In our blog series on the European Sustainability Reporting Standards (ESRS), we are focusing today on ESRS S3, the standard for affected communities. This standard requires companies to report transparently on their social impacts on communities, indigenous groups and other affected stakeholders along their value chain.

What is ESRS S3?

ESRS S3 covers the social impacts of a company on affected communities. This includes individuals or groups who are impacted by a company's economic activities, whether directly at its operating sites or along the upstream and downstream value chain.

Examples of affected communities:

-Residents living near company locations or business premises

-Communities on busy transportation routes

-Indigenous communities whose protected areas are affected

-Regional interest groups and municipalities

The standard is intended to ensure that companies not only report on their social impacts, but also take measures to reduce risks and promote positive effects.

Disclosure requirements in accordance with ESRS S3

Under ESRS S3, companies must report comprehensively on their relationships with affected communities and the associated risks and opportunities. An overview of the main disclosure requirements can be found here:

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Objective of ESRS S3

ESRS S3 aims to oblige companies to systematically record their impact on communities and take measures to mitigate social risks.

Central objectives of the standard

• Protecting the rights of affected communities, especially indigenous peoples
• Transparency about social risks and opportunities along the value chain
• Promotion of human rights and minimum social standards
• Strengthening stakeholder dialog with local communities‍

Synergies with other ESRS standards‍

ESRS S3 overlaps with other social standards, including:‍

• ‍ESRSS1 & S2: Human rights violations along the supply chain and within the company‍
• ESRS S4: Consumer protection and social inclusion‍
• ESRS G1: Governance mechanisms for ethical business conduct‍

‍Challengesin the implementation of ESRS S3

Companies face several challenges in the practical implementation of ESRS S3, particularly in identifying, engaging and collecting data on affected communities.

• ‍Identifying affected communities is a key challenge. As ESRS S3 uses a very broad definition of affected communities, companies must consider a variety of stakeholder groups. This includes not only directly adjacent communities, but also population groups that are impacted by business activities throughout the value chain. Systematic analysis and prioritization are required to identify the relevant stakeholders
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• ‍Stakeholder dialog is an essential part of implementation. Companies must ensure that affected communities are appropriately involved in the decision-making process. This requires clear communication channels and dialog formats that meet both the needs of communities and business interests. Cultural and language barriers must be overcome, especially for vulnerable groups such as indigenous peoples or socially disadvantaged communities.‍
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• Data collection is a major challenge, especially along the upstream and downstream value chain. Companies need to collect reliable information on social impacts, which is often associated with uncertainties and incomplete data sources. Especially in global supply chains, it is difficult to access reliable information on working conditions, land use conflicts or the social impact of production processes. Close cooperation with local stakeholders, NGOs and independent auditing bodies can help to overcome these challenges.

In order to effectively address these challenges, ESRS S3 recommends that you follow proven international frameworks, including:

• ‍TheUN Guiding Principles on Business and Human Rights, which oblige companies to ensure human rights due diligence along the value chain.‍
• The OECD Guidelines for Multinational Enterprises, which set out principles for responsible corporate governance and sustainable development.‍
• The International Labor Organization's (ILO) Declaration on Fundamental Principles and Rights at Work, which defines standards for decent working conditions.

Compliance with these guidelines can help companies to make their social impacts more transparent and systematically fulfill the requirements of ESRS S3.

Conclusion & outlook: The importance of ESRS S3‍

ESRS S3 ensures that companies fulfill their responsibility to society. Transparency about social impacts helps to minimize reputational risks and promote sustainable business models in the long term.

In upcoming posts, we will present best practices for compliance with ESRS S3. Stay tuned for practical insights into stakeholder dialog and social sustainability reporting!