

(a) the increase of circular product design (including for instance design for durability, dismantling, reparability, recyclability etc);

(b) the increase of circular material use rate;

(c) the minimisation of primary raw material;

(d) sustainable sourcing and use (in line with the cascading principle) of renewable resources;

(e) the waste management, including preparation for proper treatment; and

(f) other matters related to resource use or circular economy.

25.The undertaking shall specify to which layer of the waste hierarchy the target relates.

26.In addition to ESRS 2 MDR-T, the undertaking may specify whether ecological thresholds and entity-specific allocations were taken into consideration when setting targets. If so, the undertaking may specify:

(a) the ecological thresholds identified, and the methodology used to identify such thresholds;

(b) whether or not the thresholds are entity-specific and if so, how they were determined; and

(c) how responsibility for respecting identified ecological thresholds is allocated in the undertaking.

27.The undertaking shall specify as part of the contextual information, whether the targets it has set and presented are mandatory (required by legislation) or voluntary.

28.The undertaking shall disclose information on its resource inflows related to its material impacts, risks and opportunities.

29.The objective of this Disclosure Requirement is to enable an understanding of the resource use in the undertaking’s own operations and its upstream value chain.

30.The disclosure required by paragraph 28 shall include a description of its resource inflows where material: products (including packaging) and materials (specifying critical raw materials and rare earths), water and property, plant and equipment used in the undertaking’s own operations and along its upstream value chain.

31.When an undertaking assesses that resource inflows is a material sustainability matter, it shall disclose the following information about the materials used to manufacture the undertaking’s products and services during the reporting period, in tonnes or kilogrammes:

(a) the overall total weight of products and technical and biological materials used during the reporting period;

(b) the percentage of biological materials (and biofuels used for non-energy purposes) used to manufacture the undertaking’s products and services (including packaging) that is sustainably sourced, with the information on the certification scheme used and on the application of the cascading principle; and

(c) the weight in both absolute value and percentage, of secondary reused or recycled components, secondary intermediary products and secondary materials used to manufacture the undertaking’s products and services (including packaging).

32.The undertaking shall provide information on the methodologies used to calculate the data. It shall specify whether the data is sourced from direct measurement or estimations, and disclose the key assumptions used.

33.The undertaking shall disclose information on its resource outflows, including waste, related to its material impacts, risks and opportunities.

34.The objective of this Disclosure Requirement is to provide an understanding of:

(a) how the undertaking contributes to the circular economy by i) designing products and materials in line with circular economy principles and ii) increasing or maximising the extent to which products, materials and waste processing are recirculated in practice after first use; and

(b) the undertaking’s waste reduction and waste management strategy, the extent to which the undertaking knows how its pre-consumer waste is managed in its own activities.

35.The undertaking shall provide a description of the key products and materials that come out of the undertaking’s production process and that are designed along circular principles, including durability, reusability, repairability, disassembly, remanufacturing, refurbishment, recycling, recirculation by the biological cycle, or optimisation of the use of the product or material through other circular business models.

36.Undertakings for which outflows are material shall disclose:

(a) The expected durability of the products placed on the market by the undertaking, in relation to the industry average for each product group;

(b) The reparability of products, using an established rating system, where possible;

(c) The rates of recyclable content in products and their packaging.

37.The undertaking shall disclose the following information on its total amount of waste from its own operations, in tonnes or kilogrammes:

(a) the total amount of waste generated ;

(b) the total amount by weight diverted from disposal, with a breakdown between hazardous *waste and non-hazardous waste and a breakdown by the following recovery operation types: i. preparation for reuse; ii. recycling*; and iii. other recovery operations.

(c) the amount by weight directed to disposal by waste treatment type and the total amount summing all three types, with a breakdown between hazardous *waste and non-hazardous waste. The waste treatment types to be disclosed are: i. incineration*; ii. landfill; and iii. other disposal operations;

(d) the total amount and percentage of non-recycled waste (⁸⁴).

38.When disclosing the composition of the waste, the undertaking shall specify:

(a) the waste streams relevant to its sector or activities (e.g. tailings for the undertaking in the mining sector, electronic waste for the undertaking in the consumer electronics sector, or food waste for the undertaking in the agriculture or in the hospitality sector); and;

(b) the materials that are present in the waste (e.g. biomass, metals, non-metallic minerals, plastics, textiles, critical raw materials and rare earths).

39.The undertaking shall also disclose the total amount of hazardous waste and radioactive waste generated by the undertaking, where radioactive waste is defined in Article 3(7) of Council Directive 2011/70/Euratom (⁸⁵).

40.The undertaking shall provide contextual information on the methodologies used to calculate the data and in particular the criteria and assumptions used to determine and classify products designed along circular principles under paragraph 35. It shall specify whether the data is sourced from direct measurement or estimations; and disclose the key assumptions used.

41.The undertaking shall disclose the anticipated financial effects of material risks and opportunities arising from resource use and circular economy-related impacts.

42.The information required by paragraph 41 is in addition the information on current financial effects on the entity’s financial position, financial performance and cash flows for the reporting period required under ESRS 2 SBM-3 para 48 (d). The objective of this Disclosure Requirement is to provide an understanding of:

(a) anticipated financial effects due to material risks arising from material resource use and circular economy-related impacts and dependencies and how these risks have or could reasonably be expected to have) a material influence on the undertaking’s financial position, financial performance performance, and cash flows over the short-, medium- and long-term; and

(b) anticipated financial effects due to material opportunities related to resource use and circular economy.

43.The disclosure shall include:

(a) a quantification of the anticipated financial effects in monetary terms before considering resource use and circular economy-related actions, or where not possible without undue cost or effort, qualitative information. For financial effects arising from material opportunities, a quantification is not required if it would result in disclosure that does not meet the qualitative characteristics of information (see ESRS 1 Appendix B Qualitative characteristics of information);

(b) a description of the effects considered, the impacts and dependencies to which they relate and the time horizons in which they are likely to materialise;

(c) the critical assumptions used to quantify the anticipated financial effects, as well as the sources and level of uncertainty of those assumptions.

Appendix A

This appendix is an integral part of the ESRS E5. It supports the application of the disclosure requirements set out in this standard and has the same authority as the other parts of the standard.

ESRS 2 GENERAL DISCLOSURES

Impact, risk and opportunity management

AR 1.When conducting a materiality assessment on environmental subtopics, the undertaking shall assess the materiality of resource use and circular economy in its own operations and its upstream and downstream value chain, and may consider the four phases below, also known as the LEAP approach:

(a) Phase 1: locate where in the undertaking’s own operations and along its upstream and downstream value chain the interface with nature takes place;

(b) Phase 2: evaluate the dependencies and impacts;

(c) Phase 3: assess the material risks and opportunities;

(d) Phase 4: prepare and report the results of the materiality assessment.

AR 2.With regard to ESRS E5, phases 1 and 2 rely mainly on the materiality assessments conducted under ESRS E1 (including energy consumption), ESRS E2 (pollution), ESRS E3 (marine resources, water consumption) and ESRS E4 (biodiversity, ecosystems, raw materials). Indeed, circular economy eventually aims at reducing the environmental impact of the use of products, materials and other resources, minimizing waste and the release of hazardous substances and hence at reducing impacts on nature. This application requirement focuses mainly on the third phase of this LEAP approach, while the fourth phase addresses the outcome of the process.

AR 3.The process to assess the materiality of impacts, dependencies, risks and opportunities shall consider the provisions in ESRS 2 IRO-1 Description of the processes to identify and assess material impacts, risks and opportunities and IRO-2 Disclosure Requirements in ESRS covered by the undertaking’s sustainability statement.

AR 4.The sub-topics related to resource use and circular economy covered by the materiality assessment include:

(a) resource inflows including the circularity of material resource inflows, considering resource use optimisation, intensity of materials and products and renewable and non-renewable resources;

(b) resource outflows related to products and services; and

(c) waste, including hazardous *waste and non-hazardous waste management.*

AR 5.In Phase 3, to assess its material risks and opportunities based on the results of Phases 1 and 2, the undertaking may:

(a) identify transition risks and opportunities in its own operations and its upstream and downstream value chain, including the risk of staying in a business-as-usual scenario: i. policy and legal, e.g., bans on the extraction and use of non-renewable resources, regulations on waste treatment; ii. technology, e.g., introduction on the market of new technologies to replace existing use of products and materials; iii. market, e.g., shifting supply, demand and financing; iv. reputation, e.g. changing societal, customer or community perceptions.

(b) identify physical risks including depletion of stock and use of virgin and non-virgin renewable resources, and of non-renewable resources;

(c) identify opportunities categorised by: i. resource efficiency: e.g., transition to more efficient services and processes requiring less resources, eco-design for longevity, repair, reuse, recycle, by- products, take-back systems, decoupling activity from extraction of materials, intensifying circular material use, creation of a system that allows for dematerialization (e.g., digitisation, improving utilisation rates, weight reduction); practices to ensure products and materials are collected, sorted, and reused, repaired, refurbished, remanufactured; ii. markets: e.g., demand for less resource-intense products and services, and new consumption models such as product-as- a-service, pay-per-use, sharing, leasing; iii. financing: e.g., access to green funds, bonds or loans; iv. resilience: e.g., diversification of resources and business activities (e.g., start a new business unit to recycle new materials), investing in green infrastructures, adopting recycling and circularity mechanisms that reduce the dependencies, capability of the undertaking to safeguard future stocks and flows of resources; and v. reputation.

AR 6.The undertaking may consider the following methodologies to assess its impacts, risks and opportunities in its own operations and along its upstream and downstream value chain:

(a) Commission Recommendation 2021/2279 on the use of the Environmental Footprint methods to measure and communicate the life cycle environmental performance of products and organizations (Annex I – Product Environmental Footprint; Annex III – Organisation Environmental Footprint); and

(b) Material Flow Analysis (MFA) from the European Environment Agency.

AR 7.When providing information on the outcome of the materiality assessment, the undertaking shall consider:

(a) a list of business units associated to resource use and circular economy material impacts, risks and opportunities in the context of the products and services of the undertaking and the waste it generates;

(b) a list and prioritisation of the material resources used by the undertaking;

(c) the material impacts and risks of staying in business as usual;

(d) the material opportunities related to a circular economy;

(e) the material impacts and risks of a transition to a circular economy; and

(f) the stages of the value chain where resource use, risks and negative impacts are concentrated.

AR 8.The policies described under this Disclosure Requirement may be integrated in broader environmental or sustainability policies covering different subtopics.

AR 9.When providing information on its policies, the undertaking shall consider whether and how its policies address:

(a) the waste hierarchy: (a) prevention; (b) preparing for re-use; (c) recycling; (d) other recovery, e.g., energy recovery; and (e) disposal. In this context, the waste treatment cannot be considered as a recovery;

(b) the prioritisation of the avoidance or minimisation waste (Re-use, Repair, Refurbish, Remanufacture and Repurpose) over waste treatment (Recycling). The concepts of eco-design (⁸⁶), waste as a resource or post- consumer waste (at the end of a consumer-product lifecycle), should also be taken into consideration.

AR 10.When defining its policies, the undertaking may consider the Paper on ‘Categorisation system for the circular economy’, which describes circular design and production models, circular use models, circular value recovery models and circular support along the principles of the nine circular economy‘R’ strategies or principles: refuse, rethink, reduce, re-use, repair, refurbish, remanufacture, repurpose and recycle.

AR 11.When providing information under paragraph 17 and considering that resources are shared and that circular economy strategies may require collective actions, the undertaking may specify the actions taken to engage with its upstream and downstream value chain and/or its local network on the development of collaborations or initiatives increasing the circularity of products and materials.

AR 12.In particular, the undertaking may specify the following:

(a) how it contributes to circular economy, including for instance smart waste collection systems;

(b) the other stakeholders involved in the collective actions: competitors, suppliers, retailers, customers, other business partners, local communities and authorities, government agencies;

(c) a description of the organisation of the collaboration or initiative, including the specific contribution of the undertaking and the roles of the different stakeholders in the project.

AR 13.The actions may cover the undertaking’s own operations and/or its upstream and downstream value chain.

Metrics and targets

AR 14.If the undertaking refers to ecological thresholds to set targets, it may refer to the guidance provided by the Science-Based Targets Initiative for Nature (SBTN) in its interim guidance (Initial Guidance for Business, September 2020) or any other guidance with a scientifically acknowledged methodology that allows to set science-based targets by identifying ecological thresholds and, if applicable, organisation-specific allocations. Ecological thresholds can be local, national and/or global.

AR 15.When providing information on targets, the undertaking shall prioritise targets in absolute value.

AR 16.When providing information targets according to paragraph 24, the undertaking shall consider the production phase, the use phase, and the end of functional life of products and materials.

AR 17.When providing information on targets related to virgin renewable raw material under paragraph 24(c), the undertaking shall consider how those targets may impact biodiversity loss, also in light of ESRS E4.

AR 18.The undertaking may disclose other targets under paragraph 24(f) including in relation to sustainable sourcing. If so, the undertaking shall explain the definition of sustainable sourcing it has adopted and how it relates to the objective set out in paragraph 22.

AR 19.The targets may cover the undertaking’s own operations and/or its upstream and downstream value chain.

AR 20.The undertaking may specify whether the target addresses shortcomings related to the Substantial Contribution criteria for Circular Economy as defined in the delegated acts adopted pursuant to Article 13(2) of Regulation (EU) 2020/852. Where the Do No Significant Harm (DNSH) criteria for Circular Economy as defined in delegated acts adopted pursuant to Article 10(3), Article 11(3), Article 12(2), Article 14(2), and Article 15(2) of Regulation (EU) 2020/852 are not met, the undertaking may specify whether the target addresses shortcomings related those DNSH criteria.

AR 21. Resource inflows may cover the following categories: IT equipment, textiles, furniture, buildings, heavy machinery, mid-weight machinery, light machinery, heavy transport, mid-weight transport, light transport and warehousing equipment. With regard to materials, resource inflow indicators include raw materials, associated process materials, and semi-manufactured goods or parts.

AR 22.When the undertaking is subject to paragraph 31, it may also provide transparency on the materials that are sourced from by-products/waste stream (e.g., offcuts of a material that has not previously been in a product).

AR 23.The denominator of the percentage indicator required under paragraphs 31(b) and 31(c) is the overall total weight of materials used during the reporting period.

AR 24.The reported usage data are to reflect the material in its original state, and not to be presented with further data manipulation, such as reporting it as ‘dry weight’.

AR 25.In cases where there is an overlap between categories of reused, recycled, the undertaking shall specify how double counting was avoided and the choices that were made.

AR 26.Products and materials information to be provided under paragraph 35 refers to all materials and products that come out of the undertaking’s production process and that a company puts on the market (including packaging).

AR 27.When compiling the rate, the undertaking shall use as denominator the overall total weight of materials used during the reporting period.

AR 28.The undertaking may disclose its engagement in product end-of-life waste management, for example through extended producer responsibility schemes or take-back schemes.

AR 29.Type of waste is to be understood as hazardous waste or non-hazardous waste. Some specific waste, such as radioactive waste, may also be presented as a separate type.

AR 30.When considering the waste streams relevant to its sectors or activities, the undertaking may consider the list of waste descriptions from the European Waste Catalogue.

AR 31.Examples of other types of recovery operations under paragraph 37(b)iii may be found in Annex II of Directive 2008/98/EC (Waste Framework Directive).

AR 32.Examples of other types of disposal operations under paragraph 37(c)iii may be found in Annex I of Directive 2008/98/EC (Waste Framework Directive).

AR 33.When providing contextual information under paragraph 40 the undertaking may:

(a) explain the reasons for high weights of waste directed to disposal (e.g., local regulations that prohibit landfill of specific types of waste);

(b) describe sector practices, sector standards, or external regulations that mandate a specific disposal operation; and

(c) specify whether the data has been modelled or sourced from direct measurements, such as waste transfer notes from contracted waste collectors.

AR 34.When providing information under paragraph 42(b), the undertaking may illustrate and describe how it intends to strengthen value retention.

AR 35.The undertaking may include an assessment of its related products and services at risk over the short-, medium- and long-term, explaining how these are defined, how financial amounts are estimated, and which critical assumptions are made.

AR 36.The quantification of the anticipated financial effects in monetary terms under paragraph 43(a) may be a range.

ESRS S1

OWN WORKFORCE

Objective

1.The objective of this Standard is to specify disclosure requirements which will enable users of the sustainability statement to understand the undertaking’s material impacts on its own workforce, as well as related material risks and opportunities, including:

(a) how the undertaking affects its own workforce, in terms of material positive and negative actual or potential impacts;

(b) any actions taken, and the result of such actions, to prevent, mitigate or remediate actual or potential negative impacts, and to address risks and opportunities;

(c) the nature, type and extent of the undertaking’s material risks and opportunities related to its impacts and dependencies on its own workforce, and how the undertaking manages them; and

(d) the financial effects on the undertaking over the short-, medium- and long-term of material risks and opportunities arising from the undertaking’s impacts and dependencies on its own workforce.

2.In order to meet the objective, this Standard also requires an explanation of the general approach the undertaking takes to identify and manage any material actual and potential impacts on its own workforce in relation to the following social, including human rights, factors or matters:

(a) working conditions, including: i. secure employment; ii. working time; iii. adequate wages; iv. social dialogue; v. freedom of association, the existence of works councils and the information, consultation and participation rights of workers; vi. collective bargaining, including the rate of the undertaking’s workforce covered by collective agreements; vii. work-life balance; and viii. health and safety.

(b) equal treatment and opportunities for all, including: i. gender equality and equal pay for work of equal value; ii. training and skills development; iii. employment and inclusion of persons with disabilities; iv. measures against violence and harassment in the workplace; and v. diversity.

(c) other work-related rights, including those that relate to:

i. child labour; ii. forced labour; iii. adequate housing; and iv. privacy.

3.This Standard also requires an explanation of how such impacts, as well as the undertaking’s dependencies on its own workforce, can create material risks or opportunities for the undertaking. For example, on the matter of equal opportunities, discrimination in hiring and promotion against women can reduce the undertaking’s access to qualified labour and harm its reputation. Conversely, policies to increase the representation of women in the workforce and in upper levels of management can have positive effects, such as increasing the pool of qualified labour and improving the undertaking’s reputation.

4.This Standard covers an undertaking’s own workforce, which is understood to include both people who are in an employment relationship with the undertaking (‘employees’) and non-employees who are either people with contracts with the undertaking to supply labour (‘self-employed people’) or people provided by undertakings primarily engaged in ‘employment activities’ (NACE Code N78). See Application Requirement 3 for examples of who falls under own workforce. The information required to be disclosed with regard to non-employees shall not affect their status pursuant to applicable labour law.

5.This Standard does not cover workers in the undertaking’s upstream or downstream value chain; these categories of workers are covered in ESRS S2 Workers in the value chain.

6.The Standard requires undertakings to describe their own workforce, including key characteristics of the employees and non-employees that are part of it. This description provides users with an understanding of the structure of the undertaking’s own workforce and helps to contextualise information provided through other disclosures.

7.The objective of the Standard is also to enable users to understand the extent to which the undertaking aligns or complies with international and European human rights instruments and conventions, including the International Bill of Human Rights, the UN Guiding Principles on Business and Human Rights and the OECD Guidelines for Multinational Enterprises, the International Labour Organization’s Declaration on Fundamental Principles and Rights at Work and ILO fundamental conventions, the UN Convention on Persons with Disabilities, the European Convention of Human Rights, the revised European Social Charter, the Charter of Fundamental Rights of the European Union, the EU policy priorities as set out by the European Pillar of Social Rights, and Union legislation, including the EU labour law acquis.

Interaction with other ESRS

8.This Standard shall be read in conjunction with ESRS 1 General principles and ESRS 2 General requirements.

9.This Standard shall be read in conjunction with ESRS S2 Workers in the value chain, ESRS S3 Affected communities and ESRS S4 Consumers and end-users.

Disclosure requirements

11.The requirements of this section should be read in conjunction with the disclosures required by ESRS 2 on Strategy (SBM). The resulting disclosures shall be presented alongside the disclosures required by ESRS 2, except for ESRS 2 SBM-3, for which the undertaking has an option to present the disclosures alongside the topical disclosure.

12.When responding to ESRS 2 SBM-2, the undertaking shall disclose how the interests, views, and rights of people in its own workforce, including respect for their human rights, inform its strategy and business model. The undertaking’s own workforce is a key group of affected stakeholders.

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

(a) whether and how actual and potential impacts on its own workforce as identified in 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 models, 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 own workforce and its strategy and business model.

14.When fulfilling the requirements of paragraph 48, the undertaking shall disclose whether all people in its own workforce who could be materially impacted by the undertaking are included in the scope of its disclosure under ESRS 2. These material impacts shall include impacts that are connected with the undertaking’s own operations and its value chain, including through its products or services, as well as through its business relationships. In addition, the undertaking shall provide the following information:

(a) a brief description of the types of employees and non-employees in its own workforce subject to material impacts by its operations, and specify whether they are employees, self- employed people, or people provided by third party undertakings primarily engaged in employment activities;

(b) in the case of material negative impacts, whether they are either (i) widespread or systemic in contexts where the undertaking operates (for example, child labour or forced labour or compulsory labour in specific countries or regions outside the EU), or (ii) related to individual incidents (for example, an industrial accident or an oil spill);

(c) in the case of material positive impacts, a brief description of the activities that result in the positive impacts, the types of employees and non-employees in its own workforce that are positively affected or could be positively affected; the undertaking may also disclose whether the positive impacts occur in specific countries or regions;

(d) any material risks and opportunities for the undertaking arising from impacts and dependencies on its own workforce;

(e) any material impacts on its own workforce that may arise from transition plans for reducing negative impacts on the environment and achieving greener and climate- neutral operations, including information on the impacts on own workforce caused by the undertaking’s plans and actions to reduce carbon emissions in line with international agreements. Impacts, risks and opportunities include restructuring and employment loss as well as opportunities arising from job creation and reskilling or upskilling;

(f) operations at significant risk of incidents of forced labour or compulsory labour (⁸⁷) either in terms of: i. type of operation (such as manufacturing plant); or ii. countries or geographic areas with operations considered at risk;

(g) operations at significant risk of incidents of child labour (⁸⁸) either in terms of: i. type of operation (such as manufacturing plant); or ii. countries or geographic areas with operations considered at risk.

15.In describing the main types of people in its own workforce 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 people with particular characteristics, those working in particular contexts, or those undertaking particular activities may be at greater risk of harm.

16.The undertaking shall disclose which, if any, of its material risks and opportunities arising from impacts and dependencies on people in its own workforce relate to specific groups of people (for example, particular age groups, or people working in a particular factory or country) rather than to all of its own workforce (for example, a general pay cut, or training offered to all people in its own workforce).

18.The objective of this Disclosure Requirement is to enable an understanding of the extent to which the undertaking has policies that address the identification, assessment, management and/or remediation of material impacts on the undertaking’s own workforce specifically, as well as policies that cover material impacts, risks and opportunities related to its own workforce.

19.The disclosure required by paragraph 17 shall contain the information on the undertaking’s policies to manage its material impacts, risks and opportunities related to its own workforce in accordance with ESRS 2 MDR-P Policies adopted to manage material sustainability matters. In addition, the undertaking shall specify if such policies cover specific groups within its own workforce or all of its own workforce.

20.The undertaking shall describe its human rights policy commitments (⁸⁹) that are relevant to its own workforce, including those processes and mechanisms to monitor compliance with the UN Guiding Principles on Business and Human Rights, ILO Declaration on Fundamental Principles and Rights at Work and the OECD Guidelines for Multinational Enterprises (⁹⁰). In its disclosure it shall focus on those matters that are material in relation to, as well as its general approach to:

(a) respect for the human rights, including labour rights, of people in its own workforce;

(b) engagement with people in its own workforce; and

(c) measures to provide and/or enable remedy for human rights impacts.

21.The undertaking shall disclose whether and how its policies with regard to its own workforce are aligned with relevant internationally recognised instruments, including the UN Guiding Principles on Business and Human Rights (⁹¹).

22.The undertaking shall state whether its policies in relation to its own workforce explicitly address trafficking in human beings (⁹²), forced labour or compulsory labour and child labour.

23.The undertaking shall state whether it has a workplace accident prevention policy or management system (⁹³).

24.The undertaking shall disclose:

(a) whether it has specific policies aimed at the elimination of discrimination, including harassment, promoting equal opportunities and other ways to advance diversity and inclusion;

(b) whether the following grounds for discrimination are specifically covered in the policy: racial and ethnic origin, colour, sex, sexual orientation, gender identity, disability, age, religion, political opinion, national extraction or social origin, or other forms of discrimination covered by Union regulation and national law;

(c) whether the undertaking has specific policy commitments related to inclusion or positive action for people from groups at particular risk of vulnerability in its own workforce and, if so, what these commitments are; and

(d) whether and how these policies are implemented through specific procedures to ensure discrimination is prevented, mitigated and acted upon once detected, as well as to advance diversity and inclusion in general.

26.The objective of this Disclosure Requirement is to enable an understanding of how the undertaking engages, as part of its ongoing due diligence process, with people in its own workforce and workers' representatives about material, actual and potential, positive and/or negative impacts that do or are likely to affect them, and whether and how perspectives of its own workforces are taken into account in the decision-making processes of the undertaking.

27.The undertaking shall disclose whether and how the perspectives of its own workforce inform its decisions or activities aimed at managing the actual and potential impacts on its own workforce. This shall include, where relevant, an explanation of:

(a) whether engagement occurs directly with the undertaking’s own workforce or workers' representatives;

(b) the stage(s) at which engagement occurs, the type of engagement and frequency of the engagement;

(c) the function and the most senior role within the undertaking that has operational responsibility for ensuring that this engagement happens and that the results inform the undertaking’s approach;

(d) where applicable, a Global Framework Agreement or other agreements that the undertaking has with workers' representatives related to the respect of human rights of its own workforce, including an explanation of how the agreement enables the undertaking to gain insight into the perspectives of its own workforce; and

(e) where applicable, how the undertaking assesses the effectiveness of its engagement with its own workforce, including, where relevant, any agreements or outcomes that result.

28.Where applicable, the undertaking shall disclose the steps it takes to gain insight into the perspectives of people in its own workforce who may be particularly vulnerable to impacts and/or marginalised (for example, women, migrants, people with disabilities).

29.If the undertaking cannot disclose the above required information because it has not adopted a general process to engage with its own workforce, it shall disclose this to be the case. It may disclose a timeframe in which it aims to have such a process in place.

31.The objective of this Disclosure Requirement is to enable an understanding of the formal means by which the undertaking’s own workforce can make their concerns and needs known directly to the undertaking and/or through which the undertaking supports the availability of such channels (for example, grievance mechanisms) in the workplace, and how follow up is carried out with the people concerned regarding the issues raised and the effectiveness of these channels.

32.The undertaking shall describe the processes in place to cover the matters defined within paragraph 2 of the Objective section by disclosing the following information:

(a) its general approach to and processes for providing or contributing to remedy where it has caused or contributed to a material negative impact on people in its own workforce, including whether and how the undertaking assesses that the remedy provided is effective;

(b) any specific channels it has in place for its own workforce to raise their concerns or needs directly with the undertaking and have them addressed, including whether these are established by the undertaking itself and/or through participation in third-party mechanisms;

(c) whether or not the undertaking has a grievance/complaints handling mechanism related to employee matters (⁹⁴); and

(d) the processes through which the undertaking supports the availability of such channels in the workplace of its own workforce; and

(e) how it tracks and monitors issues raised and addressed, and, how it ensures the effectiveness of the channels, including through the involvement of stakeholders who are intended users.

33.The undertaking shall disclose whether and how it assesses that people in its own workforce are aware of, and trust, these structures or processes as a way to raise their concerns or needs and have them addressed. In addition, the undertaking shall disclose whether it has policies in place regarding the protection of individuals that use them, including workers’ representatives, against retaliation. If such information has been disclosed in accordance with ESRS G1-1, the undertaking may refer to that information.

34.If the undertaking cannot disclose the above required information because it has not adopted a channel for raising concerns and/or does not support the availability of such a channel in the workplace for its own workforce, it shall disclose this to be the case. It may disclose a timeframe in which it aims to have such a channel in place.

36.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.

37.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.

38.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.

39.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.

40.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.

41.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.

42.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.

43.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.

(a) reducing negative impacts on its own workforce; and/or

(b) advancing positive impacts on its own workforce; and/or

(c) managing material risks and opportunities related to its own workforce.

45.The objective of this Disclosure Requirement is to enable an understanding of the extent to which the undertaking is using outcome-oriented targets to drive and measure its progress in addressing its material negative impacts and/or advancing positive impacts on its own workforce, and/or in managing material risks and opportunities related to its own workforce.

46.The summarised description of the targets set to manage its material impacts, risks and opportunities related to the undertaking’s own workforce shall contain the information requirements defined in ESRS 2 MDR-T.

47.The undertaking shall disclose the process for setting the targets, including whether and how the undertaking engaged directly with its own workforce or workers’ representatives in:

(a) setting any such targets;

(b) tracking the undertaking’s performance against them; and

(c) identifying any lessons or improvements as a result of the undertaking’s performance.

49.The objective of this Disclosure Requirement is to provide insight into the undertaking’s approach to employment, including the scope and nature of impacts arising from its employment practices, to provide contextual information that aids an understanding of the information reported in other disclosures, and to serve as the basis for calculation for quantitative metrics to be disclosed under other disclosure requirements in this Standard.

50.In addition to the information required by paragraph 40(a)iii of ESRS 2 General Disclosures, the undertaking shall disclose:

(a) the total number of employees by head count, and breakdowns by gender and by country for countries in which the undertaking has 50 or more employees representing at least 10% of its total number of employees;

(b) the total number by head count or full time equivalent (FTE) of: i. permanent employees, and breakdown by gender; ii. temporary employees, and breakdown by gender; and iii. non-guaranteed hours employees, and breakdown by gender.

(c) the total number of employees who have left the undertaking during the reporting period and the rate of employee turnover in the reporting period.

(d) a description of the methodologies and assumptions used to compile the data, including whether the numbers are reported: i. in head count or full-time equivalent (FTE) (including an explanation of how FTE is defined); and ii. at the end of the reporting period, as an average across the reporting period, or using another methodology.

(e) where applicable, a provision of contextual information necessary to understand the data (for example, to understand fluctuations in number of employees during the reporting period); and

(f) a cross-reference of the information reported under (a) above to the most representative number in the financial statements.

51.For the information specified in point (b) of paragraph 50, the undertaking may in addition disclose the breakdown by region.

52.The undertaking may disclose by head count or full time equivalent (FTE) the following information:

(a) full-time employees, and breakdowns by gender and by region; and

(b) part-time employees, and breakdowns by gender and by region.

54.The objective of this Disclosure Requirement is to provide insight into the undertaking’s approach to employment, including the scope and nature of impacts arising from its employment practices, to provide contextual information that aids the understanding of the information reported in other disclosures, and to serve as the basis for calculation for quantitative metrics to be disclosed under other disclosure requirements in this Standard. It also allows an understanding of how much the undertaking relies on non-employees as part of its workforce.

55.The disclosure required by paragraph 53 shall include:

(a) a disclosure of the total number of non-employees in the undertaking’s own workforce, i.e., either people with contracts with the undertaking to supply labour (‘self-employed people’) or people provided by undertakings primarily engaged in ‘employment activities’ (NACE Code N78).

(b) an explanation of the methodologies and assumptions used to compile the data, including whether the number of non-employees is reported: i. in headcount or full-time equivalent (FTE) (including a definition of how FTE is defined); and ii. at the end of the reporting period, as an average across the reporting period, or using another methodology.

(c) where applicable, a provision of contextual information necessary to understand the data (for example, significant fluctuations in the number of non-employees in the undertaking’s own workforce during the reporting period and between the current and the previous reporting period).

56.For the information specified in point (a) of paragraph 55, the undertaking may disclose the most common types of non-employees (for example, self-employed people, people provided by undertakings primarily engaged in employment activities, and other types relevant to the undertaking), their relationship with the undertaking, and the type of work that they perform.

57.Where data is not available, the undertaking shall estimate the number and state that it has done so. When the undertaking performs estimates, it shall describe the basis of preparation of this estimation.

59.The objective of this Disclosure Requirement is to enable an understanding of the coverage of collective bargaining agreements and social dialogue for the undertaking’s own employees.

60.The undertaking shall disclose:

(a) the percentage of its total employees covered by collective bargaining agreements;

(b) in the EEA, whether it has one or more collective bargaining agreements and, if so, the overall percentage of its employees covered by such agreement(s) for each country in which it has significant employment, defined as at least 50 employees by head count representing at least 10% of its total number of employees; and

(c) outside the EEA, the percentage of its own employees covered by collective bargaining agreements by region.

61.For employees not covered by collective bargaining agreements, the undertaking may disclose whether it determines their working conditions and terms of employment based on collective bargaining agreements that cover its other employees or based on collective bargaining agreements from other undertakings.

62.The undertaking may disclose the extent to which the working conditions and terms of employment of non-employees in its own workforce are determined or influenced by collective bargaining agreements, including an estimate of the coverage rate.

63.The undertaking shall disclose the following information in relation to social dialogue:

(a) the global percentage of employees covered by workers’ representatives, reported at the country level for each EEA country in which the undertaking has significant employment; and

(b) the existence of any agreement with its employees for representation by a European Works Council (EWC), a Societas Europaea (SE) Works Council, or a Societas Cooperativa Europaea (SCE) Works Council.

65.The objective of this Disclosure Requirement is to enable an understanding of gender diversity at top management level and the age distribution of its employees.

66.The undertaking shall disclose:

(a) the gender distribution in number and percentage at top management level; and

(b) the distribution of employees by age group: under 30 years old; 30-50 years old; over 50 years old.

68.The objective of this Disclosure Requirement is to enable an understanding of whether or not all the undertaking’s employees are paid an adequate wage, in line with applicable benchmarks.

69.The undertaking shall disclose whether all its employees are paid an adequate wage, in line with applicable benchmarks. If so, stating this will be sufficient to fulfil this disclosure requirement and no further information is needed.

70.If not all its employees are paid an adequate wage in line with applicable benchmarks, the undertaking shall disclose the countries where employees earn below the applicable adequate wage benchmark and the percentage of employees that earn below the applicable adequate wage benchmark for each of these countries.

71.The undertaking may also disclose the information specified in this disclosure requirement with regard to non-employees in its workforce.

73.The objective of this Disclosure Requirement is to enable an understanding of whether the undertaking’s employees are covered by social protection against loss of income due to major life events, and, if not, the countries where this is not the case.

74.The undertaking shall disclose whether all its employees are covered by social protection, through public programs or through benefits offered by the undertaking, against loss of income due to any of the following major life events:

(a) sickness;

(b) unemployment starting from when the own worker is working for the undertaking;

(c) employment injury and acquired disability;

(d) parental leave; and

(e) retirement.

If so, stating this is sufficient to fulfil this disclosure requirement and no further information is needed.

75.If not all of its employees are covered by social protection in accordance with paragraph 72, the undertaking shall in addition disclose the countries where employees do not have social protection with regard to one or more of the types of events listed in paragraph 72 and for each of those countries the types of employees who do not have social protection with regard to each applicable major life event.

76.The undertaking may also disclose the information specified in this disclosure requirement with regard to non-employees in its workforce.

78.The objective of this Disclosure Requirement is to enable an understanding of the extent to which persons with disabilities are included among the undertaking’s employees.

80.The undertaking may disclose the percentage of employees with disabilities with a breakdown by gender.

82.The objective of this Disclosure Requirement is to enable an understanding of the training and skills development -related activities that have been offered to employees, within the context of continuous professional growth, to upgrade employees’ skills and facilitate continued employability.

83.The disclosure required by paragraph 81 shall include:

(a) the percentage of employees that participated in regular performance and career development reviews; such information shall be broken down by gender;

(b) the average number of training hours per employee and by gender.

84.The undertaking may disclose breakdowns by employee category for the percentage of employees that participated in regular performance and career development and for the average number of training hours per employee.

85.The undertaking may also disclose the information specified in this disclosure requirement with regard to non-employees in its workforce.

87.The objective of this Disclosure Requirement is to allow an understanding of the coverage, quality and performance of the health and safety management system established to prevent work-related injuries.

88.The disclosure required by paragraph 86 shall include the following information, where applicable broken down between employees and non-employees in the undertaking’s own workforce:

(a) the percentage of people in its own workforce who are covered by the undertaking’s health and safety management system based on legal requirements and/or recognised standards or guidelines;

(b) the number of fatalities (⁹⁵) as a result of work-related injuries and work-related ill health;

(c) the number and rate of recordable work-related accidents;

(d) with regard to the undertaking’s employees, the number of cases of recordable work-related ill health, subject to legal restrictions on the collection of data; and

(e) with regard to the undertaking’s employees, the number of days lost to work-related injuries and fatalities from work-related accidents, work-related ill health and fatalities from ill health (⁹⁶).

The information for (b) shall also be reported for other workers working on the undertaking’s sites, such as value chain workers if they are working on the undertaking’s sites.

89.The undertaking may also disclose the information specified in points (d) and (e) of paragraph 88 with regard to non-employees.

90.In addition, the undertaking may include the following additional information on the health and safety coverage: the percentage of its own workers covered by a health and safety management system which is based on legal requirements and/or recognised standards or guidelines and which has been internally audited and/or audited or certified by an external party.

92.The objective of this Disclosure Requirement is to provide an understanding of the entitlement and actual practices amongst the employees to take family-related leave in a gender equitable manner, as it is one of the dimensions of work-life balance.

93.The disclosure required by paragraph 91 shall include:

(a) the percentage of employees entitled to take family-related leave; and

(b) the percentage of entitled employees that took family-related leave, and a breakdown by gender.

94.If all of the undertaking’s employees are entitled to family-related leave through social policy and/or collective bargaining agreements, it is sufficient to disclose this in order to meet the requirement of paragraph 93a.

96.The objective of this Disclosure Requirement is twofold: to allow an understanding of the extent of any gap in the pay between women and men amongst the undertaking’s employees; and to provide insight into the level of remuneration inequality inside the undertaking and whether wide pay disparities exist.

97.The disclosure required by paragraph 95 shall include:

(a) the gender pay gap, defined as the difference of average pay levels between female and male employees, expressed as percentage of the average pay level of male employees (⁹⁷);

(b) the annual total remuneration ratio of the highest paid individual to the median annual total remuneration for all employees (excluding the highest-paid individual) (⁹⁸); and

(c) where applicable, any contextual information necessary to understand the data and how the data has been compiled and other changes to the underlying data that are to be considered.

98.The undertaking may disclose a breakdown of the gender pay gap as defined in paragraph 97(a) by employee category and/or by country/segment. The undertaking may also disclose the gender pay gap between employees by categories of employees broken down by ordinary basic salary and complementary or variable components.

99.In relation to paragraph 97 (b), the undertaking may report this figure adjusted for purchasing power differences between countries, in which case it shall report the methodology used for the calculation.

101.The objective of this Disclosure Requirement is to allow an understanding of the extent to which work-related *incidents and severe cases of human rights impacts are affecting its own workforce*.

102.The disclosure required by paragraph 100 shall include, subject to the relevant privacy regulations, work-related *incidents of discrimination on the grounds of gender, racial or ethnic origin, nationality, religion or belief, disability, age, sexual orientation, or other relevant forms of discrimination involving internal and/or external stakeholders across operations in the reporting period. This includes incidents of harassment* as a specific form of discrimination.

103.The undertaking shall disclose:

(a) the total number of incidents of discrimination, including harassment, reported in the reporting period (⁹⁹);

(b) the number of complaints filed through channels for people in the undertaking’s own workforce to raise concerns (including grievance mechanisms) and, where applicable, to the National Contact Points for OECD Multinational Enterprises related to the matters defined in paragraph 2 of this Standard, excluding those already reported in (a) above;

(c) the total amount of fines, penalties, and compensation for damages as a result of the incidents and complaints disclosed above, and a reconciliation of such monetary amounts disclosed with the most relevant amount presented in the financial statements; and

(d) where applicable, contextual information necessary to understand the data and how such data has been compiled.

104.The undertaking shall disclose the following information regarding identified cases of severe human rights incidents (e.g., forced labour, human trafficking or child labour):

(a) the number of severe human rights incidents connected to the undertaking’s workforce in the reporting period, including an indication of how many of these are cases of non-respect of the UN Guiding Principles on Business and Human Rights, ILO Declaration on Fundamental Principles and Rights at Work or OECD Guidelines for Multinational Enterprises. If no such incidents have occurred, the undertaking shall state this (¹⁰⁰); and

(b) the total amount of fines, penalties and compensation for damages for the incidents described in (a) above, and a reconciliation of the monetary amounts disclosed in the most relevant amount in the financial statements.

Appendix A

This appendix is an integral part of the ESRS S1 Own workforce. It supports the application of the disclosure requirements set out in this standard and has the same authority as the other parts of this Standard.

Objective

AR 1.In addition to the issues listed in paragraph 2, the undertaking may also consider disclosing information about other issues relevant to a material impact for a shorter period of time, for instance initiatives regarding the health and safety of its own workforce during a pandemic.

AR 2.The overview of social matters provided in paragraph 2 is not meant to imply that all of these issues should be reported on in each Disclosure Requirement in this Standard. Rather, they provide a list of matters derived from the sustainability reporting requirements set out in Directive 2013/34/EU that the undertaking shall consider for the ESRS 2 materiality assessment related to its own workforce and, as appropriate, report as material impacts, risks and opportunities within the scope of this Standard.

AR 3.Examples of people that fall within the scope of ‘Own workforce’ are:

(a) Examples of contractors (self-employed persons) in the undertaking’s own workforce include: i. Contractors hired by the undertaking to perform work that would otherwise be carried out by an employee ii. Contractors hired by the undertaking to perform work in a public area (e.g., on a road, on the street). iii. Contractors hired by the undertaking to deliver the work/service directly at the workplace of a client of the undertaking.

(b) Examples of people employed by a third party engaged in ‘employment activities’ include people who perform the same work that employees carry out, such as: i. people who fill in for employees who are temporarily absent (due to illness, holiday, parental leave, etc.); ii. people performing work additional to regular employees; iii. people who are dispatched temporarily from another EU member state to work for the undertaking (‘posted workers’).

ESRS 2 General Disclosures

Strategy

AR 4.ESRS 2 SBM-2 requires the undertaking to provide an understanding of whether and how it considers the role that its strategy and business model may play in creating, exacerbating or mitigating significant material impacts on its own workforce, and whether and how the business model and strategy are adapted to address such material impacts.

AR 5.While the undertaking’s own workforce may not be engaging with the undertaking at the level of its strategy or business model, their views can inform the undertaking’s assessment of its strategy and business model. The undertaking shall consider the views of workers’ representatives when applicable to fulfil this disclosure.

AR 6. Impacts on the undertaking’s own workforce can originate in its strategy or business model in a number of different ways. For example, impacts may relate to the undertaking’s value proposition (such as providing lowest cost products or services, or high-speed delivery, in ways that put pressure on labour rights in its own operations), or its cost structure and the revenue model (such as shifting inventory risk to suppliers, with knock-on effects on the labour rights of people who work for them).

AR 7.Impacts on the undertaking’s own workforce that originate in the strategy or business model can also bring material risks to the undertaking. For example, risks arise if some people in the workforce are at risk of forced labour, and the undertaking is importing products into countries where the law allows for the confiscation of imported goods that are suspected of being made with forced labour. An example of opportunities for the undertaking may result from providing opportunities for the workforce such as job creation and upskilling in the context of a ‘just transition’. Another example, in the context of a pandemic or other severe health crisis, relates to the undertaking potentially relying on contingent labour with little to no access to sick care and health benefits that may face severe operational and business continuity risks as workers have no choice but to keep working while sick, further exacerbating the spread of the disease and causing major supply chain breakdowns. Reputational and business opportunity risks linked to the exploitation of low-skilled, low-paid workers in sourcing geographies with minimal protections for them are also increasing with media backlash and consumer preferences moving to more ethically sourced or sustainable goods.

AR 8.Examples of particular characteristics of people in the undertaking’s own workforce that may be considered by the undertaking when responding to paragraph 15 relate to young people that may be more susceptible to impacts on their physical and mental development, or women in a context where women are routinely discriminated against in the terms and conditions of work, or migrants in a context where the market for the supply of labour is poorly regulated and workers are routinely charged recruitment fees. For some people in the workforce, the inherent nature of the activity that they are required to undertake may put them at risk (for example, people required to handle chemicals or operate certain equipment or low paid employees who are on ‘zero hours’ contracts).

AR 9.With regard to paragraph 16, material risks could also arise because of the undertaking’s dependency on its own workforce where low-likelihood but high-impact events may trigger financial effects; for example, where a global pandemic leads to severe health impacts on the undertaking’s workforce resulting in major disruptions to production and distribution. Other examples of risk related to the undertaking’s dependency on its workforce include a shortage in skilled workers or political decisions or legislation affecting its own operations and own workforce.

Impacts, risks and opportunities management

AR 10.The undertaking shall consider whether explanations of significant changes to the policies adopted during the reporting year (for example, new expectations for foreign subsidiaries, new or additional approaches to due diligence and remedy) provide contextual information for users and may disclose such explanations. This includes policies and commitments of the undertaking to prevent or mitigate the risks and negative impacts on people in its own workforce of reducing carbon emissions and transitioning to greener and climate-neutral operations as well as to provide opportunities for the workforce such as job creation and upskilling, including explicit commitments to a ‘just transition’.

AR 11.The policy may take the form of a stand-alone policy regarding the undertaking’s own workforce or be included in a broader document such as a code of ethics or a general sustainability policy that has already been disclosed by the undertaking as part of another ESRS. In those cases, the undertaking shall provide an accurate cross-reference to identify the aspects of the policy that satisfy the requirements of this Disclosure Requirement.

AR 12.When disclosing the alignment of its policies with the UN Guiding Principles on Business and Human Rights, the undertaking shall consider that the Guiding Principles refer to the International Bill of Human Rights, which consist of the Universal Declaration of Human Rights and the two Covenants that implement it, as well as the International Labour Organisation’s Declaration on Fundamental Rights and Principles at Work and the core conventions that underpin it, and may report on alignment with these instruments.

AR 13. When explaining how external-facing policies are embedded, the undertaking may, for example, consider internal policies of responsible sourcing, and alignment with other policies relevant to its own workforce, for example, regarding forced labour. With regard to supplier codes of conduct that the undertaking may have, it shall indicate whether they include provisions addressing the safety of workers, precarious work (i.e., use of workers on short-term or limited hours contracts, workers employed via third parties, sub-contracting to third parties or use of informal workers), human trafficking, the use of forced labour or child labour, and whether such provisions are fully in line with applicable ILO standards.

AR 14.The undertaking may provide an illustration of the types of communication of its policies to those individuals, group of individuals or entities for whom they are relevant, either because they are expected to implement them (for example, the undertaking’s employees, contractors and suppliers), or because they have a direct interest in their implementation (for example, people in its own workforce, investors). It may disclose communication tools and channels (for example, flyers, newsletters, dedicated websites, social media, face to face interactions, workers’ representatives), aimed at ensuring that the policy is accessible and that different audiences understand its implications. The undertaking may also explain how it identifies and removes potential barriers for dissemination, such as through translation into relevant languages or the use of graphic depictions.

AR 15. Discrimination in employment and occupation occurs when someone is treated differently or less favourably because of characteristics that are not related to merit or the inherent requirements of the job. These characteristics are commonly defined in national laws. Besides the grounds mentioned in the Disclosure Requirement, the undertaking shall consider other grounds for discrimination prohibited under national legislation.

AR 16. Discrimination can arise in a variety of work-related activities. These include access to employment, particular occupations, training and vocational guidance and social security. Moreover, it can occur with respect to the terms and conditions of employment, such as: recruitment, remuneration, hours of work and rest, paid holidays, maternity protection, security of tenure, job assignments, performance assessment and advancement, training opportunities, promotion prospects, occupational safety and health, termination of employment. The undertaking may address these areas specifically when disclosing its policies and underlying procedures to fulfil the disclosure requirement.

AR 17.The undertaking may disclose whether it:

(a) has policies and procedures which make qualifications, skills and experience the basis for the recruitment, placement, training and advancement at all levels, while accounting for the fact that some individuals may have more difficulty than others to acquire such qualifications, skills and experience;