On March 3 and 14, 2022, the European Financial Reporting Advisory Group (“EFRAG”) published its most recent set of Working Papers on the future of the EU’s European Sustainability Reporting Standards (“ESRS”). The ESRS will establish dozens of sustainability-related disclosure requirements that will be mandatory for thousands of EU companies under the Corporate Sustainability Reporting Directive (“CSRD”) (see our blog on the CSRD as background). Companies subject to the CSRD will be required to include these disclosures in their annual reports, and these disclosures will need to be audited. Importantly, this is the first time EFRAG has provided significant detail regarding reporting standards for topics that fall under the “S” pillar of the ESG (environmental, social, and governance) framework. The European Commission is currently aiming to have the CSRD and ESRS apply from January 2023, with initial reports due in 2024, and EFRAG will hold public consultations on its draft reporting standards in the coming months.

The Working Papers on social aspects (S1, S2, S3, S4, S5, S6, and S7) cover a broad range of social responsibility and human rights issues including equality and non-discrimination, forced and child labor, collective bargaining and freedom of association, grievance mechanisms for workers throughout corporate value chains, human rights risks associated with the end uses of products and services, as well as engagement with indigenous communities.

The Working Papers include the draft text of the ESRS, guidance, and EFRAG’s rationale for the proposed disclosure requirements. The ESRS draw and build on international and European human rights conventions and guidelines for businesses, such as the UN Guiding Principles on Business and Human Rights and the OECD’s Guidelines for Multinational Enterprises. The ESRS will also serve as one model for the newly-formed International Sustainability Standards Board (“ISSB”) as it moves toward establishing a global approach to companies’ ESG disclosures (more on this in our alert on the interaction between the ISSB’s and EFRAG’s climate prototypes).

The ESRS will be structured in line with the three pillars of the CSRD’s ESG framework, with several reporting standards under each heading. Each reporting standard will in turn be sub-divided into various disclosure requirements.

In this linked chart we include a full list of the reporting standards and disclosure requirements developed by EFRAG to date, to give a holistic overview of the emerging sustainability reporting framework in the EU.

Companies subject to the CSRD should prepare for broad and detailed disclosures under the S pillar. For example, the Working Papers suggest that the ESRS will require companies to report on social issues such as the equal pay gap and incidents of discrimination across a broad range of protected groups (e.g., racial or ethnic origin, disability, age, or sexual orientation). The level of detail required in reporting will be granular, and would, for example, include sexual harassment incidents, even if they are no longer subject to action. Additionally, mandatory disclosures would extend to information about companies’ collective bargaining agreements (on a country-by-country basis), and incidents of forced labor, human rights or child labor. Companies would be expected to report all incidents, and provide explicatory summaries demonstrating their remedial actions.

It is likely that many companies will have to establish new internal data collection and verification processes, and work closely with social audit firms, to ensure complete and accurate reporting on these issues. While companies may currently have processes to collect information about their own workforce, the ESRS disclosures would also cover non-employees, workers in the value chain, consumers and end-users on a granular level. The relevant facts for these disclosures may often lie outside of the EU and across companies’ global operations.

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If you have any questions concerning the material discussed in this blog post, please contact any of the following members of our ESG, Capital Markets and Securities, and Business and Human Rights teams: Sarah Bishop, Mellissa Campbell Duru, Sinéad Oryszczuk, Paul Mertenskötter, and Ivy-Victoria Otradovec.

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Photo of Sarah Bishop Sarah Bishop

Sarah Bishop advises companies on compliance best practices and enforcement risks arising under the U.S. Foreign Corrupt Practices Act, the UK Bribery Act, U.S. and UK anti-money laundering laws, and other financial crime laws. Qualified in the United States and as a Solicitor…

Sarah Bishop advises companies on compliance best practices and enforcement risks arising under the U.S. Foreign Corrupt Practices Act, the UK Bribery Act, U.S. and UK anti-money laundering laws, and other financial crime laws. Qualified in the United States and as a Solicitor of England & Wales, she is able to help companies navigate risks arising in both jurisdictions. She also has experience of other anti-corruption laws (e.g., France’s Loi Sapin II) and works with trusted local partners to deliver coordinated advice that takes into account the requirements of multiple legal regimes. Sarah’s compliance advisory practice includes helping multinational corporations develop and test the robustness of compliance programs, conduct risk assessments, conduct transactional and third party due diligence, navigate post-acquisition compliance integration projects, and deliver compliance training.

As a member of Covington’s Business and Human Rights practice group, Sarah advises companies on evolving developments and best practices related to the corporate responsibility to respect human rights, including in relation to supply chain due diligence and responsible sourcing, reporting and transparency obligations, and strategies for integrating human rights elements into existing compliance programs.

Sarah also helps clients navigate internal and government-facing investigations involving allegations of bribery and corruption, money laundering, export control and sanctions violations, fraud, and other forms of misconduct. She has handled matters before major international enforcement authorities, and she has been recognized by the Global Investigations Review as being among the leading women investigations practitioners worldwide. In addition to government enforcement matters, Sarah assists clients in suspension and debarment matters before the World Bank and other international financial institutions.

Mellissa Campbell Duru

Mellissa Campbell Duru advises clients on U.S. securities regulation, capital markets transactions, and strategic corporate governance planning. She develops advisory guidance for public companies and asset managers on environmental, social, and corporate governance (“ESG”) matters, cybersecurity incident response and preparedness, and public company…

Mellissa Campbell Duru advises clients on U.S. securities regulation, capital markets transactions, and strategic corporate governance planning. She develops advisory guidance for public companies and asset managers on environmental, social, and corporate governance (“ESG”) matters, cybersecurity incident response and preparedness, and public company disclosure and reporting obligations.
Mellissa joined the firm after over 15 years at the U.S. Securities and Exchange Commission (“SEC”) where she served as Counsel to SEC Commissioner Kara Stein and in a range of transactional and policy advisory roles in the Division of Corporation Finance and Division of Examinations.

As Special Counsel in the Division of Corporation Finance’s Office of Mergers & Acquisitions (“OMA”), Mellissa led OMA reviews of shareholder activist campaigns, registered business combination transactions, proxy contests, and negotiated and hostile domestic and cross-border tender offers. Her work in OMA also involved advice on beneficial ownership reporting obligations by stakeholders, rulemaking petitions, no-action and exemptive relief requests, going private transactions, and proxy and consent solicitations.

As Counsel to SEC Commissioner Kara Stein, Mellissa was the lead advisor on ESG U.S. and international framework developments, including sustainable finance reporting and investment matters, cybersecurity, data privacy and governance issues, initial token offerings, distributed ledger and financial technology developments, capital formation and exempt offering rulemakings, and SEC advisory committee matters. She also advised Commissioner Stein on implementation of the disclosure mandates of the Dodd-Frank Wall Street Reform and Consumer Protection Act, implementation of the Jumpstart Our Business Startups Act, and implementation of the Fixing America’s Surface Transportation Act.

Most recently, in the Division of Examinations’ Technology Controls Program, Mellissa served as a cybersecurity legal policy advisor to the SEC Chairman’s office and the Office of International Affairs on U.S. and international financial sector cybersecurity incidents, incident response, preparedness and coordination, and data privacy laws applicable to SEC-registered entities and financial market infrastructure firms.

Photo of Sinéad Oryszczuk Sinéad Oryszczuk

Sinéad Oryszczuk is special counsel and solicitor advocate in Covington’s London Life sciences and Environment regulatory team. Ms. Oryszczuk’s UK and EU law practice is diverse, spanning energy, environment, life sciences, consumer products, and technology sectors. She supports a variety of internal and…

Sinéad Oryszczuk is special counsel and solicitor advocate in Covington’s London Life sciences and Environment regulatory team. Ms. Oryszczuk’s UK and EU law practice is diverse, spanning energy, environment, life sciences, consumer products, and technology sectors. She supports a variety of internal and in-house teams including corporate, real estate, projects, construction, planning, health and safety, IP, insurance, and banking. She is experienced in contentious matters, assisting clients before criminal, civil, administrative and specialist tribunals, and non-contentious (regulatory, transactional/M&A) matters. She has advised in relation to some of the UK’s most high profile recent environment cases up to Court of Appeal level, as well as large group actions, and has brought cases before the European Court in life sciences matters. Prior to joining the firm, Ms. Oryszczuk spent 5 years in the UK’s leading specialist energy, environment, and regulatory team.

Ms. Oryszczuk has broad experience in traditional environment areas such as contaminated land and allocation of environment liabilities in transactions, permitting, waste, climate change, species-specific requirements, emissions, and contentious work including prosecutions relating to large scale pollution incidents, environmental damage, and general regulatory and subject specific ad-hoc advice. Ms. Oryszczuk also provides advice on specialist scientific and technical regulatory aspects spanning a variety of sectors. She has built up particular expertise in chemicals law and hazardous/regulated substances (e.g. REACH, CLP, RoHS, biocides, nuclear/radiological), novel technologies and agri-tech (e.g. advanced genetic engineering, GMOs, nano), and corporate/accounting and regulatory energy and environment reporting and efficiency (e.g. EU ETS, CRC, mandatory energy audits (ESOS) and non-financial reporting).

Ms. Oryszczuk advises day-to-day on transactional matters and liability (including director/officer and parent company), land contamination and hazardous substances, and in multinational competitive bids. She has a broad experience including in relation to manufacturing and waste facilities, energy storage projects, wind farms, grid projects, redevelopments and remediation projects, landfills, mines and minerals operations, and nuclear and radioactive materials facilities. She has acted for a variety of parties including buyers/sellers, tenants/landlords, bidders, lenders, insurers, developers, authorities/regulators, trustees, insolvency practitioners, and private equity/funders. Ms. Oryszczuk provides specialist corporate due diligence (including vendor due diligence). She often acts as specialist outside counsel and has drafted bespoke instruments including transfer of liability deeds, contractor T&Cs, site remediation/investigation/access agreements, as well as environment indemnities and warranties. Ms. Oryszczuk often coordinates multinational projects and advice and regularly liaises and negotiates with regulators on behalf of her clients. On corporate work in particular, Ms. Oryszczuk assists very large multinationals (including global asset funds) with complex organisational structures through national and international compliance scenarios, including on corporate reporting and carbon .trading.

On contentious work, Ms. Oryszczuk has taken leading roles in some of the UK’s largest and most high profile environment cases, often building on her science background in respect of issues concerning hazardous substances. She regularly defends in relation to large domestic civil group actions relating to environment issues. More recently she has acted in contentious life sciences cases relating to medicinal products including before the European Court and national regulators, e.g. the UK’s NICE.

Photo of Paul Mertenskötter Paul Mertenskötter

Paul Mertenskötter is an associate in the firm’s Brussels office and a member of the Public Policy and International Trade practice groups. He advises multinational companies, governments, and other clients on a range of matters related to public policy, international trade, and new…

Paul Mertenskötter is an associate in the firm’s Brussels office and a member of the Public Policy and International Trade practice groups. He advises multinational companies, governments, and other clients on a range of matters related to public policy, international trade, and new technologies. Mr. Mertenskötter’s practice encompasses advising clients on the European Commission’s Digital Single Market strategy, including on the Payment Services Directive (PSD 2).

Prior to joining the firm, Mr. Mertenskötter clerked at the International Court of Justice in The Hague, and was a Fellow at the Institute for International Law and Justice at NYU Law School. His work has been published with Oxford University Press and the Cornell Law Review.