The implementation of the Corporate Sustainability Reporting Directive (CSRD) represents a crucial advance in improving corporate sustainability information across Europe. It also places over 71,000 companies into new territory with its detailed reporting requirements.

If your business is one of them, understanding the European Sustainability Reporting Standards (ESRS) – particularly ESRS S1 on own workforce – should be a key focus. Beyond regulatory compliance, this standard is an effective tool to foster a more sustainable and equitable future for your business and its employees.

But what exactly is ESRS S1 and why is it essential? What are its primary requirements? And how can you effectively implement ESRS S1? The article will give you a comprehensive understanding of the standard.

What is ESRS S1 exactly?

Before exploring the details of ESRS S1, it is useful to have some context.

The ESRS were adopted by the European Commission in July 2023, with an aim of standardizing ESG reporting across Europe. These are the definitive standards for companies subject to the CSRD, outlining how to structure a CSRD report and specifying what to disclose regarding environmental, social, and governance (ESG) matters.

The initial set of ESRS includes 10 main topics and two cross-cutting standards. S1: Own workforce is one of the four social standards, focusing on the impacts of business activities on employees.

ESRS S1 mandates organizations to disclose their effects on their own workforce, including both positive and negative impacts as well as financial risks and opportunities. This encompasses everything from employment practices to employee well-being and demands transparency regarding past, present, and future efforts to enhance workforce conditions.

The importance of ESRS S1 for workforce management

The CSRD was introduced as part of the European Green Deal, which aims to transition Europe towards a more sustainable and inclusive economy. This goal highlights the increasing importance of social responsibility in business operations.

Given this context, the workforce component is a significant priority for Europe. ESRS S1 is designed to ensure business practices align with Europe’s social objectives, making it a vital standard.

With stakeholders increasingly demanding transparency around corporate workforce practices, compliance with ESRS S1 is not only a regulatory necessity but also a crucial element of global efforts to promote fair and sustainable labor practices.

Own workforce reporting within the CSRD framework

The CSRD allows companies to exclude reporting on certain themes if they are not material. ESRS S1 is often deemed material for many companies, given the widespread impact of workforce practices across business activities. Performing a double materiality assessment is crucial in determining whether or not ESRS S1 is material for your company.

The ESRS S1 disclosure requirements

ESRS S1 includes 26 disclosure requirements, categorized as follows:

Impacts, risks and opportunities management

• Disclosure Requirement S1-1 – Policies related to own workforce
  • The undertaking shall describe its policies that address the management of its material impacts on its own workforce, as well as associated material risks and opportunities; and provide a summary of the content of the policies.

• Disclosure Requirement S1-2 – Processes for engaging with own workers and workers’ representatives about impacts
  • The undertaking shall disclose its general processes for engaging with its own workers and workers' representatives about actual and potential material impacts on its own workforce.
• Disclosure Requirement S1-3 – Processes to remediate negative impacts and channels for own workers to raise concerns
  • The undertaking shall describe the processes it has in place to provide for or cooperate in the remediation of negative impacts on own workers that the undertaking has identified it has caused or contributed to, as well as channels available to own workers to raise concerns and have them addressed.
• Disclosure Requirement S1-4 – Taking action on material impacts on own workforce, and approaches to mitigating material risks and pursuing material opportunities related to own workforce, and effectiveness of those actions
  • The undertaking shall disclose its approaches and actions to taking action on material negative and positive impacts, and to mitigating material risks and pursuing material opportunities related to own workers and effectiveness of those actions.

Metrics and targets

• Disclosure Requirement S1-5 – Targets related to managing material negative impacts, advancing positive impacts, and managing material risks and opportunities
  • The undertaking shall disclose the time-bound and outcome-oriented targets it may have related to:(a) reducing negative impacts on its own workforce; and/or (b) advancing positive impacts on its own workforce; and/or (c) managing material risks and opportunities related to its own workforce.
• Disclosure Requirement S1-6 – Characteristics of the undertaking’s employees
  • The undertaking shall describe key characteristics of employees in its own workforce.
• Disclosure Requirement S1-7 – Characteristics of non-employee workers in the undertaking’s own workforce
  • The undertaking shall describe key characteristics of non-employee workers in its own workforce.
• Disclosure Requirement S1-8 – Collective bargaining coverage and social dialogue
  • The undertaking shall disclose information on the extent to which the working conditions and terms of employment of its own workforce are determined or influenced by collective bargaining agreements and to the extent to which its employees are covered in social dialogue in the EEA at the establishment and European level.
• Disclosure Requirement S1-9 – Diversity indicators
  • The undertaking shall disclose the gender distribution at top management and the age distribution amongst its employees.
• Disclosure Requirement S1-10 – Adequate wages
  • The undertaking shall disclose whether or not all workers in its own workforce are paid an adequate wage, in line with applicable benchmarks; and if not, which type of workers do not receive an adequate wage and what percentage of its own workforce is paid below the adequate wage.
• Disclosure Requirement S1-11 – Social protection
  • The undertaking shall disclose whether its own workers are covered by social protection against loss of income due to major life events, and, if not, the countries where this is not the case and the percentages in those countries that are not protected.
• Disclosure Requirement S1-12– Persons with disabilities
  • The undertaking shall disclose the percentage of persons with disabilities in its own workforce.
• Disclosure Requirement S1-13 – Training and skills development indicators
  • The undertaking shall disclose the extent to which training and skills development is provided to its employees.
• Disclosure Requirement S1-14 – Health and safety indicators
  • The undertaking shall disclose information on the extent to which its own workforce is covered by its health and safety management system and the number of incidents associated with work-related injuries, ill health and fatalities of its own workers. In addition, it shall disclose the number of fatalities as a result of work-related injuries and work-related ill health of other workers working on the undertaking’s sites.
• Disclosure Requirement S1-15 – Work-life balance indicators
  • The undertaking shall disclose the extent to which employees are entitled to and make use of family-related leave.
• Disclosure Requirement S1-16 – Compensation indicators (pay gap and total compensation)
  • The undertaking shall disclose the percentage gap in pay between women and men and the ratio between the compensation of its highest paid individual and the median compensation for its employees.
• Disclosure Requirement S1-17 – Incidents, complaints and severe human rights impacts and incidents
  • The undertaking shall disclose the number of work-related incidents and/or complaints and severe human rights impacts and incidents within its own workforce and any related material fines or sanctions for the reporting period.

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Practical steps for implementing ESRS S1 disclosure requirements

1. Conduct a double materiality assessment

Companies are not required to report on all 94 topics described in the topical ESRS, only those that are material to their business. Conducting a double materiality assessment helps identify and prioritize the most significant ESG matters to report on.

This process should consider both impact materiality and financial materiality when identifying material matters.

Examples

Enel has included ‘Own workforce’ as a material issue in their sustainability report. Their focus is on ensuring a safe, inclusive, and empowering work environment, which they see as directly tied to their overall business performance and sustainability goals. They list the ‘health and safety of employees’ and ‘quality of corporate life’ as key components of their material topics.

Nestlé has recognized ‘Own workforce’ as material in their CSRD-aligned reporting. Their focus on employee rights, diversity, inclusion, and working conditions is central to their approach to sustainability, particularly given the extensive workforce required in their global operations.

Below each ESRS sit sub-topics, which inform the areas that the materiality assessment should cover. The amount of sub-topics vary depending on the ESRS, but there are generally between 3 and 5. When conducting a materiality assessment for ESRS S1, consider the following subtopics:

Sub-topic 1: Working conditions

Evaluates the quality of the working environment provided by the company, including health and safety measures, work-life balance, fair remuneration, and access to social security benefits. This ensures the company fosters a safe, healthy, and supportive workplace for all employees.

Sub-topic 2: Equal treatment and opportunities for all

Focuses on the company’s commitment to diversity, equity, and inclusion (DEI). This includes measures to address pay gaps, prevent discrimination, support employees with disabilities, and ensure equal opportunities regardless of gender, race, or other personal characteristics. This helps identify areas for improving DEI practices.

Sub-topic 3: Other work-related rights

Assesses the company’s policies and practices related to broader work-related rights, such as freedom of association, collective bargaining, and privacy at work. It also includes how the company handles grievances and complaints related to these rights, ensuring these rights are respected is crucial for maintaining a fair and just workplace.

2. Tackle key elements in the workforce management plan

ESRS S1 requires businesses to provide a detailed account of their workforce management plan, which is a corporate action plan to ensure fair and sustainable labor practices.

Key elements of a workforce management plan include:

• Establishing clear workforce policies and targets.
• Identifying and implementing measures to improve workforce conditions with quantifiable goals.
• Securing financing for workforce initiatives.
• Embedding the workforce plan in your overall business strategy and financial planning.
• Obtaining approval from the board.
• Aligning the plan with risk management and integrating it into the governance framework.

3. Create an action plan guiding workforce management

Detail the specific steps your business will take to enhance workforce management, including:

• Implementing sustainable practices: Outline actions like improving working conditions, enhancing employee benefits, or fostering a diverse workplace.
• Stakeholder engagement: Describe how you will involve employees, unions, and other stakeholders in your workforce management efforts.

4. Set clear goals for workforce development and well-being

Your action plan should include specific, measurable goals for improving workforce development and well-being. Set ambitious yet achievable targets to ensure continuous improvement.

5. Track and disclose workforce metrics

Monitor and report on key workforce metrics for transparency and to identify areas for improvement. Track metrics such as employee turnover, health and safety incidents, and training participation rates.

6. Report workforce policies and practices

Under ESRS S1, businesses must disclose their workforce policies and practices in detail. Report on health and safety measures, diversity and inclusion initiatives, and employee development programs.

Select the right software for workforce reporting

For businesses affected by the CSRD, managing workforce topics under ESRS S1 can be daunting and time-consuming. The right tools can make a significant difference. Workforce reporting software can simplify the process, streamline data collection and analysis, provide actionable insights, and generate reports automatically, accelerating your compliance journey.

Discover how workforce reporting software can fast-track your CSRD compliance by requesting a free demo today.