ESRS S3 - Affected communities

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Objective

Summary:

Companies must share how their activities affect local communities, including both good and bad impacts, and explain what they're doing to address any negative effects. They should also discuss risks and benefits related to these community impacts and how they manage them financially over time. Companies need to consider how their work affects communities' rights and how these relationships can pose risks or create opportunities for the business. Not all issues need to be reported, but companies should disclose what's relevant based on a thorough assessment.
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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 affected communities 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 communities, in areas where impacts are most likely to be present and severe, 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 affected communities, 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 affected communities.
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 affected communities in relation to:
(a) communities’ economic, social and cultural rights (for example, adequate housing, adequate food, water and sanitation, land-related and security-related impacts);
(b) communities’ civil and political rights (for example, freedom of expression, freedom of assembly, impacts on human rights defenders); and
(c) particular rights of indigenous peoples (for example, free, prior and informed consent, self-determination, cultural rights).
3.
(b) This Standard also requires an explanation of how such impacts, as well as the undertaking’s dependencies on affected communities, can create material risks or opportunities for the undertaking. For example, negative relationships with affected communities may disrupt the undertaking’s own operations or harm its reputation, while constructive relationships can bring business benefits, such as stable and conflict-free operations and a greater ease of recruiting locally.

Application Requirements

AR1.
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 affected communities and, as appropriate, disclose as material impacts, risks and opportunities within the scope of this Standard.
AR2.
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 impacts on communities related to the undertaking’s operations due to extreme and sudden weather conditions.
ESRS 2 General disclosures

Implementation steps:

  • Read the section with other strategy rules

  • Explain how community concerns shape your strategy

  • Describe how your strategy might affect communities

  • Share how you adapt your strategy based on community impact

  • Include community views even if they don't shape your strategy directly

  • Explain how your strategy and community impact are linked

  • List all communities that might be affected by your work

  • Describe the types of communities and how they're affected

  • Explain both good and bad effects on communities

  • Discuss risks and chances for your business related to community impact

  • Explain how you understand the risks to different communities

  • Mention if certain risks or chances only apply to specific communities

  • Describe how your strategy could harm or benefit communities

  • Explain how community issues can risk your business

  • Give examples of community characteristics that increase risk

  • Discuss how overlapping characteristics can create more risk

  • Mention how unlikely but serious events could affect communities and your business.

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ESRS 2 General disclosures

6.
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.
ESRS 2 General disclosures - Strategy

Implementation steps:

  • Read the section with other strategy rules

  • Explain how community concerns shape your strategy

  • Describe how your strategy might affect communities

  • Share how you adapt your strategy based on community impact

  • Include community views even if they don't shape your strategy directly

  • Explain how your strategy and community impact are linked

  • List all communities that might be affected by your work

  • Describe the types of communities and how they're affected

  • Explain both good and bad effects on communities

  • Discuss risks and chances for your business related to community impact

  • Explain how you understand the risks to different communities

  • Mention if certain risks or chances only apply to specific communities

  • Describe how your strategy could harm or benefit communities

  • Explain how community issues can risk your business

  • Give examples of community characteristics that increase risk

  • Discuss how overlapping characteristics can create more risk

  • Mention how unlikely but serious events could affect communities and your business.

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Disclosure Requirement related to ESRS 2 SBM-2 - Interests and views of stakeholders

7.
When responding to ESRS 2 SBM-2, paragraph 43, the undertaking shall disclose how the views, interests, and rights of affected communities, including respect for their human rights (and their rights as indigenous peoples, where applicable), inform its strategy and business model. Affected communities are a key group of affected stakeholders.
AR3.
Disclosure Requirement ESRS 2 SBM-2 requires the undertaking to provide an understanding of if and how it considers the role that its strategy and business model may play in creating, exacerbating or mitigating significant material impacts on affected communities, and whether and how the business model and strategy are adapted to address such material impacts.
AR4.
While affected communities 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 affected communities and affected communities' representatives.

Disclosure Requirement related to ESRS 2 SBM-3 - Material impacts, risks and opportunities and their interaction with strategy and business model

8.
When responding to ESRS 2 SBM-3 paragraph 48, the undertaking shall disclose:
(a) whether and how actual and potential impacts on affected communities 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 affected communities and its strategy and business model.
9.
When fulfilling the requirements of paragraph 48, the undertaking shall disclose whether all affected communities 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 communities subject to material impacts by its own operations or through its upstream and downstream value chain, and specify whether they are:
(ai) communities living or working around the undertaking’s operating sites, factories, facilities or other physical operations, or more remote communities affected by activities at those sites (for example by downstream water pollution);
(aii) communities along the undertaking’s value chain (for example, those affected by the operations of suppliers’ facilities or by the activities of logistics or distribution providers);
(aiii) communities at one or both endpoints of the value chain (for example, at the point of extraction of metals or minerals or harvesting of commodities, or communities around waste or recycling sites);
(aiv) communities of indigenous peoples.
(b) 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 (for example, marginalised populations suffering impacts on their health and quality of life in a highly industrialised area), or (ii) related to individual incidents in the undertaking’s own operations (e.g., a toxic waste spill affecting a community’s access to clean drinking water) or in a specific business relationship (e.g., a peaceful protest by communities against business operations that was met with a violent response from the undertaking’s security services). This includes consideration of impacts on affected communities 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;
(c) in the case of material positive impacts, a brief description of the activities that result in the positive impacts (for example, capacity-building to support more and new forms of local livelihoods) and the types of communities 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
(d) any material risks and opportunities for the business arising from impacts and dependencies on affected communities.
10.
In describing the main types of communities who are or could be negatively affected, based on the materiality assessment set out in Disclosure Requirement ESRS 2 IRO-1, the undertaking shall disclose whether and how it has developed an understanding of how affected communities with particular characteristics or those living in particular contexts, or those undertaking particular activities may be at greater risk of harm.
11.
The undertaking shall disclose which, if any, of its material risks and opportunities arising from impacts and dependencies on affected communities relate to specific groups of affected communities rather than to all affected communities.
AR5.
Impacts on affected communities 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, construction or commencement of projects with timelines that do not allow sufficient time for consultation with groups affected by the projects), its value chain (for example, land-use in countries in which ownership is often contested or records are unreliable or in which land-users such as indigenous peoples are unrecognised), or its cost structure and the revenue model (such as, aggressive strategies to minimise taxation, particularly with respect to operations in developing countries)
AR6.
Impacts on affected communities that originate in the strategy or business model can also bring material risks to the undertaking. For example, where the undertaking’s strategy involves moving into higher risk geographies in pursuit of certain commodities, and if affected communities resist its presence or object to its local practices, this may create extensive and costly delays, and affect the undertaking’s ability to secure future land concessions or permits. Similarly, if the undertaking’s business model relies on intensive water extraction at its plants, to the extent that it affects access to water for communities’ consumption, hygiene and livelihoods, this may result in reputationally-damaging boycotts, complaints and lawsuits.
AR7.
Examples of particular characteristics of affected communities that may be considered by the undertaking when responding to paragraph 10 may be an affected community that is physically or economically isolated and is particularly susceptible to introduced diseases or has limited access to social services and therefore relies on infrastructure set up by the undertaking. It may be because where land worked by women is purchased by the undertaking and payments go to male heads of households, women become further disenfranchised in the community. It may also be because the community is indigenous, and its members seek to exercise cultural or economic rights to the land owned or used by the undertaking - or by one of the entities with which it has a business relationship - in a context where their rights are not protected by the state. In addition, the undertaking shall consider whether different characteristics overlap. For example, characteristics such as ethnicity, socioeconomic status, migrant status and gender may create overlapping risks of harm for certain affected communities, or for distinct parts of those affected communities, since affected communities are often heterogeneous in nature.
AR8.
With regard to paragraph 11, material risks could also arise because of the undertaking’s dependency on affected communities where low likelihood but high impact events may trigger financial effects; for example, where a natural disaster leads to a catastrophic industrial accident involving the undertaking’s operations, resulting in severe harm to affected communities.
Disclosure Requirement S3-1 - Policies related to affected communities

Implementation steps:

  • Start by summarizing the company's strategies for managing its impact on local communities

  • Explain how these strategies address both the risks and benefits to these communities

  • Mention if these strategies specifically focus on certain communities or all of them

  • Detail any policies aimed at protecting the rights of indigenous peoples

  • Describe the company's commitment to human rights and how it monitors compliance with international standards

  • Clarify if the company's policies align with global human rights guidelines and if any violations have been reported

  • If the policy is part of a larger document, provide a reference to the relevant section

  • Include any significant changes to the policies during the reporting period

  • When discussing alignment with human rights standards, refer to the International Bill of Rights and other relevant documents

  • Address how the company deals with serious human rights issues, including legal disputes over land rights and consent from indigenous peoples.

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Disclosure Requirements

12.
The undertaking shall describe its policies adopted to manage its material impacts on affected communities, as well as associated material risks and opportunities.
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 material impacts on affected communities specifically, as well as policies that cover material risks or opportunities related to affected communities.
14.
The disclosure required by paragraph 12 shall contain the information on the undertaking’s policies to manage its material impacts, risks and opportunities related to affected communities 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 affected communities or all affected communities.
15.
The undertaking shall disclose any particular policy provisions for preventing and addressing impacts on indigenous peoples.
16.
The undertaking shall describe its human rights policy commitments 4 that are relevant to affected communities, 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. In its disclosure it shall focus on those matters that are material in relation to5 , as well as its general approach to:
(a) respect for the human rights of communities, and indigenous peoples specifically;
(b) engagement with affected communities; and
(a) measures to provide and/or enable remedy for human rights impacts.
17.
The undertaking shall disclose whether and how its policies with regard to affected communities are aligned with internationally recognised standards relevant to communities and indigenous peoples specifically, including the United Nations (UN) Guiding Principles on Business and Human Rights. 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 affected communities have been reported in its own operations or in its upstream and downstream value chain and, if applicable, an indication of the nature of such cases67 .
18.
The policy may take the form of a stand-alone policy regarding communities 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.

Application Requirements

AR9.
The description shall include the key information necessary to ensure a faithful representation of the policies in relation to affected communities and, therefore, the undertaking shall consider explanations of significant changes to the policies adopted during the reporting year (for example, new or additional approaches to engagement, due diligence and remedy).
AR10.
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 consists of the Universal Declaration of Human Rights and the two Covenants that implement it, as well as the UN Declaration on the Rights of Indigenous Peoples, the International Labour Organisation’s Convention concerning Indigenous and Tribal Peoples (ILO No. 169) and the core conventions that underpin it, and may disclose its alignment with these instruments.
AR11.
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 consists of the Universal Declaration of Human Rights and the two Covenants that implement it, as well as the UN Declaration on the Rights of Indigenous Peoples, the International Labour Organisation’s Convention concerning Indigenous and Tribal Peoples (ILO No. 169) and the core conventions that underpin it, and may disclose its alignment with these instruments.
AR12.
When disclosing severe human rights issues and incidents connected to affected communities, the undertaking shall consider any legal disputes related to land rights and to the free, prior and informed consent of indigenous peoples.
Disclosure Requirement S3-2 - Processes for engaging with affected communities about impacts

Implementation steps:

  • Note how you talk to local communities and their leaders about how your work affects them

  • Explain if you regularly check in with local communities and listen to their views when making decisions

  • Share if you talk directly to local communities or through someone who knows their situation well

  • Describe when and how often you talk to them and who in your company makes sure this happens

  • If you work with indigenous people, write about how you respect their rights and ask for their permission before doing things that impact them

  • If you don't have a way to talk to local communities yet, just say so and note when you plan to start

  • Give examples of how you've used local people's ideas in your work.

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Disclosure Requirements

19.
The undertaking shall disclose its general processes for engaging with affected communities and their representatives about actual and potential impacts on them.
20.
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 affected communities, 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 affected communities are taken into account in the decision-making processes of the undertaking.
21.
The undertaking shall disclose whether and how the perspectives of affected communities inform its decisions or activities aimed at managing actual and potential impacts on communities. This shall include, where relevant, an explanation of:
(a) whether engagement occurs with affected communities 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 this engagement happens, and that the results inform the undertaking’s approach;
(d) where applicable, how the undertaking assesses the effectiveness of its engagement with affected communities, including, where relevant, any agreements or outcomes that result.
22.
Where applicable, the undertaking shall disclose the steps it takes to gain insight into the perspectives of affected communities that may be particularly vulnerable to impacts and/or marginalised, and into the perspective of specific groups within the affected communities, such as women and girls.
23.
Where affected communities are indigenous peoples, the undertaking shall also disclose how it takes into account and ensures respect of their particular rights in its stakeholder engagement approach, including their right to free, prior and informed consent with regard to: (i) their cultural, intellectual, religious and spiritual property; (ii) activities affecting their lands and territories; and (iii) legislative or administrative measures that affect them. In particular, where engagement occurs with indigenous peoples, the undertaking shall also disclose whether and how indigenous peoples have been consulted on the mode and parameters of the engagement (for example, in designing the agenda, nature, and timeliness of the engagement).
24.
If the undertaking cannot disclose the above required information because it has not adopted a general process to engage with affected communities, it shall disclose this to be the case. It may disclose a timeframe in which it aims to have such a process in place.

Application Requirements

AR13.
Explanations of how the undertaking takes into account and ensures respect of the right of indigenous peoples to free, prior and informed consent may include information about processes to consult with indigenous peoples to obtain such consent. The undertaking shall consider how the consultation includes a good faith negotiation with affected indigenous peoples to obtain their free, prior and informed consent where the undertaking affects the lands, territories or resources that indigenous peoples customarily own, occupy or otherwise use; or relocates them from land or territories subject to traditional ownership or under customary use or occupation; or affects or exploits their cultural, intellectual, religious and spiritual property.
AR14.
When describing which function or role has operational responsibility for such engagement and/or ultimate accountability, the undertaking may disclose whether this is a dedicated role or function or part of a broader role or function, and whether any capacity building activities have been offered to support the staff to undertake engagement. If it cannot identify such a position or function, it may state that this is the case. This disclosure could also be fulfilled by making reference to information disclosed according to ESRS 2 GOV-1 The role of the administrative, management and supervisory bodies.
AR15.
When preparing the disclosures described in paragraph 20 b) and c), the following illustrations may be considered:
(a) examples of stages at which engagement occurs are i) determining the approach to mitigation and ii) evaluating the effectiveness of mitigation;
(b) for type of engagement, these could be participation, consultation and/or information;
(c) for the frequency of the engagement, information may be provided on whether engagement occurs on a regular basis, at certain points in a project or business process; and
(d) for the role with operational responsibility, whether the undertaking requires relevant staff to have certain skills, or whether it provides training or capacity building to relevant staff to undertake engagement. In the case of material impacts, risks and opportunities related to indigenous peoples, this includes training on indigenous people’s rights, including on free, prior and informed consent.
AR16.
To illustrate how the perspectives of communities have informed specific decisions or activities of the undertaking, the undertaking may provide examples from the current reporting period.
Disclosure Requirement S3-3 - Processes to remediate negative impacts and channels for affected communities to raise concerns

Implementation steps:

  • Explain how your company helps communities affected by its actions

  • Describe ways for these communities to voice their concerns

  • Detail how your company supports these communication channels through its business relationships

  • Explain how your company tracks and evaluates the effectiveness of these channels

  • State if your company has measures to protect people who use these channels from retaliation

  • If no channels exist, disclose this and any plans to create them

  • Use international guidelines for reference and explain how affected communities can access and trust these channels.

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Disclosure Requirements

25.
The undertaking shall describe the processes it has in place to provide for or cooperate in the remediation of negative impacts on affected communities that the undertaking is connected with, as well as channels available to affected communities 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 affected communities 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) by its business relationships, how follow up is performed with these communities 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 identified that it has caused or contributed to a material negative impact on affected communities, including
(b) any specific channels it has in place for affected communities 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) its processes through which the undertaking supports the availability of such channels by its business relationships; 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 of those channels.
28.
The undertaking shall disclose whether and how it assesses that affected communities 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 by its business relationships, 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

Application Requirements

AR17.
In fulfilling the requirements set out by Disclosure Requirement ESRS S3-3, the undertaking may be guided by the content of the UN Guiding Principles on Business and Human Rights and the OECD Guidelines for Multinational Enterprises focused on remediation and grievance mechanisms.
AR18.
Channels for raising concerns or needs, include grievance mechanisms, hotlines, dialogue processes or other means through which affected communities or their legitimate representatives can raise concerns about impacts or explain needs that they would like the undertaking to address. This could include channels provided by the undertaking directly, in addition to any other mechanisms the undertaking may use to gain insight into the management of impacts on communities, 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.
AR19.
To provide greater insight into the information covered in ESRS S3-3, the undertaking may explain whether and how communities that may be affected are able to access channels at the level of the undertaking they are affected by, in relation to each material impact. Relevant insights include information on whether affected communities can access channels in a language they understand, and whether they have been consulted in the design of such channels.
AR20.
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 affected communities who may be potentially or actually materially impacted by the undertaking, or individuals or organisations acting on their behalf or who are otherwise in a position to be aware of negative impacts.
AR21.
In relation to the protection of individuals that use the mechanisms against retaliation, the undertaking may describe whether it treats grievances confidentially and with respect to the rights of privacy and data protection; and whether to the mechanisms can be used anonymously (for example, through representation by a third party).
AR22.
When disclosing processes related to providing and enabling remedy for indigenous peoples, relevant information includes whether and how the undertaking has considered their customs, traditions, rules and legal systems.
AR23.
In disclosing whether and how the undertaking knows that affected communities 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 affected communities themselves. Examples of sources of information are surveys of community members that have used such channels and their levels of satisfaction with the process and outcomes.
AR24.
In describing the effectiveness of channels for affected communities 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 below considerations may be applied on an individual channel basis or for the collective system of channels:
(a) do the channels hold legitimacy by providing appropriate accountability for their fair conduct and building stakeholder trust?
(b) are the channels known and accessible to stakeholders?
(c) do the channels have clear and known procedures, set timeframes and clarity on the processes?
(d) do the channels ensure reasonable access 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 at stake?
(f) do the 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?
Disclosure Requirement S3-4 - Taking action on material impacts on affected communities, and approaches to managing material risks and pursuing material opportunities related to affected communities, and effectiveness of those actions

Implementation steps:

  • The company must share how it helps communities and handles risks and chances involving them

  • It should explain what it does to fix or lessen bad effects on communities and to create good ones

  • The company needs to show how it deals with risks and goes after chances that involve communities

  • It should summarize its plans and resources for managing these issues as per ESRS 2 MDR-A

  • Describe steps taken to prevent or fix bad effects on communities and to track the success of these actions

  • Explain how it figures out what to do about bad effects on communities and how it makes sure fixes work

  • Share plans to lessen risks and go after chances for the company related to communities

  • Note if your copany avoids causing bad effects on communities through its work and how it handles business pressures

  • Report any severe human rights issues linked to communities

  • When talking about how effective its actions are, refer to ESRS 2 MDR-T

  • Share what resources it uses to manage its impact on communities

  • Consider how long it takes to understand and respond to negative impacts and how it plans to keep improving

  • Explain how it uses its influence to manage impacts outside its direct control

  • Link environmental impacts on communities to ESRS E1 to E5 disclosures

  • Share involvement in industry initiatives to address bad effects on communities

  • Include examples when discussing ending business relationships and their impacts on communities

  • Use various methods to track how well actions work

  • Report on actions that aim to create good effects for communities and how they involve those communities

  • Disclose if actions support UN Sustainable Development Goals

  • Make a clear difference between activities done and actual outcomes for communities

  • Consider if actions also help lessen bad effects

  • Think about risks and chances related to the company's impact on or need for communities

  • Cross-reference disclosures on risks and chances that come from environmental impacts

  • Integrate community-related risk management into overall risk management

  • Disclose which parts of the company are involved in managing impacts and what actions they take

  • For more details, refer to the MDR-A disclosure in ESRS-2.

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Disclosure Requirements

30.
The undertaking shall disclose how it takes action to address material impacts on affected communities, and to manage material risks and pursue material opportunities related to affected communities and the effectiveness of those actions.
31.
The objective of this Disclosure Requirement is twofold. Firstly, it is to provide an understanding of any actions and initiatives through which the undertaking seeks to:
(a) prevent, mitigate and remediate the negative material impacts on affected communities; and/or
(b) achieve positive material impacts for affected communities. 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 affected communities. The undertaking shall provide a summarised description of the action plans and resources to manage its material impacts, risks, and opportunities related to affected communities 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 affected communities;
(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 affected communities; and
(d) how it tracks and assesses the effectiveness of these actions and intiatives in delivering intended outcomes for affected communities.
33.
In relation to paragraph 29, 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 affected communities;
(b) its approach to taking action in relation to specific material negative impacts on communities, including any action in relation to its own practices regarding land acquisition, planning and construction, operation or closure practices, as well as whether wider industry or collaborative action with other relevant parties will be required; 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 affected communities 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 affected communities.
35.
The undertaking shall disclose whether and how it takes action to avoid causing or contributing to material negative impacts on affected communities through its own practices, including, where relevant, in relation to planning, land acquisition and exploitation, finance, extraction or production of raw materials, use of natural resources, and management of environmental impacts. 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 affected communities have been reported and, if applicable, disclose these8 .
37.
When disclosing the information required under paragraph 31 (c), 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.
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.

Application Requirements

AR25.
(a) It may take time to understand negative impacts and how the undertaking may be involved with them through its value chain, as well as to identify appropriate responses and put them into practice. Therefore, the undertaking shall consider:
(b) its social investment or other development programmes aimed at contributing to additional material positive impacts;
(c) how far it has progressed in its efforts during the reporting period; and
(d) its aims for continued improvement.
AR26.
Appropriate action can vary according to whether the undertaking causes or contributes to a material impact, or whether the material impact is directly linked to its own operations, products or services through a business relationship.
AR27.
Given that material negative impacts affecting communities that have occurred during the reporting period may also be linked to 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 the rights of indigenous peoples to entities with which the undertaking has a business relationships) or collaborative leverage with peers or other actors (such as initiatives aimed at minimising security-related impacts on communities or participating in company-community partnerships).
AR28.
Impacts on communities may stem from environmental matters which are disclosed by the undertaking under the ESRS E1 to E5. Examples include:
(a) ESRS E1 Climate Change: The implementation of climate change mitigation plans may require the undertaking to invest in renewable energy projects that may affect the lands, territories and natural resources of indigenous peoples. If the undertaking does not consult with the affected indigenous peoples , it could negatively impact the affected communities’ right to free, prior and informed consent;
(b) ESRS E2 Pollution: The undertaking may negatively impact affected communities by failing to protect them from pollution from a particular production facility that causes them health-related issues;
(c) ESRS E3 Water and marine sources: The undertaking may negatively impact the access to clean drinking water of communities when withdrawing water in water stressed areas;
(d) ESRS E4 Biodiversity and ecosystems: The undertaking may negatively affect the livelihood of local farmers through operations that contaminate soil. Additional examples include the sealing of land through building new infrastructure, which can eradicate plant species that are critical for, for example, local biodiversity or to filter water for communities; or the introduction of invasive species (whether plants or animals) that can impact ecosystems and cause subsequent harm;
(e) ESRS E5 Resource use and circular economy: The undertaking may negatively impact the lives of communities by affecting their health through the mismanagement of hazardous waste. Where the connection between environmental impacts and local communities is addressed in the disclosures within the Disclosure Requirements ESRS E1-E5, the undertaking may crossreference to those and clearly identify such disclosures.
AR29.
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 disclose under ESRS S3-5 the relevant targets set by the initiative and progress towards them.
AR30.
When disclosing whether and how the undertaking considers actual and potential impacts on affected communities 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.
AR31.
When disclosing whether and how the undertaking considers actual and potential impacts on affected communities 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.
AR32.
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.
AR33.
Reporting on effectiveness is aimed at enabling the understanding of the links between actions taken by an undertaking and the effective management of impacts.
AR34.
With regard to initiatives or processes whose primary aim is to deliver positive impacts for affected communities that are based on affected communities’ needs, and with regard to progress in the implementation of such initiatives or processes, the undertaking may disclose:
(a) information about whether and how affected communities and legitimate representatives or their credible proxies play a role in decisions regarding the design and implementation of these investments or programmes; and
(b) information about the intended or achieved positive outcomes for affected communities of these investments or programmes.
(c) an explanation of the approximate scope of affected communities covered by the described social investment or development programmes, and, where applicable, the rationale for why selected communities were chosen for a given social investment or development programme's implementation.
AR35.
The undertaking may disclose whether any initiatives or processes whose primary aim is to deliver positive impacts for affected communities are designed also to support the achievement of one or more of the UN Sustainable Development Goals (SDGs). For example, through a commitment to advance UN SDG 5 to “achieve gender equality and empower all women and girls” the undertaking may be taking thoughtful measures to include women in the consultation process with an affected community to meet standards of effective stakeholder engagement, which can help empower the women in the process itself, but potentially also in their daily lives.
AR36.
When disclosing the intended or achieved positive outcomes of its actions for affected communities a distinction is to be made between evidence of certain activities having occurred (for example, that x number of women community members have been provided with 30 training on how to become local suppliers to the undertaking) from evidence of actual outcomes for affected communities (for example, that x women community members have set up small businesses and have had their contracts with the undertaking renewed year-onyear).
AR37.
When disclosing whether initiatives or processes also play a role in mitigating material negative impacts, the undertaking may for example consider programmes that aim to improve local infrastructure surrounding an undertaking’s operations, such as improvements in roads leading to a reduction in the number of severe traffic accidents involving community members.
AR38.
When disclosing the material risks and opportunities related to the undertaking’s impacts or dependencies on affected communities, the undertaking may consider the following:
(a) risks related to the undertaking’s impacts on affected communities may include the reputational or legal exposure, as well as operational risks, where affected communities protest against resettlements or the loss of access to lands, leading to costly delays, boycotts, or lawsuits;
(b) risks related to the undertaking’s dependencies on affected communities may include disruption of business operations where indigenous peoples decide to withdraw their consent to a project on their lands, forcing the undertaking to significantly modify or abandon the project;
(c) business opportunities related to the undertaking’s impacts on affected communities may include more easily financing projects and being a partner of choice for communities, governments and other businesses; and
(d) opportunities related to the undertaking’s dependencies on affected communities may include the development of positive relationships between the undertaking and indigenous peoples that enable existing projects to expand with strong support.
AR39.
In disclosing the information in AR 41, the undertaking may consider explanations of risks and opportunities stemming from environmental impacts or dependencies (please refer to AR 31 for further details), including related human rights (or social) impacts. Examples include reputational risks stemming from the impact on the health of communities of unmanaged polluting discharges; or the financial effects of protests that may disrupt or interrupt an undertaking’s activities, for example, in response to operations in water stressed areas that may impact the lives of affected communities.
AR40.
When disclosing whether dependencies turn into risks, the undertaking shall consider external developments
AR41.
When disclosing policies, action 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.
AR42.
The undertaking shall consider whether and how its processes to manage material risks related to affected communities are integrated into its existing risk management processes.
AR43.
When disclosing the resources allocated to the management of material impacts, the undertaking may disclose which internal functions are involved in managing the impacts and what types of action they take to address negative and advance positive impacts.
Disclosure Requirement S3-5 - Targets related to managing material negative impacts, advancing positive impacts, and managing material risks and opportunities

Implementation steps:

  • Write down the goals you've set to help or not hurt local communities

  • Explain how these goals are meant to make things better over time

  • Share how you decide on these goals and if you talk to the local people about them

  • When you talk about your goals, mention what you hope will happen for the local people, how you keep your goals consistent, and what rules or promises your goals are based on

  • Say if your goals about risks and helping people are the same or different, and give examples

  • Talk about your short-term and long-term goals, like hiring local people at a mine, and how you plan to do it over time

  • If you change a goal, mention people why, maybe because your business changed or the rules changed

  • Remember to check the MDR-T part in ESRS-2 for what information to include

  • For more details, see the ESRS-2 document.

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Disclosure Requirements

39.
The undertaking shall disclose the time-bound and outcome-oriented targets it may have set related to:
(a) reducing negative impacts on affected communities; and/or
(b) advancing positive impacts on affected communities; and/or
(c) managing material risks and opportunities related to affected communities.
40.
The objective of this Disclosure Requirement is to enable an understanding of the extent to which the undertaking is using time-bound and outcome-oriented targets to drive and measure its progress in addressing material negative impacts, and/or advancing positive impacts on affected communities, and/or in managing material risks and opportunities related to affected communities.
41.
The summarised description of the targets to manage its material impacts, risks and opportunities related to affected communities 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 affected communities, 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
(c) identifying, any, lessons or improvements as a result of the undertaking’s performance.

Application Requirements

AR44.
When disclosing information about targets in accordance with paragraph 38, the undertaking may disclose:
(a) the intended outcomes to be achieved in the lives of affected communities, being as specific as possible;
(b) the stability of the targets over time in terms of definitions and methodologies to enable comparability over time;
(c) the standards or commitments which the targets are based on (for instance codes of conduct, sourcing policies, global frameworks or industry codes).
AR45.
Targets related to material risks and opportunities may be the same as or distinct from targets related to material impacts. For example, a target to fully restore livelihoods of affected communities following resettlement could both reduce impacts on those communities and reduce associated risks such as community protests.
AR46.
The undertaking may also distinguish between short-, medium- and long-term targets covering the same policy commitment. For example, the undertaking may have as a main objective to employ community members at a local mining site, with the long-term goal of staffing 100% locally by 2025, and with the short-term objective of adding x percent of local employees every year up and until 2025.
AR47.
When modifying or replacing a target in the reporting period, the undertaking may explain the change by linking 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.
Interaction with other ESRS

Summary:

This rule is used when important effects on communities are found using a special process, and it should be used along with other rules about general requirements, workers, and consumers.
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Interaction with other ESRS

4.
This standard applies when material impacts on and/or material risks and opportunities related to affected communities have been identified through the materiality assessment process laid out in ESRS 2 General disclosures.
5.
This Standard shall be read in conjunction with ESRS 1 General requirements, and ESRS 2, as well as the ESRS S1 Own workforce, ESRS S2 Workers in the value chain and ESRS S4 Consumers and end-users.

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