CSRD Part 4: Key Metrics Disclosed

The new law is estimated to contain about 82 metrics covering employees; employees of supply chain and distribution partners; customers, and communities.

Goals Related to Risks and Opportunities
Employees
Employees of Supply Chain and Distribution Partners
Consumers
Communities

ESM continues this series due to the potential impact of the new European Union Corporate Sustainability Directive (CSRD) because of the significant impacted anticipated by legal and management consulting firms and because the clock is essentially ticking now: the largest companies will have to begin reporting in 2025 on practices and metrics for 2024, whose metrics will need to be compared with the prior year—2023.

Here is an overview of the type of information that will be required for each of the stakeholder categories. For a complete report on the European Union Corporate Sustainability Reporting Directive, click here.

Goals Related to Risks and Opportunities

The law's authors underline the importance of focusing on both goals and results. “Targets related to risks and opportunities may be the same as or distinct from targets tied to impacts. Therefore, no distinction is to be made per se, but what the target is aiming at is to be disclosed (i.e. impact and/or risks and opportunities.) For example, a target to reach living wages for supply chain workers could both reduce impacts on those workers and reduce associated business risks in terms of the quality and reliability of supply.”

The importance of disclosing the time frame of risks is also stressed. “The undertaking may also distinguish between short-, medium-, and long-term targets covering the same policy commitment. For example, an 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.”

Accounting for changes in goals: “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(s) or to broader changes in the accepted standard or legislation from which the target is derived to provide contextual information.”

Essentially, the draft requirements relate to managing material negative impacts, advancing positive impacts, and managing material risks and opportunities. When disclosing the organization’s targets, it shall consider disclosing, where applicable:

“The intended outcomes to be achieved in the lives of value chain workers, customers, and communities being as specific as possible;
That these are measurable/verifiable, and how;
That the metrics are stable over time in terms of definitions and methodologies to allow for continuity in the datapoints derived from the targets;
Standards or commitments which the targets are based on are to be clearly defined in the reporting (for instance code of conducts, sourcing policies, global frameworks, or industry codes).”

Employees

The objective of the standard “is to specify disclosure requirements which will enable users of the sustainability statements to understand the undertaking’s material impacts on its workforce, as well as related material risks and opportunities, including:

How the undertaking affects its own workforce, in terms of material positive and negative actual or potential impacts;
Any actions taken, and the result of such actions, to prevent, mitigate or remediate actual or potential negative impacts;
The nature, type and extent of the undertaking’s material risks and opportunities related to its impacts and dependencies on its own workforce, and how the undertaking manages them; and
The financial effects on the undertaking over the short-, medium- and long-term time horizons of material risks and opportunities arising from the undertaking’s impacts and dependencies on its own workforce.”

In order to meet the objectives, the “standard also requires an explanation of the general approach the undertaking takes to identify and manage any material actual and potential impacts on its own workforce in relation to the following social, including human rights, factors or matters, working conditions, including:

Secure employment;
Working time;
Adequate wages;
Social dialogue;
Freedom of association, the existence of works councils and the information, consultation and participation rights of workers;
Collective bargaining, including the rate of workers covered by collective agreements;
Work-life balance and health and safety;
Equal treatment and opportunities for all, including gender equality and equal pay for work of equal value;
Training and skills development;
Employment and inclusion of persons with disabilities;
Measures against violence and harassment in the workplace and diversity;
Other work-related rights, including: child labor; forced labor; adequate housing, and privacy.

Metrics include:

Employee turnover;
Gender diversity;
Gender pay disparities;
Executive-to-worker pay ratios;
Worker voice and representation;
Unionization rates;
Incidents of discrimination;
Programs to access skills development; .
No. and nature of performance reviews;
Injury rates.

Employees of Supply Chain and Distribution Partners

Organizations subject to the law will have to report on employees of supply chain and distribution partners. “The objective of this standard is to specify disclosure requirements which will enable users of the sustainability statements to understand material impacts on value chain workers caused or contributed to by the undertaking, as well as material impacts which are directly linked to the undertaking’s own operations, products or services through its business relationships and its related material risks and opportunities, including:

How the undertaking affects workers in its value chain, in terms of material positive and negative actual or potential impact;
Any actions taken, and the result of such actions, to prevent, mitigate or remediate actual or potential negative impact;
The nature, type and extent of the undertaking’s material risks and opportunities related to its impacts and dependencies on workers in the value chain, and how the undertaking manages them;
The financial effects on the undertaking over the short-, medium- and long-term time horizons of material risks and opportunities arising from the undertaking’s impacts and dependencies on workers in the value chain.

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:

Working conditions (for example, secure employment, working time, adequate wages, social dialogue, freedom of association, including the existence of work councils, collective bargaining, work-life balance and health and safety);
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);
Other work-related rights (for example, child labor, forced labor, adequate housing, water and sanitation and privacy).”

Consumers

The organization shall provide “a brief description of the types of consumers and/or end-users subject to material impacts by its own operations or through its value chain and specify whether they are: i. consumers and/or end-users of products that are inherently harmful to people and/or increase risks for chronic disease; ii. consumers and/or end-users of services that potentially negatively impact their rights to privacy, have their personal data protected, freedom of expression and nondiscrimination; iii. consumers and/or end-users who are dependent on accurate and accessible product- or service- related information, such as manuals and product labels, to avoid potentially damaging use of a product or service; iv. consumers and/or end-users who are particularly vulnerable to health or privacy impacts or impacts from marketing and sales strategies, such as children or financially vulnerable individuals.

The undertaking “shall disclose its general processes for engaging with consumers and end-users and their representatives about actual and potential material impacts on them.” It “shall describe the processes it has in place to provide for or cooperate in the remediation of negative impacts on consumers and end-users that the undertaking has identified it has caused or contributed to, as well as channels available to consumers and end- user to raise concerns and have them addressed.”

Communities

The organization “shall disclose: whether and how actual and potential impacts on affected communities; description of the processes to identify and assess material impacts, risks and opportunities that: (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(s); and the relationship between its material risks and opportunities arising from impacts and dependencies on affected communities and its strategy and business model(s).

The organization shall disclose “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:

Communities directly 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);
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);
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);
Communities of indigenous peoples.”

In addition, “The undertaking shall describe its policies that address the management of its material impacts on communities, as well as associated material risks and opportunities; and provide a summary of the content of the policies. The undertaking shall disclose its general processes for engaging with affected communities and their representatives about actual and potential material impacts on them. The undertaking shall disclose its approaches to taking action on material impacts on affected communities, and to mitigating material risks and pursuing material opportunities related to affected communities and effectiveness of those actions.”

For More Information

Bruce Bolger, Founder
Enterprise Engagement Alliance at TheEEA.org
914-591-7600, ext. 230
Bolger@TheEEA.org

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