The ESRS social and governance standards

➡️ Today we conclude the reading of the European Sustainability Reporting Standards (ESRS) with the four standards related to social issues and human rights, and the governance standard.

The first two social standards S1 and S2 address workers, both as their own workforce (S1) and as workers in the value chain (S2), regarding working conditions and equal treatment and opportunities for all, along with the management of child labor and forced labor, housing conditions, and respect for privacy.

These standards provide companies with a very detailed guide to assess and communicate their social impact in a transparent and consistent manner, encouraging them to improve working conditions, promote inclusion and diversity, and manage health and safety at work more effectively, with the involvement of all stakeholders.

💡Let's see an example to understand the process of applying the standards.

The obligation of reporting S1-16 consists of "Remuneration metrics (pay gap and total remuneration)." If deemed relevant (double materiality), the company must communicate:

• the gender pay gap – defined as the difference between the average pay levels received by female workers and those received by male workers, expressed as a percentage of the average pay level of male workers
• the ratio between the total annual compensation of the person who receives the highest salary and the median total annual compensation of all employees (excluding the person with the highest salary).

Examples of improvement objectives are also suggested. In the above case, it could be: “increasing the percentage of women within the workforce and senior management, reducing the gender pay gap.”

The third S3 standard addresses the interested communities, summarizing their economic, social, and cultural rights as well as their civil and political rights, with a specific space dedicated to indigenous peoples.

The S4 standard looks at consumers or end users in a dual relationship: how the company and its statements impact the consumer/user, and how consumers can impact the company (for example: a reputational damage that harms the business or an increase in trust towards the company that can bring commercial benefits).

The only standard dedicated to G1 governance deals with business conduct (business conduct), and includes: corporate ethics and corporate culture (including the fight against corruption), the management of relationships with suppliers (including payment practices), the activities and commitments of the company related to the exercise of its political influence (including its lobbying activities).

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