Responses to the European Sustainability Reporting Standards

Gregory Berry is an environmental justice and human rights advocate in the arena of international development at the Accountability Counsel. Prior to this, he spent several years in outdoor education and therapy, during which time he witnessed the transformative power of time spent in nature and in the service of others.

At Accountability Counsel, he has advanced policies that allow communities impacted by internationally financed projects to connect directly with financiers to resolve actual and potential environmental and social harm. 

Gregory, can you share a little about how you support a better environmental future?

The same systems and institutional cultures that have enabled threat cannot also be the solution to them; that’s why it is important to have laws that set the environmental and social boundaries of investment and business activities. 

That is the only way to make any meaningful progress toward a sustainable future – that is to say, economies built upon healthy relationships with each other and the environment, and not economies that strain or drain those relationships.

What are the ESRS, and what do they aim to achieve?

Through the European Green Deal, Corporate Sustainability Due Diligence Directive, and the Corporate Sustainability Reporting Directive (CSRD), the EU has initiated processes to regulate the environmental and social parameters of finance and business activities. 

Under the CSRD, finance and business actors of a certain size must publish sustainability reports; the European Sustainability Reporting Standards (ESRS) list the things that companies should report on pursuant to the CSRD.

The ESRS also complements the EU’s Sustainable Finance Disclosure Regulation (SFDR). Whereas the SFDR governs disclosures for financial market participants and financial advisors, the ESRS governs public disclosures to help consumers, civil society, investors, and other stakeholders to evaluate the sustainability performance of finance and business actors.

How would you categorise the response to the ESRS so far?

Many are generally disappointed that the ESRS provides too much latitude for companies to determine whether environmental and social impacts are “material” enough to prompt disclosure. In that sense, the ESRS are on a par with the new ISSB standards. Many are disappointed that disclosures related to biodiversity are not mandatory as envisioned in consultation drafts.

Where are the environmental guidelines falling short, and where are they working well?

At Accountability Counsel, we are most interested in the disclosures that describe the processes available and used to prevent and remedy rights abuses to those impacted by finance and business activities. Namely, ESRS Disclosure S3-3 requires regulated actors to describe their processes for providing or cooperating in remedying adverse impacts to communities affected by their operations, as well as the mechanisms available for communities to raise grievances. The regulation advises reporting according to the effectiveness criteria of the UN Guiding Principles on Business and Human Rights (UNGPs). Pursuant to the UNGPs, operational-level grievance channels must be (1) legitimate, (2) accessible, (3) predictable, (4) equitable, (5) transparent, (6) rights compatible, (7) a source of continuous learning, and (8) designed and improved in consultation with the stakeholders they are intended to serve. 

What this essentially means is that finance and business actors should reach out to the communities impacted by their operations to design safe platforms for relaying adverse human rights and environmental impacts before they become huge liabilities. The full policies governing complaints handling processes must be shared, published, and otherwise easily accessed. 

The complaints received and remedies achieved should also be published, and regulated actors should reflect on how to improve policies and practices to ensure that mistakes leading to complaints are not repeated.

Regulated actors must also describe:

• The general approach to processes for providing or contributing to remedy when a regulated actor acknowledges that it has caused or contributed to material negative impacts on communities, including how it monitors and assesses the implementation of remedy.
• Outreach efforts to raise awareness of grievance mechanisms.
• The process for remedying material impacts on affected communities.
• Specific actions taken to provide or enable remedy for material impacts (see S3-4).

Whether “severe human rights issues and incidents connected to affected communities have been reported” and, if so, what the incident and issues were.

There are also distinct reporting requirements with respect to grievances channels for a company’s own workforce, workers in the value chain, and consumers/end-users. The value chain worker and consumer requirements largely parallel affected community requirements. With respect to worker grievances, companies must disclose the number of complaints filed through complaint channels and NCP offices; the total amount of fines/penalties/compensation for damages as a result of complaints.

We welcome these requirements not only because it established that regulated actors must engage with communities throughout their operations, but also because these disclosures may help limit or reduce “impact-washing” and “greenwashing” that has pervaded the ESG movement. Community grievances ground truth corporate narratives and can provide insight to more accurately assess sustainability risks and performance.

What kind of impact do you think these standards will have on development-finance backed projects moving forward?

Development Finance Institutions (DFIs) are seeking to scale impact through private sector partnerships, now more than ever with the urgency of the many crises before us. To ensure that profit motives do not co-opt development mandates, there needs to be accountability for environmental and social impact. Communities must have a way to relay adverse impacts to DFIs and their private sector partners.

Complaints submitted to DFI clients and partners have historically evaded public scrutiny, but the ESRS will help ensure accurate disclosure of impacts and remedial actions as according to the environmental and social policies intended to protect the sustainability of projects and the rights of project-affected people. Moreover, DFIs themselves will have a better sense of the E&S performance of their partners to guide future collaboration.

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