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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

Type Delegated Regulation

Publication 2023-07-31

Last updated 2025-01-01

State In force

Department European Commission, FISMA

Source EUR-Lex

articles 2

Reform history JSON API

AR 28.Channels for raising concerns or needs include grievance mechanisms, hotlines, trade unions (where people in the workforce are unionised), works councils, dialogue processes or other means through which the undertaking’s own workforce or workers’ representatives can raise concerns about impacts or explain needs that they would like the undertaking to address. This could include both channels provided by the undertaking directly and channels provided by the entities where their own workforce is working, in addition to any other mechanisms an undertaking may use to gain insight into the management of impacts on its own workforce, such as compliance audits. Where the undertaking is relying solely on information about the existence of such channels provided by its business relationships to answer this requirement, it may state that.

AR 29.Third party mechanisms could include those operated by the government, NGOs, industry associations and other collaborative initiatives. The undertaking may disclose whether these are accessible to all of its own workforce (or workers’ representatives or, in their absence, individuals or organisations acting on their behalf or who are otherwise in a position to be aware of negative impacts).

AR 30.The undertaking shall consider whether and how people in its own workforce that may be affected and their workers' representatives are able to access channels at the level of the undertaking they are employed by, or contracted to work for, in relation to each material impact. Relevant channels may include hotlines, trade unions (where people in the workforce are unionised) or works councils, or other grievance mechanisms operated by the relevant undertaking or by a third party.

AR 31.In explaining whether and how the undertaking knows that people in its own workforce are aware of and trust any of these channels, the undertaking may provide relevant and reliable data about the effectiveness of these channels from the perspective of the people concerned. Examples of sources of information are surveys of people in the undertaking’s workforce that have used such channels and their levels of satisfaction with the process and outcomes.

AR 32.In describing the effectiveness of channels for its own workforce and workers’ representatives to raise concerns, the undertaking may be guided by the following questions, based on the ‘effectiveness criteria for non-judicial grievance mechanisms’, as laid out in the UN Guiding Principles on Business and Human Rights, in particular principle 31. The considerations below may be applied to individual channels or to a collective system of channels:

(a) do the channels have legitimacy by providing appropriate accountability for their fair conduct and building stakeholder trust?

(b) are the channels known and accessible to stakeholders?

(d) do the channels ensure reasonable access for stakeholders to sources of information, advice and expertise?

(e) do the channels offer transparency by providing sufficient information both to complainants and, where applicable, to meet any public interest?

(f) do outcomes achieved through the channels accord with internationally recognised human rights?

(g) does the undertaking identify insights from the channels that support continuous learning in both improving the channels and preventing future impacts?

(h) does the undertaking focus on dialogue with complainants as the means to reach agreed solutions, rather than seeking to unilaterally determine the outcome?

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

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

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

(d) its aims for continued improvement.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

development** threaten the undertaking’s business; and

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

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

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

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

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

Metrics and targets

AR 49. When disclosing information about targets in accordance with paragraph 44, the undertaking may disclose:

(a) the intended outcomes to be achieved in the lives of a certain number of people in its own workforce;

(b) the stability of the targets over time in terms of definitions and methodologies to enable comparability over time; and/or

(c) the standards or commitments which the targets are based on (for instance codes of conduct, sourcing policies, global frameworks, or industry codes).

AR 50. Targets related to risks and opportunities may be the same as or distinct from targets related to impacts. For example, a target to reach adequate wages for non-employees could both reduce impacts on those people and reduce associated risks in terms of the quality and reliability of their output.

AR 51.The undertaking may also distinguish between short-, medium- and long-term targets covering the same policy commitment. For example, the undertaking may have a long-term target to achieve an 80% reduction in health and safety incidents affecting its delivery drivers by 2030 and a near-term target to reduce the overtime hours of delivery drivers by x% while maintaining their income by 2024.

AR 52.When modifying or replacing a target in the reporting period, the undertaking may explain the change by cross-referencing it to significant changes in the business model or to broader changes in the accepted standard or legislation from which the target is derived to provide contextual information as per ESRS 2 BP-2 Disclosures in relation to specific circumstances.

AR 53.This Disclosure Requirement covers all employees who perform work for any of the undertaking’s entities included in its sustainability reporting.

AR 54.Providing a breakdown of employees by country gives insight into the distribution of activity across countries. The number of employees in each country is also a key trigger for many information, consultation and participation rights for workers and workers' representatives, both in the Union labour law acquis (for example, Directive 2009/38/EC of the European Parliament and of the Council (¹⁰¹)‘European Works Councils Directive’ and Directive 2002/14/EC of the European Parliament and of the Council (¹⁰²)‘Information and Consultation Directive’) and in national law (for example, rights to establish a works council or to have board level employee representation). Providing a breakdown of employees by gender and type of employment relationship gives insight into gender representation across the undertaking. Additionally, providing a breakdown of employees by region gives insight into regional variations. A region can refer to a country or other geographic locations, such as a region within a country or a world region.

AR 55.The undertaking shall disclose the requested disclosures in the following tabular formats:

Gender	Number of employees (head count)
Male
Female
Other
Not reported
Total Employees

In some Member States it is possible for persons to legally register themselves as having a third, often neutral, gender, which is categorised as ‘other’ in the table above. However, if the undertaking is disclosing data about employees where this is not possible, it may explain this and indicate that the ‘other’ category is not applicable.

Country	Number of employees (head count)
Country A
Country B
Country C
Country D
[Reporting period]
---	---
FEMALE	MALE
Number of employees (head count / FTE)

Number of permanent employees (head count / FTE)

Number of temporary employees (head count / FTE)

Number of non-guaranteed hours employees (head count / FTE)

Number of full-time employees (head count / FTE)

Number of part-time employees (head count / FTE)

(¹) Gender as specified by the employees themselves.*
[Reporting period]
---	---
REGION A	REGION B
Number of employees (head count / FTE)

Number of permanent employees (head count / FTE)

Number of temporary employees (head count / FTE)

Number of non-guaranteed hours employees (head count / FTE)

Number of full-time employees (head count / FTE)

Number of part-time employees (head count / FTE)

AR 56.The definitions of permanent, temporary, non-guaranteed hours, full-time, and part-time employees differ between countries. If the undertaking has employees in more than one country, it shall use the definitions as per the national laws of the countries where the employees are based to calculate country-level data. The country-level data shall then be added up to calculate total numbers, disregarding differences in national legal definitions. Non-guaranteed hours employees are employed by the undertaking without a guarantee of a minimum or fixed number of working hours. The employee may need to make themselves available for work as required, but the undertaking is not contractually obliged to offer the employee a minimum or fixed number of working hours per day, week, or month. Casual employees, employees with zero-hour contracts, and on-call employees are examples that fall under this category.

AR 57.Disclosing the number of employees at the end of the reporting period provides information for that point in time, without capturing fluctuations during the reporting period. Disclosing these numbers in averages across the reporting period takes into account fluctuations during the reporting period.

AR 58.Quantitative data, such as the number of temporary or part-time employees, is unlikely to be sufficient on its own. For example, a high proportion of temporary or part-time employees could indicate a lack of employment security for employees, but it could equally signal workplace flexibility when offered as a voluntary choice. For this reason, the undertaking is required to disclose contextual information to help information users interpret the data. The undertaking can explain the reasons for temporary employment. An example of such a reason is the recruitment of employees to undertake work on a temporary or seasonal project or event. Another example is the standard practice of offering a temporary contract (for example, six months) to new employees before an offer of permanent employment is made. The undertaking may also explain the reasons for non-guaranteed hours employment.

AR 59.For the own employee turnover calculation, the undertaking shall calculate the aggregate of the number of employees who leave voluntarily or due to dismissal, retirement, or death in service. The undertaking shall use this number for the numerator of the employee turnover rate and may determine the denominator used to calculate this rate and describe its methodology.

AR 60.Where data is not available for detailed information, the undertaking shall use an estimation of the employee number or ratios, in accordance with ESRS 1, and clearly identify where the use of estimates has taken place.

AR 61.This Disclosure Requirement provides insight into the undertaking’s approach to employment, as well as the scope and nature of impacts arising from its employment practices. It also provides contextual information that aids an understanding of the information reported in other disclosures. This disclosure covers both individual contractors supplying labour to the undertaking (‘self-employed people’) and workers provided by undertakings primarily engaged in ‘employment activities’ (NACE Code N78). If all the people performing work for the undertaking are employees and the undertaking does not have any people in its workforce who are not employees, this Disclosure Requirement is not material for the undertaking; notwithstanding, the undertaking may state this fact when disclosing the information required by Disclosure Requirement S1-6 as contextual information as this information can be relevant for the users of the Sustainability Statement.

AR 62.Examples of contractors (self-employed people) in the undertaking’s own workforce include: contractors hired by the undertaking to perform work that would otherwise be carried out by an employee; contractors hired by the undertaking to perform work in a public area (for example, on a road, on the street); and contractors hired by the undertaking to deliver the work/service directly at the workplace of a client of the organization. Examples of people employed by a third party engaged in ‘employment activities’ whose work is under the direction of the undertaking include: people who perform the same work that employees carry out, such as people who fill in for employees who are temporarily absent (due to illness, holiday, parental leave, etc.); people performing regular work at the same site as employees; and workers who are dispatched temporarily from another EU member state to work for the undertaking (‘posted workers’). Examples of value chain workers (and thus of workers not in the undertaking’s own workforce and reported under the scope of ESRS S2) include: workers for a supplier contracted by the undertaking who work on the supplier’s premises using the supplier’s work methods; workers for a ‘downstream’ entity which purchases goods or services from the undertaking; and workers of an equipment supplier to the undertaking who, at one or more of the undertaking’s workplaces, perform regular maintenance on the supplier’s equipment (for example, photocopier) as stipulated in the contract between the equipment supplier and the undertaking.

AR 63.If the undertaking cannot report exact figures, it shall use estimates according to the provisions in ESRS 1 to disclose the number of people in its own workforce who are not employees to the nearest ten or, where the number of people in its own workforce who are not employees is greater than 1 000 , to the nearest 100, and explain this. In addition, it shall clearly identify the information that derives from actual data and estimates.

AR 64.Disclosing the number of people in the undertaking’s own workforce who are not employees at the end of the reporting period provides information for that point in time without capturing fluctuations during the reporting period. Disclosing this number as an average across the reporting period considers fluctuations during the reporting period and can provide more insightful and relevant information for users.

AR 65.The information disclosed by the undertaking allows users to understand how the number of non-employees in the undertaking’s own workforce varies during the reporting period or compared to the previous reporting period (i.e., whether the numbers have increased or decreased). The undertaking may also disclose the reasons for the fluctuations. For example, an increase in the number of non-employees during the reporting period could be due to a seasonal event. Conversely, a decrease in the number of non-employees compared to the previous reporting period could be due to the completion of a temporary project. If the undertaking discloses fluctuations, it shall also explain the criteria used to determine which fluctuations it discloses. If there are no significant fluctuations in the number of non-employees during the reporting period or between the current and previous reporting period, the undertaking may disclose this information.

AR 66.The percentage of employees covered by collective bargaining agreements is calculated using the following formula:

AR 67.The employees in the undertaking’s own workforce covered by collective bargaining agreements are those individuals to whom the undertaking is obliged to apply the agreement. This means that if none of the employees are covered by a collective bargaining agreement, the percentage reported is zero. An employee in the undertaking’s own workforce covered by more than one collective bargaining agreement only needs to be counted once.

AR 68.This requirement is not aimed at obtaining the percentage of employees represented by a works council or belonging to trade unions, which can be different. The percentage of employees covered by collective bargaining agreements can be higher than the percentage of unionised employees when the collective bargaining agreements apply to both union and non-union members. Alternatively, the percentage of employees covered by collective bargaining agreements can be lower than the percentage of unionised employees. This may be the case when there are no collective bargaining agreements available or when the collective bargaining agreements do not cover all unionised employees.

AR 69.For calculating the information required by paragraph 63(a), the undertaking shall identify in which European Economic Area (EEA) countries it has significant employment (i.e., at least 50 employees representing at least 10% of its total employees). For these countries it shall report the percentage of employees in that country which are employed in establishments in which employees are represented by workers’ representatives. Establishment is defined as any place of operations where the undertaking carries out a non-transitory economic activity with human means and goods. Examples include: a factory, a branch of a retail chain, or an undertaking’s headquarters. For countries in which there is only one establishment the percentage reported shall be either 100% or 0%.

AR 70.The information required by this Disclosure Requirement shall be reported as follows

	Collective Bargaining Coverage	Social dialogue
Coverage Rate	Employees – EEA (for countries with >50 empl. representing >10% total empl.)	Employees – Non-EEA (estimate for regions with >50 empl. representing >10% total empl)	Workplace representation (EEA only) (for countries with >50 empl. representing >10% total empl)
0 -19 %		Region A
20 -39 %	Country A	Region B
40 -59 %	Country B		Country A
60 -79 %			Country B
80 -100 %

AR 71.In preparing the disclosure on gender at top management, the undertaking shall use the definition of top management as one and two levels below the administrative and supervisory bodies unless this concept has already been defined with the undertaking’s operations and differs from the previous description. If this is the case, the undertaking can use its own definition for top management and disclose that fact and its own definition.

AR 72.The lowest wage shall be calculated for the lowest pay category, excluding interns and apprentices. This is to be based on the basic wage plus any fixed additional payments that are guaranteed to all employees. The lowest wage shall be considered separately for each country in which the undertaking has operations, except outside the EEA when the relevant adequate or minimum wage is defined at a sub national level.

AR 73.The adequate wage benchmark used for comparison with the lowest wage shall not be lower than:

(a) in the EEA: the minimum wage set in accordance with Directive (EU) 2022/2041 of the European Parliament and of the Council (¹⁰³) on adequate minimum wages in the European Union. In the period until Directive (EU) 2022/2041 enters into application, where there is no applicable minimum wage determined by legislation or collective bargaining in an EEA country, the undertaking shall use an adequate wage benchmark that is either not lower than the minimum wage in a neighboring country with a similar socio-economic status or not lower than a commonly-referenced international norm such as 60% of the country's median wage and 50% of the gross average wage.

(b) outside of the EEA: i. the wage level established in any existing international, national or sub-national legislation, official norms or collective agreements, based on an assessment of a wage level needed for a decent standard of living; ii. if none of the instruments identified in (i) exist, any national or sub-national minimum wage established by legislation or collective bargaining; or iii. if none of the instruments identified in (i) or (ii) exist, any benchmark that meets the criteria set out by the Sustainable Trade Initiative (IDH) (‘Roadmap on Living Wages - A Platform to Secure Living Wages in Supply Chains’), including applicable benchmarks aligned with the Anker methodology, or provided by the Wage Indicator Foundation or Fair Wage Network, provided the primacy of collective bargaining for the establishment of terms and conditions of employment is ensured.

AR 74.Directive (EU) 2022/2041 on adequate minimum wages in the European Union references both indicative reference values commonly used at international level such as 60 % of the gross median wage and 50 % of the gross average wage, and/or indicative reference values used at national level. Data for the indicative values of 60% of the national median gross wage or 50% of the national average gross wage can be obtained from the European Labour Force Survey.

AR 75. Social protection refers to all the measures that provide access to health care and income support in cases of challenging life events such as the loss of a job, being sick and in need of medical care, giving birth and raising a child, or retiring and in need of a pension.

AR 76.When disclosing the information required in paragraph 77 regarding persons with disabilities, the undertaking shall provide any contextual information necessary to understand the data and how the data has been compiled (methodology). For example, information about the impact of different legal definitions of persons with disabilities in the different countries in which the undertaking has operations.

AR 77.A regular performance review is defined as a review based on criteria known to the employee and his or her superior undertaken with the knowledge of the employee at least once per year. The review can include an evaluation by the worker’s direct superior, peers, or a wider range of employees. The review can also involve the human resources department. In order to disclose the information required by paragraph 83 (a), the undertaking shall use the employee headcount figures provided in Disclosure Requirement ESRS S1-6 in the denominator to calculate the:

(a) number/proportion of performance reviews per employee; and

(b) number of reviews in proportion to the agreed number of reviews by the management.

AR 78.To disclose the average required per paragraph 83 (b), the undertaking shall perform the following calculation: total number of training hours offered to and completed by employees per gender category divided by the total number of employees per gender category. For the total training average and the average by gender, the head count figures for total employment and employment by gender reported in Disclosure Requirement ESRS S1-6 shall be used.

AR 79.Employee categories are a breakdown of employees by level (such as senior management, middle management) or function (such as technical, administrative, production). This information is derived from the undertaking’s own human resources system. In categorising the workforce, the undertaking shall define reasonable and meaningful employee categories which enable users of the information to understand different performance measures between the categories. The undertaking may present a category for executive and non- executive employees.

AR 80.In relation to paragraph 88 (a), the percentage of its own workforce who are covered by the undertaking’s health and safety management system shall be disclosed on a head count basis rather than a full-time equivalent basis.

AR 81.With regard to paragraph 90, when the undertaking’s health and safety management system, or certain parts thereof, has been subject to an internal audit or external certification, the undertaking may state this fact, or absence thereof, and the underlying standards for such audits/certifications, as applicable.

AR 82.Fatalities may be reported separately for those resulting from work-related injuries and those resulting from work-related ill health.

AR 83. Work-related injuries and work-related ill health arise from exposure to hazards at work. Notwithstanding, other types of incidents can occur that are not connected with the work itself. For example, the following incidents are generally not considered to be work-related, unless otherwise specified in applicable national legislation:

(a) a person in the workforce suffers a heart attack while at work that it is not connected with work;

(b) a person in the workforce driving to or from work is injured in a car accident (when driving is not part of the work and where the transport has not been organised by the undertaking); and

AR 84.With regard to travelling for work purposes, injuries and ill health that occur while a person is travelling are work-related if, at the time of the injury or ill health, the person was engaged in work activities ‘in the interest of the employer’. Examples of such activities include travelling to and from customer contacts; conducting job tasks; and entertaining or being entertained to transact, discuss, or promote business (at the direction of the employer). If the undertaking is responsible for the transport commuting, incidents occurred while commuting are considered to be work-related. Nonetheless, incidents which arise during travel, outside of the undertaking’s responsibility (i.e., regular commuting to and from work), may be reported separately provided that the undertaking has such data available across the undertaking.

AR 85.With regard to working from home, injuries and ill health that occur when working from home are work-related, if the injury or ill health occurs while the person is performing work from home; and the injury or ill health is directly related to the performance of work rather than the general home environment or setting.

AR 86.With regard to mental illness, it is considered to be work-related, if it has been notified voluntarily by the person concerned and it is supported by an opinion from a licensed healthcare professional with appropriate training and experience; and if such opinion states that the illness is work-related.

AR 87.Health issues resulting, for example, from smoking, drug and alcohol abuse, physical inactivity, unhealthy diets, and psychosocial factors unrelated to work are not considered work-related.

AR 88.Occupational diseases are not considered work-related injuries but are covered under work-related ill health.

AR 89.In computing the rate of work-related injuries, the undertaking shall divide the respective number of cases by the number of total hours worked by people in its own workforce and multiplied by 1 000 000 . Thereby, these rates represent the number of respective cases per one million hours worked. A rate based on 1 000 000 hours worked indicates the number of work-related injuries per 500 full time people in the workforce over a 1-year timeframe. For comparability purposes a rate based on 1 000 000 hours worked shall be used also for undertakings with less than 500 people in the workforce.

AR 90.If the undertaking cannot directly calculate the number of hours worked, it may estimate this on the basis of normal or standard hours of work, taking into account entitlements to periods of paid leave of absence from work (for example, paid vacations, paid sick leave, public holidays) and explain this in its disclosures.

AR 91.An undertaking shall include fatalities as a result of work-related injury in the calculation of the number and rate of recordable work-related injuries.

AR 92.Work-related ill health can include acute, recurring, and chronic health problems caused or aggravated by work conditions or practices. These include musculoskeletal disorders, skin and respiratory diseases, malignant cancers, diseases caused by physical agents (for example, noise-induced hearing loss, vibration-caused diseases), and mental illnesses (for example, anxiety, post-traumatic stress disorder). For the purpose of the required disclosures, the undertaking shall, at a minimum, include in its disclosure those cases outlined in the ILO List of Occupational Diseases.

AR 93.In the context of this Standard, work-related musculoskeletal disorders are covered under work-related ill health (and not injuries).

AR 94.The cases to be disclosed in paragraph 88(d) relate to cases of work-related ill health notified to the undertaking or identified by the undertaking through medical surveillance, during the reporting period. The undertaking might be notified of cases of work-related ill health through reports by affected people, compensation agencies, or healthcare professionals. The disclosure may include cases of work-related ill health that were detected during the reporting period among people who were formerly in the undertaking’s workforce.

AR 95.The undertaking shall count the number of days lost such that the first full day and last day of absence shall be included. Calendar days should be considered for the calculation, thus days on which the affected individual is not scheduled for work (for example, weekends, public holidays) will count as lost days.

AR 96.Family-related leave include maternity leave, paternity leave, parental leave, and carers’ leave that is available under national law or collective agreements. For the purpose of this Standard, these concepts are defined as:

(a) maternity leave (also called pregnancy leave): employment-protected leave of absence for employed women directly around the time of childbirth (or, in some countries, adoption);

(b) paternity leave: leave from work for fathers or, where and in so far as recognised by national law, for equivalent second parents, on the occasion of the birth or adoption of a child for the purposes of providing care;

(c) parental leave: leave from work for parents on the grounds of the birth or adoption of a child to take care of that child, as defined by each Member State;

(d) carers’ leave from work: leave for workers to provide personal care or support to a relative, or a person who lives in the same household, in need of significant care or support for a serious medical reason, as defined by each Member State.

AR 97.With regard to paragraph 93 (a), employees entitled to family-related leave are those who are covered by regulations, organisational policies, agreements, contracts or collective bargaining agreements that contain family-related leave entitlements and have reported their entitlement to the undertaking or the undertaking is aware of the entitlement.

AR 98.When compiling the information required under paragraph 97 (a) for the gap in pay between its female and male employees (also known as the ‘gender pay gap’) the undertaking shall use the following methodology:

(a) include all employees’ gross hourly pay level; and

(b) apply the following formula to calculate the gender pay gap:

AR 99.When disclosing the information required under paragraph 97 (a), the undertaking shall provide any contextual information necessary to understand the data and how the data has been compiled (methodology). Information regarding how objective factors such as type of work and country of employment influence the gender pay gap may be reported.

AR 100.The measure of the undertaking’s gender pay gap shall be reported for the current reporting period and, if reported in previous sustainability reports, for the previous two reporting periods.

AR 101.When compiling the information required by paragraph 97 (b), the undertaking shall:

(a) include all employees;

(b) consider, depending on the undertaking’s remuneration policies, all of the following: i. base salary, which is the sum of guaranteed, short-term, and non-variable cash compensation; ii. benefits in cash, which is the sum of the base salary and cash allowances, bonuses, commissions, cash profit-sharing, and other forms of variable cash payments; iii. benefits in kind, such as cars, private health insurance, life insurance, wellness programs; and iv. direct remuneration, which is the sum of benefits in cash, benefits in kind and total fair value of all annual long-term incentives (for example, stock option awards, restricted stock shares or units, performance stock shares or units, phantom stock shares, stock appreciation rights, and long-term cash awards).

AR 102.To illustrate the contextual information, the undertaking may provide an explanation to understand the data and how the data has been compiled (methodology). Quantitative data, such as the annual total remuneration ratio, may not be sufficient on its own to understand pay disparity and its drivers. For example, pay ratios can be influenced by the size of the undertaking (for example, revenue, number of employees), its sector, its employment strategy (for example, reliance on outsourced workers or part-time employees, a high degree of automation), or currency volatility.

AR 103.In addition to the information required by paragraphs 103 and 104, the undertaking may disclose the status of incidents and/or complaints and actions taken with reference to the following:

(a) incidents reviewed by the undertaking;

(b) remediation plans being implemented;

(c) remediation plans that have been implemented, with results reviewed through routine internal management review processes; and

(d) incidents no longer subject to action.

AR 104.

If the undertaking compiles the information described in AR 103, it shall consider the following:

(a) an incident is no longer subject to action if it is resolved, the case is completed, or no further action is required by the undertaking. For example, an incident for which no further action is required can include cases that are withdrawn or where the underlying circumstances that led to the incident no longer exist;

(b) remedial action is directed toward the alleged harasser and the alleged victim. Remedial action toward the victim may include offering to pay his/her expenses for counselling sessions, offering the victim some paid time off, offering to reinstate sick/vacation days if the victim has incurred any expenses due to the harassment (such as having used sick or vacation days); and

(c) remedial action toward the harasser may include giving the harasser a verbal and/or written warning, mandating anti-harassment counselling or sending the harasser to an appropriate seminar, harassment awareness and prevention training. A suspension without pay may also be an option. If the harasser has been disciplined earlier but his/her harassment does not cease, then more serious discipline may be required.

AR 105.Severe human rights incidents include instances of lawsuits, formal complaints through the undertaking or third-party complaint mechanisms, serious allegations in public reports or the media, where these are connected to the undertaking’s own workforce, and the fact of the incidents is not disputed by the undertaking, as well as any other severe impacts of which the undertaking is aware.

AR 106.In addition to the information required by paragraph 104 above, the undertaking may disclose the number of severe human rights incidents where the undertaking played a role securing remedy for those affected during the reporting period.

Appendix A.1

This appendix is an integral part of ESRS S1 Own workforce. It supports the application of the disclosure requirements from ESRS 2 set out in this standard and has the same authority as the other parts of this Standard. It provides a non-exhaustive list of the factors to be considered by the undertaking when complying with ESRS 2 SBM-2 and ESRS 2 SBM-3. This appendix does not provide definitions of the terms mentioned below. All defined terms can be found in Annex II: Acronyms and Glossary of Terms.

Social and human rights matters	Non-exhaustive list of factors to consider in Materiality Assessment
Secure employment	% of employees with temporary contracts, ratio of non-employees to employees, social protection
Working time	% of employees with part time or zero-hour contracts, employee satisfaction with working time
Adequate wages	EU, national or local legal definitions of adequate wages, fair wages, and minimum wages
Social dialogue / existence of work councils / information, consultation and participation rights of workers	Extent of workplace, cross-border and board-level representation through trade unions and/or works councils
Freedom of association/Collective bargaining including the rate of workforce covered by collective agreements	% of own workforce covered by collective bargaining agreements, work stoppages
Work-life balance	Family-related leave, flexible working hours, access to childcare
Health and safety	Coverage by H&S system, rate of fatalities, non-fatal accidents, work-related ill health, work days lost
Gender equality and equal pay for work of equal value	% of women in top management and workforce, male-female wage gap
Training and skills development	Amount and distribution of training, % of employees with regular performance and development reviews
The employment and inclusion of people with disabilities	% employment and accessibility measures for employees with disabilities
Measures against violence and harassment in the workplace	Prevalence of violence and harassment
Diversity	Representation of women and /or ethnic groups or minorities in own workforce. Age distribution in own workforce. Percentage of persons with disabilities within the own workforce.
Child labour	Type of operations and geographical areas at risk of child labour
Forced labour	Type of operations and geographical areas at risk of forced labour

Appendix A.2

This appendix is an integral part of the ESRS S1 Own workforce and has the same authority as the other parts of this Standard. It supports the application of the requirements for Disclosure Requirement ESRS S1-1 for social and human rights matters with examples of disclosures.

Social and human rights matters	Examples of policies:
Secure employment	No-layoff policy, limits on renewing temporary contracts, employer provision of social protection where state provision is lacking
Working time	Limitations on overtime, long and split shifts, and night and weekend work, adequate scheduling of lead times
Adequate wages	Policy to ensure all people in own workforce receive an adequate wage
Social dialogue / existence of work councils / information, consultation and participation rights of workers	Policy to encourage institutions for social dialogue, regular information and consultation with worker representatives, consultation before final decisions on employment-related issues are reached
Freedom of association/Collective bargaining including the rate of workers covered by collective agreements	Non-interference in trade union formation and recruitment (including trade union access to undertakings), bargaining in good faith, adequate time off for workers’ representatives to carry out their duties, facilities and dismissal protection for workers' representatives, no discrimination of trade union members and workers' representatives
Work-life balance	Provision of family leave, flexible working time, access to day care facilities for all employees
Health and safety	Coverage of all own workforce in H&S management system
Gender equality and equal pay for work of equal value	Policy for gender equality and equal pay for work of equal value
Training and skills development	Policy for enhancing skills and career prospects for employees
The employment and inclusion of people with disabilities	Policy for making workplaces accessible to persons with disabilities
Measures against violence and harassment in the workplace	Zero tolerance policy for violence and harassment at workplace
Diversity	Policy for inclusiveness (i.e., ethnic diversity or minority groups) and positive action.
Child labour	Policy for identifying where child labour occurs, identifying where exposure of young workers to hazardous work occurs and preventing risk of exposure
Forced labour	Policy for identifying where forced labour occurs and reducing risk of forced labour

Appendix A.3

| --- | --- | | Secure employment | Offer permanent contracts to employees with temporary contracts, implement plans for social protection where state provision is lacking | | Working time | Shift work rotation, extend advance notice of scheduling, reduction of excessive overtime | | Adequate wages | Negotiation of fair wages in collective bargaining agreements, verification that employment agencies pay a fair wage | | Social dialogue / existence of work councils / information, consultation and participation rights of workers | Expansion of sustainability issues dealt with in social dialogue, increase in number of meetings, increase in resources for works councils | | Freedom of association/Collective bargaining including the rate of workers covered by collective agreements | Expansion of sustainability issues dealt with in collective bargaining, increase in resources for workers’ representatives | | Work-life balance | Expand family leave eligibility and flexible working time arrangements, increasing provision of day care | | Health and safety | Increase health & safety training, investment in safer equipment | | Gender equality and equal pay for work of equal value | Targeted recruitment and promotion of women, reduction in pay gap through negotiation of collective bargaining agreements | | Training and skills development | Skills audits, training to fill skills gaps | | The employment and inclusion of people with disabilities | Increasing accessibility measures | | Measures against violence and harassment in the workplace | Improving complaint mechanisms, increasing sanctions against violence and harassment, providing training for prevention to management | | Diversity | Training on diversity and inclusion (including ethnicity considerations), targeted recruitment of underrepresented groups | | Child labour | Age verification measures, partnerships with organizations to eliminate child labour, measures against worst forms of child labour | | Forced labour | Measures ensuring free consent to employment without threat of penalty, contracts in understandable language, freedom to terminate employment without penalty, disciplinary measures should not obligate labour, free consent to overtime, freedom of movement (including to exit workplace), fair treatment for migrant workers, monitoring employment agencies. |

Appendix A.4

This appendix is an integral part of the ESRS S1 Own workforce and has the same authority as the other parts of this Standard. It supports the application of the requirements for Disclosure Requirement ESRS S1-5 for social and human rights matters with examples of disclosures:

Social and human rights matters	Examples of targets:
Secure employment	Increasing the % of workforce with employment contracts (especially permanent contracts) and social protection
Working time	Increasing the % of workforce with flexible working time arrangements
Adequate wages	Ensuring that all people in own workforce receive an adequate wage
Social dialogue / existence of work councils / information, consultation and participation rights of workers	Extending social dialogue to more establishments and/or countries
Freedom of association/Collective bargaining including the rate of workers covered by collective agreements	Increasing the % of own workforce covered by collective bargaining, negotiating collective bargaining agreements over sustainability issues
Work-life balance	Extending work-life measures to a greater % of own workforce
Health and safety	Reducing the rate of injuries and worktime lost due to injuries
Gender equality and equal pay for work of equal value	Increasing the % of women in the workforce and top management, reducing the male-female wage gap
Training and skills development	Increasing the % of employees receiving training and regular skills development reviews
The employment and inclusion of people with disabilities	Increasing the % of persons with disabilities in own workforce
Measures against violence and harassment in the workplace	Extending measures to all workplaces
Diversity	Increasing the % of underrepresented groups in own workforce and top management
Child labour	Extending measures for preventing exposure of young persons to hazardous work to a greater % of operations
Forced labour	Extending measures for preventing forced labour to a greater number of operations

ESRS S2

WORKERS IN THE VALUE CHAIN

Objective

1.The objective of this Standard is to specify disclosure requirements which will enable users of the sustainability statement to understand material impacts on value chain *workers* connected with the undertaking’s own operations and value chain, including through its products or services, as well as through its business relationships, and its related material risks and opportunities, including:

(a) how the undertaking affects workers in its value chain, 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, including those related to its impacts and dependencies on workers in the value chain, 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, including those arising from the undertaking’s impacts and dependencies on workers in the value chain.

2.In order to meet the objective, this Standard requires an explanation of the general approach the undertaking takes to identify and manage any material actual and potential impacts on value chain workers in relation to:

(a) working conditions (for example, secure employment, working time, adequate wage, social dialogue, freedom of association, including the existence of work councils, collective bargaining, work-life balance and health and safety);

(b) equal treatment and opportunities for all (for example, gender equality and equal pay for work of equal value, training and skills development, the employment and inclusion of persons with disabilities, measures against violence and harassment in the workplace, and diversity);

(c) other work-related rights (for example, child labour, forced labour, adequate housing, water and sanitation and privacy).

3.This Standard also requires an explanation of how such impacts, as well as the undertaking’s dependencies on value chain workers, can create material risks or opportunities for the undertaking. For example, negative impacts on value chain workers may disrupt the undertaking’s operations (through customers refusing to buy its products or state agencies impounding its goods) and harm its reputation. Conversely, respect for workers’ rights and active support programmes (for example through financial literacy initiatives) can bring business opportunities, such as more reliable supply or widening of the future consumer base.

4.This Standard covers all workers in the undertaking’s upstream and downstream value chain who are or can be materially impacted by the undertaking, including impacts that are connected with the undertaking’s own operations and value chain, including through its products or services, as well as through its business relationships. This includes all workers who are not included in the scope of ‘own workforce’ (‘own workforce’ includes employees, individual contractors, i.e., self- employed workers, and workers provided by third party undertakings primarily engaged in ‘employment activities’). Own workforce is covered in ESRS S1 Own workforce. See AR 3 for examples of what is included in the scope of this Standard.

Interaction with other ESRS

5.This Standard applies when material impacts on and/or material risks and opportunities related to value chain workers have been identified through the materiality assessment process laid out in ESRS 2 General disclosures.

6.This Standard shall be read in conjunction with ESRS 1 General requirements, and ESRS 2, as well as the ESRS S1, ESRS S3 Affected communities and ESRS S4 Consumers and end-users.

7.The reporting under this Standard shall be consistent, coherent and where relevant clearly linked with reporting on the undertaking’s own workforce under ESRS S1, in order to ensure effective reporting.

Disclosure Requirements

8.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 SBM-3 Material impacts, risks and opportunities and their interaction with strategy and business model, for which the undertaking has an option to present the disclosures alongside the topical disclosure.

9.When responding to ESRS 2 SBM-2 paragraph 43, the undertaking shall disclose how the interests, views, and rights of its value chain workers could be materially impacted by the undertaking, including respect for their human rights, inform its strategy and business model. Value chain workers are a key group of affected stakeholders.

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

(a) whether and how actual and potential impacts on value chain workers, 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 on the one hand its material risks and opportunities arising from impacts and dependencies on value chain workers, and on the other hand its strategy and business model.

11.When fulfilling the requirements of paragraph ESRS 2 SBM-3 paragraph 48, the undertaking shall disclose whether all value chain workers who are likely to be materially impacted by the undertaking, including impacts that are 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 provide the following information:

(a) a brief description of the types of value chain workers who could be materially impacted by the undertaking, including impacts that connected with the undertaking’s own operations and value chain, including through its products or services, as well as through its business relationships, and specify whether they are: i. workers working on the undertaking site but who are not part of own workforce, i.e., who are not self-employed workers or workers provided by third party undertakings primarily engaged in employment activities (covered through ESRS S1); ii. workers working for entities in the undertaking’s upstream value chain (e.g., those involved in the extraction of metals or minerals or harvesting of commodities, in refining, manufacturing or other forms of processing); iii. workers working for entities in the undertaking’s downstream value chain (e.g., those involved in the activities of logistics or distribution providers, franchisees, retailers); iv. workers working in the operations of a joint venture or special purpose vehicle involving the reporting undertaking; v. workers who (within the prior categories or additionally) are particularly vulnerable to negative impacts whether due to their inherent characteristics or to the particular context, such as trade unionists, migrant workers, home workers, women or young workers.

(b) any geographies, at country level or other levels, or commodities for which there is a significant risk of child labour, or of forced labour or compulsory labour, among workers in the undertaking’s value chain (¹⁰⁴);

(c) in the case of material negative impacts, whether they are either (i) widespread or systemic in contexts where the undertaking operates or has sourcing or other business relationships (e.g., child labour or forced labour in particular commodity supply chains in specific countries or regions), or (ii) related to individual incidents (e.g., an industrial accident or an oil spill) or to specific business relationships. This includes consideration of impacts on value chain workers that may arise from the transition to greener and climate-neutral operations. Potential impacts include impacts associated with innovation and restructuring, closure of mines, increased mining of minerals needed for the transition to a sustainable economy, and solar panel production;

(d) in the case of material positive impacts, a brief description of the activities that result in the positive impacts (e.g., updated purchasing practices, capacity-building to supply chain workers), including providing opportunities for the workforce such as job creation and upskilling in the context of a ‘just transition’, and the types of value chain workers 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

(e) any material risks and opportunities for the undertaking arising from impacts and dependencies on value chain workers.

12.In describing the main types of value chain workers 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 workers with particular characteristics, those working in particular contexts, or those undertaking particular activities may be at greater risk of harm.

13.The undertaking shall disclose which, if any, of its material risks and opportunities arising from impacts and dependencies on its value chain workers relate to specific groups of value chain workers (for example, particular age groups, workers in a particular factory or country) rather than to all of the value chain workers.

14.The undertaking shall describe its policies adopted to manage its material impacts on value chain workers, as well as associated material risks and opportunities.

15.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 value chain *workers specifically, as well as policies that cover material risks or opportunities* related to value chain workers.

16.The disclosure required by paragraph 14 shall contain the information on the undertaking’s policies to manage its material impacts, risks and opportunities related to value chain workers in accordance with ESRS 2 MDR-P Policies adopted to manage material sustainability matters. In addition, the undertaking shall specify whether such policies cover specific groups of value chain workers or all value chain workers.

17.The undertaking shall describe its human rights policy commitments (¹⁰⁵) that are relevant to value chain workers, 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 or OECD Guidelines for Multinational Enterprises (¹⁰⁶). In its disclosure, it shall focus on those matters that are material in relation to, as well as the general approach to:

(a) respect for the human rights, including labour rights, of workers;

(b) engagement with value chain workers; and

18.The undertaking shall state whether its policies in relation to value chain workers explicitly address trafficking in human beings (¹⁰⁷), forced labour or compulsory labour and child labour. It shall also state whether the undertaking has a supplier code of conduct (¹⁰⁸).

19.The undertaking shall disclose whether and how its policies with regard to value chain workers are aligned with internationally recognised instruments relevant to value chain workers, including the United Nations (UN) Guiding Principles on Business and Human Rights (¹⁰⁹). The undertaking shall also disclose the extent to which 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 that involve value chain workers have been reported in its upstream and downstream value chain and, if applicable, an indication of the nature of such cases (¹¹⁰).

20.The undertaking shall disclose its general processes for engaging with value chain workers and their representatives about actual and potential impacts on them.

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

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

(a) whether engagement occurs with value chain workers or their legitimate representatives directly, or with credible proxies that have insight into their situation;

(b) the stage(s) at which engagement occurs, the type of engagement, and the 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, Global Framework Agreements or for agreements that the undertaking has with global union federations related to respect of human rights of workers in the value chain, including their right to bargain collectively, and including an explanation of how the agreement enables the undertaking to gain insight into those workers’ perspectives; and

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

23.Where applicable, the undertaking shall disclose the steps it takes to gain insight into the perspectives of workers that may be particularly vulnerable to impacts and/or marginalised (for example, women workers, migrant workers, workers with disabilities).

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

25.The undertaking shall describe the processes it has in place to provide for or cooperate in the remediation of negative impacts on value chain workers that the undertaking is connected with, as well as channels available to value chain workers to raise concerns and have them addressed.

26.The objective of this Disclosure Requirement is to enable an understanding of the formal means by which value chain workers 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 of value chain workers, how follow up is carried out with these workers regarding the issues raised, and the effectiveness of these channels.

27.The undertaking shall describe:

(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 value chain workers, including whether and how the undertaking assesses that the remedy provided is effective;

(b) any specific channels it has in place for value chain workers 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 whether they are third-party mechanisms;

(c) the processes through which it supports or requires the availability of such channels in the workplace of value chain workers; and

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

28.The undertaking shall disclose whether and how it assesses that value chain workers 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 against retaliation. If such information has been disclosed in accordance with ESRS G1-1, the undertaking may refer to that information.

29.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 of value chain workers, it shall disclose this to be the case. It may disclose a timeframe in which it aims to have such a channel or processes in place.

30.The undertaking shall disclose how it takes action to address material impacts on value chain workers, and to manage material risks and pursue material opportunities related to value chain workers and the effectiveness of those actions.

31.The objective of this Disclosure Requirement is twofold. Firstly, it is to enable an understanding of any actions or initiatives through which the undertaking seeks to:

(a) prevent, mitigate and remediate the negative material impacts on value chain workers; and/or

(b) achieve positive material impacts for value chain workers.

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 workers in the value chain.

The undertaking shall provide a summarised description of the action plans and resources to manage its material impacts, risks, and opportunities related to value chain workers as per ESRS 2 MDR-A Actions and resources in relation to material sustainability matters.

32.In relation to material impacts, the undertaking shall describe:

(a) actions taken, planned or underway to prevent or mitigate material negative impacts on value chain workers;

(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 value chain workers; and

(d) how it tracks and assesses the effectiveness of such actions and initiatives in delivering intended outcomes for value chain workers.

33.In relation to paragraph 30, the undertaking shall describe:

(a) the processes through which it identifies what action is needed and appropriate in response to a particular actual or potential negative impact on value chain workers;

(b) its approach to taking action in relation to specific material negative impacts on value chain workers, including any action in relation to its own purchasing or other internal practices, as well as capacity- building or other forms of engagement with entities in the value chain, or forms of collaborative action with industry peers or other relevant parties; and

(c) how it ensures that processes to provide or enable remedy in the event of material negative impacts are available and effective in their implementation and outcomes.

34.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 value chain workers 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 value chain workers.

35.The undertaking shall disclose whether and how it takes action to avoid causing or contributing to material negative impacts on value chain workers through its own practices, including, where relevant, 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.

36.The undertaking shall also disclose whether severe human rights issues and incidents connected to its upstream and downstream value chain have been reported and, if applicable, disclose these (¹¹¹).

37.When disclosing the information required under paragraph 32 (c), the undertaking shall consider ESRS 2 (see ESRS 2 MDR-T Tracking effectiveness of policies and actions through targets) if it evaluates the effectiveness of an action by setting a target.

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

39.The undertaking shall disclose the time-bound and outcome-oriented targets it may have set related to:

(a) reducing negative impacts on value chain workers; and/or

(b) advancing positive impacts on value chain workers; and/or

41.The summarised description of the targets to manage its material impacts, risks and opportunities related to value chain workers shall contain the information requirements defined in ESRS 2 MDR-T.

42.The undertaking shall disclose the process for setting the targets, including whether and how the undertaking engaged directly with workers in the value chain, their legitimate representatives, or with credible proxies that have insight into their situation in:

(a) setting any such targets;

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

Appendix A

This appendix is an integral part of the ESRS S2 Workers in the value chain. It supports the application of the disclosure requirements set out in this standard and has the same authority as the other parts of ESRS S2.

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 value chain workers during a pandemic.

AR 2.The overview of social and human rights matters provided in paragraph 2 is not meant to imply that all of these issues should be disclosed in each Disclosure Requirement in this Standard. Rather, it provides a list of matters that the undertaking shall consider in its materiality assessment (ref. to ESRS 1 chapter 3 Double materiality as the basis for sustainability disclosures and ESRS 2 IRO-1) related to value chain workers and, as appropriate, disclose as material impacts, risks and opportunities within the scope of this Standard.

AR 3.Examples of workers that fall within the scope of this Standard are:

(a) workers of outsourced services working in the workplace of the undertaking (e.g., third party catering or security workers);

(b) workers of a supplier contracted by the undertaking who work on the supplier’s premises using the supplier’s work methods;

(d) workers of an equipment supplier to the undertaking who, at a workplace controlled by the undertaking, perform regular maintenance on the supplier’s equipment (e.g., photocopier) as stipulated in the contract between the equipment supplier and the undertaking; and

(e) workers deeper in the supply chain who are extracting commodities that are then processed into components that go in the undertaking’s products.

ESRS 2 General disclosures

Strategy

AR 4.Disclosure Requirement 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 value chain workers, and whether and how the business model and strategy are adapted to address such material impacts.

AR 5.While value chain workers 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 may disclose the views of the value chain workers and value chain workers’ representatives.

AR 6. Impacts on value chain workers can originate in the undertaking’s 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 the upstream and downstream value chains), its value chain (such as relying on commodities of unclear provenance, without visibility on impacts on workers), or its cost structure and the revenue model (e.g. shifting inventory risk to suppliers, with knock-on effects on the labour rights of their workers).

AR 7.Impacts on value chain workers that originate in the strategy or the business model can also bring material risks to the undertaking. For example, in the context of a pandemic or other severe health crisis, undertakings that rely on contingent labour with little to no access to sick care and health benefits 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. Another example is where selling goods premised on cheapest prices for customers create operational risks as suppliers under extreme price pressure may sub-contract production, leading to lower quality, and a longer, less transparent, and less controllable supply chain. 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 value chain workers that may be considered by the undertaking when responding to paragraph 12 relate to young workers that may be more susceptible to impacts on their physical and mental development, or women workers in a context where women are routinely discriminated against in the terms and conditions of work, or migrant workers in a context where the market for the supply of labour is poorly regulated and workers are routinely charged recruitment fees. For some workers, the inherent nature of the activity that they are required to undertake may put them at risk (e.g., workers required to handle chemicals or operate certain equipment or low paid workers who are on ‘zero hours’ contracts).

AR 9.With regard to paragraph 13, material risks could also arise because of the undertaking’s dependency on value chain workers where low likelihood but high impact events may trigger financial effects; for example, where a global pandemic leads to severe health impacts on workers at all stages of the value chain resulting in major disruptions to production and distribution. Other examples of risk related to the undertaking’s dependency on value chain workers include a shortage in skilled workers or political decisions or legislation affecting value chain workers working for logistics providers. For example, if some workers in the undertaking’s value chain 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.

Impact, risk and opportunity management

AR 10.If the policies are limited to the undertaking’s own workforce and do not cover workers in upstream and downstream entities and relationships, they shall be disclosed under ESRS S1 and not in relation to this requirement.

AR 11.If the disclosures under ESRS S1 include information relevant for workers in the value chain, a reference to this can be made here; disclosures on the remaining elements shall then be fulfilled under this Disclosure Requirement.

AR 12.The undertaking may disclose explanations of significant changes to the policies adopted during the reporting year (e.g., new expectations for suppliers, new or additional approaches to due diligence and remedy).

AR 13.The policy may take the form of a stand-alone policy regarding value chain workers 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 14.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 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 disclose its alignment with these instruments.

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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

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