ESRS S2 Workers in the value chain

9.When responding to ESRS 2 SBM-2 paragraph 43, the undertaking shall disclose how the interests, views, and rights of its value chain workers could be materially impacted by the undertaking, including respect for their human rights, inform its strategy and business model. Value chain workers are a key group of affected stakeholders.

10.When responding to ESRS 2 SBM-3 paragraph 48, the undertaking shall disclose:

1. whether and how actual and potential impacts on value chain workers, as identified in ESRS 2 IRO-1 Descriptionof the processes to identify and assess material impacts, risks and opportunities: (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; and

2. the relationship between on the one hand its material risks and opportunities arising from impacts and dependencies on value chain workers, and on the other hand its strategy and business model.

11.When fulfilling the requirements of paragraph ESRS 2 SBM-3 paragraph 48, the undertaking shall disclose whether all value chain workers who are likely to be materially impacted by the undertaking, including impacts that are connected with the undertaking’s own operations and value chain, including through its products or services , as well as through its business relationships, are included in the scope of its disclosure under ESRS 2. In addition, the undertaking shall provide the following information:

1. a brief description of the types of value chain workers who could be materially impacted by the undertaking, including impacts that connected with the undertaking’s own operations and value chain, including through its products or services, as well as through its business relationships, and specify whether they are:

   1. workers working on the undertaking site but who are not part of ownworkforce, i.e., who are not self- employed workers or workers provided by third party undertakings primarily engaged in employment activities (covered through ESRS S1);

   2. workers working for entities in the undertaking’s upstream value chain (e.g., those involved in the extraction of metals or minerals or harvesting of commodities, in refining, manufacturing or other forms of processing);

   3. workers working for entities in the undertaking’s downstream value chain (e.g., those involved in the activities of logistics or distribution providers, franchisees, retailers);

   4. workers working in the operations of a joint venture or special purpose vehicle involving the reporting undertaking;

   5. workers who (within the prior categories or additionally) are particularly vulnerable to negative impacts whether due to their inherent characteristics or to the particular context, such as trade unionists, migrant workers, home workers, women or young workers.

2. any geographies, at country level or other levels, or commodities for which there is a significant risk of child labour, or of forcedlabour or compulsory labour, among workers in the undertaking’s value chain1;

3. in the case of material negative impacts, whether they are either (i) widespread or systemic in contexts where the undertaking operates or has sourcing or other business relationships (e.g., child labour or forced labour in particular commodity supply chains in specific countries or regions), or (ii) related to individual incidents (e.g., an industrial accident or an oil spill) or to specific business relationships. This includes consideration of impacts on value chain workers that may arise from the transition to greener and climate-neutral operations. Potential impacts include impacts associated with innovation and restructuring, closure of mines, increased mining of minerals needed for the transition to a sustainable economy, and solar panel production;

4. in the case of material positive impacts, a brief description of the activities that result in the positive impacts (e.g., updated purchasing practices, capacity-building to supply chain workers), including providing opportunities for the workforce such as job creation and upskilling in the context of a ‘just transition’, and the types of value chain workers that are positively affected or could be positively affected; the undertaking may also disclose whether the positive impacts occur in specific countries or regions; and

5. any material risks and opportunities for the undertaking arising from impacts and dependencies on value chain workers.

12.In describing the main types of value chain workers who are or could be negatively affected, based on the materiality assessment set out in ESRS 2 IRO-1, the undertaking shall disclose whether and how it has developed an understanding of how workers with particular characteristics, those working in particular contexts, or those undertaking particular activities may be at greater risk of harm.

13.The undertaking shall disclose which, if any, of its material risks and opportunities arising from impacts and dependencies on its value chain workers relate to specific groups of value chain workers (for example, particular age groups, workers in a particular factory or country) rather than to all of the value chain workers.

14.The undertaking shall describe its policies adopted to manage its material impacts on value chain workers, as well as associated material risks and opportunities.

15.The objective of this Disclosure Requirement is to enable an understanding of the extent to which the undertaking has policies that address the identification, assessment, management and/or remediation of material impacts on value chain workers specifically, as well as policies that cover material risks or opportunities related to value chain workers.

16.The disclosure required by paragraph 14 shall contain the information on the undertaking’s policies to manage its material impacts, risks and opportunities related to value chain workers in accordance with ESRS 2 MDR-P Policies adopted to manage material sustainability matters. In addition, the undertaking shall specify whether such policies cover specific groups of value chain workers or all value chain workers.

17.The undertaking shall describe its human rights policy commitments2 that are relevant to value chain workers, including those processes and mechanisms to monitor compliance with the UN Guiding Principles on Business and Human Rights, ILO Declaration on Fundamental Principles and Rights at Work or OECD Guidelines for Multinational Enterprises3. In its disclosure, it shall focus on those matters that are material in relation to, as well as the general approach to:

1. respect for the human rights, including labour rights, of workers;

2. engagement with value chain workers; and

3. measures to provide and/or enable remedy for human rights impacts.

18.The undertaking shall state whether its policies in relation to value chain workers explicitly address trafficking in human beings4, forced labour or compulsory labour and child labour. It shall also state whether the undertaking has a supplier code of conduct5.

19.The undertaking shall disclose whether and how its policies with regard to valuechainworkers are aligned with internationally recognised instruments relevant to value chain workers, including the United Nations (UN) Guiding Principles on Business and Human Rights6. The undertaking shall also disclose the extent to which cases of non- respect of the UN Guiding Principles on Business and Human Rights, ILO Declaration on Fundamental Principles and Rights at Work or OECD Guidelines for Multinational Enterprises that involve value chain workers have been reported in its upstream and downstream value chain and, if applicable, an indication of the nature of such cases7.

20.The undertaking shall disclose its general processes for engaging with value chain workers and their representatives about actual and potential impacts on them.

21.The objective of this Disclosure Requirement is to enable an understanding of whether and how the undertaking engages, as part of its ongoing due diligence process, with value chain workers and their legitimate representatives, or with credible proxies, about material actual and potential positive and/or negative impacts that do or are likely to affect them, and whether and how perspectives of value chain workers are taken into account in the decision-making processes of the undertaking.

22.The undertaking shall disclose whether and how the perspectives of value chain workers inform its decisions or activities aimed at managing the actual and potential impacts on value chain workers. This shall include, where relevant, an explanation of:

1. whether engagement occurs with value chain workers or their legitimate representatives directly, or with credible proxies that have insight into their situation;

2. the stage(s) at which engagement occurs, the type of engagement, and the frequency of the engagement;

3. the function and the most senior role within the undertaking that has operational responsibility for ensuring that this engagement happens, and that the results inform the undertaking’s approach;

4. where applicable, Global Framework Agreements or for agreements that the undertaking has with global union federations related to respect of human rights of workers in the value chain, including their right to bargain collectively, and including an explanation of how the agreement enables the undertaking to gain insight into those workers’ perspectives; and

5. where applicable, how the undertaking assesses the effectiveness of its engagement with workers in the value chain, including, where relevant, any agreements or outcomes that result.

23.Where applicable, the undertaking shall disclose the steps it takes to gain insight into the perspectives of workers that may be particularly vulnerable to impacts and/or marginalised (for example, women workers, migrant workers, workers with disabilities).

24.If the undertaking cannot disclose the above required information because it has not adopted a general process to engage with workers in the value chain, it shall disclose this to be the case. It may disclose a timeframe in which it aims to have such a process in place.

25.The undertaking shall describe the processes it has in place to provide for or cooperate in the remediation of negative impacts on value chain workers that the undertaking is connected with, as well as channels available to value chain workers to raise concerns and have them addressed.

26.The objective of this Disclosure Requirement is to enable an understanding of the formal means by which value chain workers can make their concerns and needs known directly to the undertaking and/or through which the undertaking supports the availability of such channels (for example, grievance mechanisms ) in the workplace of value chain workers, how follow up is carried out with these workers regarding the issues raised, and the effectiveness of these channels.

27.The undertaking shall describe:

1. its general approach to and processes for providing or contributing to remedy where it has caused or contributed to a material negative impact on value chain workers, including whether and how the undertaking assesses that the remedy provided is effective;

2. any specific channels it has in place for value chain workers to raise their concerns or needs directly with the undertaking and have them addressed, including whether these are established by the undertaking itself and/or whether they are third-party mechanisms;

3. the processes through which it supports or requires the availability of such channels in the workplace of value chain workers; and

4. how it tracks and monitors issues raised and addressed, and how it ensures the effectiveness of the channels, including through involvement of stakeholders who are the intended users.

28.The undertaking shall disclose whether and how it assesses that valuechainworkers are aware of and trust these structures or processes as a way to raise their concerns or needs and have them addressed. In addition, the undertaking shall disclose whether it has policies in place regarding the protection of individuals that use them against retaliation. If such information has been disclosed in accordance with ESRS G1-1, the undertaking may refer to that information.

29.If the undertaking cannot disclose the above required information because it has not adopted a channel for raising concerns and/or does not support the availability of such a channel in the workplace of value chain workers, it shall disclose this to be the case. It may disclose a timeframe in which it aims to have such a channel or processes in place.

30.The undertaking shall disclose how it takes action to address material impacts on value chain workers, and to manage material risks and pursue material opportunities related to value chain workers and the effectiveness of those actions.

31.The objective of this Disclosure Requirement is twofold. Firstly, it is to enable an understanding of any actions or initiatives through which the undertaking seeks to:

1. prevent, mitigate and remediate the negative material impacts on value chain workers; and/or

2. achieve positive material impacts for value chain workers.

Secondly, it is to enable an understanding of the ways in which the undertaking is addressing the material risks and pursuing the material opportunities related to workers in the value chain.

The undertaking shall provide a summarised description of the action plans and resources to manage its material impacts, risks, and opportunities related to value chain workers as per ESRS 2 MDR-A Actions and resources in relation to material sustainability matters.

32.In relation to material impacts, the undertaking shall describe:

1. actions taken, planned or underway to prevent or mitigate material negative impacts on value chain workers;

2. whether and how it has taken action to provide or enable remedy in relation to an actual material impact;

3. any additional actions or initiatives it has in place with the primary purpose of delivering positive impacts for value chain workers; and

4. how it tracks and assesses the effectiveness of such actions and initiatives in delivering intended outcomes for value chain workers.

33.In relation to paragraph 30, the undertaking shall describe:

1. the processes through which it identifies what action is needed and appropriate in response to a particular actual or potential negative impact on value chain workers;

2. its approach to taking action in relation to specific material negative impacts on value chain workers, including any action in relation to its own purchasing or other internal practices, as well as capacity- building or other forms of engagement with entities in the value chain, or forms of collaborative action with industry peers or other relevant parties; and

3. how it ensures that processes to provide or enable remedy in the event of material negative impacts are available and effective in their implementation and outcomes.

34.In relation to material risks and opportunities, the undertaking shall describe:

1. what action is planned or underway to mitigate material risks for the undertaking arising from its impacts and dependencies on value chain workers and how it tracks effectiveness in practice; and

2. what action is planned or underway to pursue material opportunities for the undertaking in relation to value chain workers.

35.The undertaking shall disclose whether and how it takes action to avoid causing or contributing to material negative impacts on value chain workers through its own practices, including, where relevant, in relation to procurement, sales and data use. This may include disclosing what approach is taken when tensions arise between the prevention or mitigation of material negative impacts and other business pressures.

36.The undertaking shall also disclose whether severe human rights issues and incidents connected to its upstream and downstream value chain have been reported and, if applicable, disclose these8.

37.When disclosing the information required under paragraph 32 (c), the undertaking shall consider ESRS 2 (see ESRS 2 MDR-T Tracking effectiveness of policies and actions through targets) if it evaluates the effectiveness of an action by setting a target.

38.The undertaking shall disclose what resources are allocated to the management of its material impacts, with information that enables users to gain an understanding of how the material impacts are managed.

39.The undertaking shall disclose the time-bound and outcome-oriented targets it may have set related to:

1. reducing negative impacts on value chain workers; and/or

2. advancing positive impacts on value chain workers; and/or

3. managing material risks and opportunities related to value chain workers.

40.The objective of this Disclosure Requirement is to enable an understanding of the extent to which the undertaking is using time-bound and outcome-oriented targets to drive and measure its progress in addressing material negative impacts, and/or advancing positive impacts on value chain workers, and/or in managing material risks and opportunities related to value chain workers.

41.The summarised description of the targets to manage its material impacts, risks and opportunities related to value chain workers shall contain the information requirements defined in ESRS 2 MDR-T.

42.The undertaking shall disclose the process for setting the targets, including whether and how the undertaking engaged directly with workers in the value chain, their legitimate representatives, or with credible proxies that have insight into their situation in:

1. setting any such targets;

2. tracking the undertaking’s performance against them; and

3. identifying any lessons or improvements as a result of the undertaking’s performance.

AR 4.Disclosure Requirement ESRS 2 SBM-2 requires the undertaking to provide an understanding of whether and how it considers the role that its strategy and business model may play in creating, exacerbating or mitigating significant material impacts on value chain workers, and whether and how the business model and strategy are adapted to address such material impacts.

AR 5.While value chain workers may not be engaging with the undertaking at the level of its strategy or business model, their views can inform the undertaking’s assessment of its strategy and business model. The undertaking may disclose the views of the value chain workers and value chain workers’ representatives.

AR 6.Impacts on value chain workers can originate in the undertaking’s strategy or business model in a number of different ways. For example, impacts may relate to the undertaking’s value proposition (such as providing lowest cost products or services, or high-speed delivery, in ways that put pressure on labour rights in the upstream and downstream value chains), its value chain (such as relying on commodities of unclear provenance, without visibility on impacts on workers), or its cost structure and the revenue model (e.g. shifting inventory risk to suppliers, with knock-on effects on the labour rights of their workers).

AR 7.Impacts on value chain workers that originate in the strategy or the business model can also bring material risks to the undertaking. For example, in the context of a pandemic or other severe health crisis, undertakings that rely on contingent labour with little to no access to sick care and health benefits may face severe operational and business continuity risks as workers have no choice but to keep working while sick, further exacerbating the spread of the disease and causing major supply chain breakdowns. Another example is where selling goods premised on cheapest prices for customers create operational risks as suppliers under extreme price pressure may sub-contract production, leading to lower quality, and a longer, less transparent, and less controllable supply chain. Reputational and business opportunity risks linked to the exploitation of low-skilled, low-paid workers in sourcing geographies with minimal protections for them are also increasing with media backlash and consumer preferences moving to more ethically sourced or sustainable goods.

AR 8.Examples of particular characteristics of value chain workers that may be considered by the undertaking when responding to paragraph 12 relate to young workers that may be more susceptible to impacts on their physical and mental development, or women workers in a context where women are routinely discriminated against in the terms and conditions of work, or migrant workers in a context where the market for the supply of labour is poorly regulated and workers are routinely charged recruitment fees. For some workers, the inherent nature of the activity that they are required to undertake may put them at risk (e.g., workers required to handle chemicals or operate certain equipment or low paid workers who are on “zero hours” contracts).

AR 9.With regard to paragraph 13, material risks could also arise because of the undertaking’s dependency on value chain workers where low likelihood but high impact events may trigger financial effects; for example, where a global pandemic leads to severe health impacts on workers at all stages of the value chain resulting in major disruptions to production and distribution. Other examples of risk related to the undertaking’s dependency on value chain workers include a shortage in skilled workers or political decisions or legislation affecting value chain workers working for logistics providers. For example, if some workers in the undertaking’s value chain are at risk of forced labour, and the undertaking is importing products into countries where the law allows for the confiscation of imported goods that are suspected of being made with forced labour.

AR 10.If the policies are limited to the undertaking’s own workforce and do not cover workers in upstream and downstream entities and relationships, they shall be disclosed under ESRS S1 and not in relation to this requirement.

AR 11.If the disclosures under ESRS S1 include information relevant for workers in the value chain, a reference to this can be made here; disclosures on the remaining elements shall then be fulfilled under this Disclosure Requirement.

AR 12.The undertaking may disclose explanations of significant changes to the policies adopted during the reporting year (e.g., new expectations for suppliers, new or additional approaches to due diligence and remedy).

AR 13.The policy may take the form of a stand-alone policy regarding value chain workers or be included in a broader document such as a code of ethics or a general sustainability policy that has already been disclosed by the undertaking as part of another ESRS. In those cases, the undertaking shall provide an accurate cross-reference to identify the aspects of the policy that satisfy the requirements of this Disclosure Requirement.

AR 14.When disclosing the alignment of its policies with the UN Guiding Principles on Business and Human Rights, the undertaking shall consider that the Guiding Principles refer to the International Bill of Rights, which consist of the Universal Declaration of Human Rights and the two Covenants that implement it, as well as the International Labour Organisation’s Declaration on Fundamental Rights and Principles at Work and the core conventions that underpin it, and may disclose its alignment with these instruments.

AR 15.When disclosing how external-facing policies are embedded, the undertaking may, for example, consider internal policies of responsible sourcing, and alignment with other policies relevant to value chain workers, for example, regarding forced labour. With regard to supplier codes of conduct that the undertaking may have, the summary shall indicate whether they include provisions addressing the safety of workers, precarious work (for example, the use of workers on short-term or limited hours contracts, workers employed via third parties, sub-contracting to third parties or use of informal workers), human trafficking, the use of forced labour or child labour, and whether such provisions are fully in line with applicable ILO standards.

AR 16.The undertaking may provide an illustration of the types of communication of its policies to those individuals, group of individuals or entities for whom they are relevant, either because they are expected to implement them (for example, the undertaking’s employees, contractors and suppliers), or because they have a direct interest in their implementation (for example, own workers, investors). It may disclose communication tools and channels (for example, flyers, newsletters, dedicated websites, social media, face to face interactions, workers’ representatives), aimed at ensuring that the policy is accessible and that different audiences understand its implications. The undertaking may also explain how it identifies and removes potential barriers for dissemination, such as through translation into relevant languages or the use of graphic depictions.

AR 17.When describing which function or role has operational responsibility for such engagement and/or ultimate accountability, the undertaking may disclose whether this is a dedicated role or function or part of a broader role or function, and whether any capacity building activities have been offered to support the staff to undertake engagement. If it cannot identify such a position or function, it may state that this is the case. This disclosure could also be fulfilled by making reference to information disclosed according to ESRS 2 GOV-1 The role of the administrative, management and supervisory bodies.

AR 18.When preparing the disclosures described in paragraph 22 b) and c), the following illustrations may be considered:

1. examples of stages at which engagement occurs are i) determining the approach to mitigation and ii) evaluation the effectiveness of mitigation;

2. for type of engagement, these could be participation, consultation and/or information;

3. for the frequency of the engagement, information may be provided on whether engagement occurs on a regular basis, at certain points in a project or business process, for example, when a new harvest season begins or a new production line is opened, as well as whether it occurs in response to legal requirements and/or in response to stakeholder requests and whether the result of the engagement is being integrated into the undertaking's decision- making processes; and

4. for the role with operational responsibility, whether the undertaking requires relevant staff to have certain skills, or whether it provides training or capacity building to relevant staff to undertake engagement.

AR 19.Global Framework Agreements (GFA) serve to establish an ongoing relationship between a multinational enterprise and a Global Union Federation to ensure that the undertaking adheres to the same standards in every country in which it operates.

AR 20.To illustrate how the perspectives of value chain workers have informed specific decisions or activities of the undertaking, the undertaking may provide examples from the current reporting period.

AR 21.In fulfilling the requirements set out by Disclosure Requirement ESRS S2-3, the undertaking may be guided by the content of the UN Guiding Principles on Business and Human Rights and the OECD Guidelines for Multinational Enterprises focused on remediation and grievance mechanisms.

AR 22.Channels for raising concerns or needs include grievance mechanisms, hotlines, trade unions (where workers are unionised), dialogue processes or other means through which value chain workers or their legitimate representatives can raise concerns about impacts or explain needs that they would like the undertaking to address. This could include both channels provided by the undertaking directly and channels provided by the entities where the value chain workers are working, in addition to any other mechanisms the undertaking may use to gain insight into the management of impacts on workers, such as compliance audits. Where the undertaking is relying solely on information about the existence of such channels provided by its business relationships to answer this requirement, it may state that.

AR 23.To provide greater insight into the information covered in Disclosure Requirement ESRS S2-3, the undertaking may explain whether and how value chain workers that may be affected are able to access channels at the level of the undertaking they are employed by, or contracted to work for, in relation to each material impact.

AR 24.Third party mechanisms could include those operated by the government, NGOs, industry associations and other collaborative initiatives. The undertaking may disclose whether these are accessible to all workers who may be potentially or actually materially impacted by the undertaking, or individuals or organisations acting on their behalf or who are otherwise in a position to be aware of negative impacts.

AR 25.In relation to the protection of individuals that use the mechanisms against the retaliation, the undertaking may describe whether it treats grievances confidentially and with respect to the rights of privacy and data protection; and whether the mechanisms allow for workers to use them anonymously (for example, through representation by a third party).

AR 26.In disclosing whether and how the undertaking knows that value chain workers are aware of and trust any of these channels, the undertaking may provide relevant and reliable data about the effectiveness of these channels from the perspective of value chain workers themselves. Examples of sources of information are surveys of workers that have used such channels and their levels of satisfaction with the process and outcomes.

AR 27.In describing the effectiveness of channels for value chain workers to raise concerns, the undertaking may be guided by the following questions, based on the “effectiveness criteria for non-judicial grievance mechanisms”, as laid out in the UN Guiding Principles on Business and Human Rights, in particular Principle 31. The below considerations may be applied to individual channels or to a collective system of channels:

1. do the channels hold legitimacy by providing appropriate accountability for their fair conduct and building stakeholder trust?

2. are the channels known and accessible to stakeholders?

3. do the channels have clear and known procedures, with indicative timeframes?

4. do the channels ensure reasonable access for stakeholders to sources of information, advice and expertise?

5. do the channels offer transparency by providing sufficient information both to complainants and, where applicable, to meet any public interest?

6. do outcomes achieved through the channels accord with internationally recognised human rights?

7. does the undertaking identify insights from the channels that support continuous learning in both improving the channels and preventing future impacts?

8. does the undertaking focus on dialogue with complainants as the means to reach agreed solutions, rather than seeking to unilaterally determine the outcome?

AR 28.It may take time to understand negative impacts and how the undertaking may be involved with them through its value chain, as well as to identify appropriate responses and put them into practice. Therefore, the undertaking shall consider:

1. its general and specific approaches to addressing material negative impacts;

2. its initiatives aimed at contributing to additional material positive impacts;

3. how far it has progressed in its efforts during the reporting period; and

4. its aims for continued improvement.

AR 29.Appropriate action can vary according to whether the undertaking causes or contributes to a material impact or whether the material impact is directly linked to its own operations, products or services through a business relationship.

AR 30.Given that material negative impacts affecting value chain workers that have occurred during the reporting period may also be linked to entities or operations outside its direct control, the undertaking may disclose whether and how it seeks to use its leverage in its business relationships to manage those impacts. This may include using commercial leverage (for example, enforcing contractual requirements with business relationships or implementing incentives), other forms of leverage within the relationship (such as providing training or capacity- building on workers’ rights to entities with which the undertaking has a business relationships) or collaborative leverage with peers or other actors (such as initiatives aimed at responsible recruitment or ensuring workers receive an adequate wage).

AR 31.When the undertaking discloses its participation in an industry or multi-stakeholder initiative as part of its actions to address material negative impacts, the undertaking may disclose how the initiative, and its own involvement, is aiming to address the material impact concerned. It may disclose under ESRS S2-5 the relevant targets set by the initiative and progress towards them.

AR 32.When disclosing whether and how the undertaking considers actual and potential impacts on value chain workers in decisions to terminate business relationships and whether and how it seeks to address any negative impacts that may result from termination, the undertaking may include examples.

AR 33.In disclosing how it tracks the effectiveness of its actions to manage material impacts during the reporting period, the undertaking may disclose any lessons learned from the previous and current reporting periods.

AR 34.AR 34. Processes used to track the effectiveness of actions can include internal or external auditing or verification, court proceedings and/or related court decisions, impact assessments, measurement systems, stakeholder feedback, grievance mechanisms, external performance ratings, and benchmarking.

AR 35.Reporting on effectiveness is aimed at enabling the understanding of the links between actions taken by the undertaking and the effective management of impacts. For example, to show the effectiveness of its actions to support its suppliers with improving their working conditions, the undertaking may disclose survey feedback from the suppliers’ workers showing that working conditions have improved since the time the undertaking began working with those suppliers. Additional information that the undertaking may provide includes data showing a decrease in the number of incidents identified through for instance, independent audits.

AR 36.With regard to initiatives or processes the undertaking has in place that are based on affected workers’ needs and with regard to progress in the implementation of such initiatives or processes, the undertaking may disclose:

1. information about whether and how value chain workers and legitimate representatives or their credible proxies play a role in decisions regarding the design and implementation of these programmes or processes; and

2. information about the intended or achieved positive outcomes for value chain workers of these initiatives or processes.

AR 37.The undertaking may disclose whether any initiatives or processes whose primary aim is to deliver positive impacts for value chain workers are designed also to support the achievement of one or more of the UN Sustainable Development Goals (SDGs). For example, through a commitment to advance UN SDG 8 to “promote sustained, inclusive and sustainable economic growth, full and productive employment and decent work for all” the undertaking may be providing capacity-building to smallholders in its supply chain, resulting in increases in their income; or it may be supporting training to increase the proportion of women able to take delivery jobs in its downstream value chain.

AR 38.When disclosing the intended or achieved positive outcomes of its actions for value chain workers a distinction is to be made between evidence of certain activities having occurred (e.g., that x number of workers have received financial literacy training) from evidence of actual outcomes for workers (e.g., that x workers report that they are able to better manage their household budgets so as to meet their savings goals).

AR 39.When disclosing whether initiatives or processes also play a role in mitigating material negative impacts, the undertaking may e.g., consider programmes that aim to advance women workers’ financial literacy that have resulted in more women being promoted as well as in reports of reduced sexual harassment in the workplace.

AR 40.When disclosing the material risks and opportunities related to the undertaking’s impacts or dependencies on value chain workers, the undertaking may consider the following:

1. risks related to the undertaking’s impacts on value chain workers may include the reputational or legal exposure where value chain workers are found to be subject to forced labour or child labour;

2. risks related to the undertaking’s dependencies on value chain workers may include disruption of business operations where a pandemic closes significant parts of its supply chain or distribution network;

3. opportunities related to the undertaking’s impacts on value chain workers may include market differentiation and greater customer appeal from guaranteeing decent pay and conditions for non-employee workers; and

4. opportunities related to the undertaking’s dependencies on value chain workers might include the achievement of a future sustainable supply of a commodity by ensuring smallholder farmers earn enough to persuade future generations to keep farming that crop.

AR 41.When disclosing whether dependencies turn into risks, the undertaking shall consider external developments.

AR 42.When disclosing policies, actions and resources and targets related to the management of material risks and opportunities, in cases where risks and opportunities arise from a material impact, the undertaking may cross- reference its disclosures on policies, action and resources and targets in relation to that impact.

AR 43.The undertaking shall consider whether and how its process(es) to manage material risks related to value chain workers are integrated into its existing risk management process(es).

AR 44.When disclosing the resources allocated to the management of material impacts, the undertaking may disclose which internal functions are involved in managing the impacts and what types of action they take to address negative and advance positive impacts.

AR 45.When disclosing information about targets in accordance with paragraph 39, the undertaking may disclose:

1. the intended outcomes to be achieved in the lives of value chain workers, being as specific as possible;

2. the stability of the targets over time in terms of definitions and methodologies to enable comparability over time;

3. the standards or commitments on which the targets are based (for instance codes of conduct, sourcing policies, global frameworks or industry codes).

AR 46.Targets related to material risks and opportunities may be the same as or distinct from targets related to material impacts. For example, a target to reach living wages for supply chain workers could both reduce impacts on those workers and reduce associated risks in terms of the quality and reliability of supply.

AR 47.The undertaking may also distinguish between short-, medium- and long-term targets covering the same policy commitment. For example, the undertaking may have a long-term target to achieve an 80% reduction in health and safety incidents affecting the workers of a given supplier by 2030 and a near-term target to reduce their overtime hours of delivery drivers by x% while maintaining their income by 2024.

AR 48.When modifying or replacing a target in the reporting period, the undertaking may explain the change by cross- referencing it to significant changes in the business model or to broader changes in the accepted standard or legislation from which the target is derived to provide contextual information, as per ESRS 2 BP-2 Disclosures in relation to specific circumstances.