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Affected Communities

Author

Shel

The objective of this standard is to define disclosure requirements that allow users of the sustainability statement to understand material impacts on affected communities linked to the company’s operations and value chain. This includes impacts from products, services, and business relationships, as well as related material risks and opportunities. The standard addresses:

  1. how the company impacts communities in areas where material positive and negative, actual or potential impacts are likely to be significant;

  2. actions taken to prevent, mitigate, or remediate actual or potential negative impacts and to address related risks and opportunities, along with the results of these actions;

  3. the nature, type, and extent of the company’s material risks and opportunities connected to its impacts and dependencies on affected communities, and how these are managed; and

  4. the financial effects on the company in the short-, medium-, and long-term arising from these material risks and opportunities.

To achieve this objective, the standard requires the company to explain its general approach to identifying and managing material actual and potential impacts on affected communities in relation to:

  1. communities’ economic, social, and cultural rights, such as adequate housing, food, water and sanitation, land-related impacts, and security-related impacts;

  2. communities’ civil and political rights, such as freedom of expression, freedom of assembly, and impacts on human rights defenders; and

  3. specific rights of indigenous people, including free, prior, and informed consent, self-determination, and cultural rights.

This standard also requires an explanation of how these impacts and the company’s dependencies on affected communities may create material risks or opportunities. For example, negative relationships with affected communities could disrupt operations or damage the company’s reputation, while positive relationships could bring benefits like stable operations, reduced conflict, and easier local recruitment.

In addition to the issues listed above, the company may disclose other relevant issues related to material impacts that are significant for a shorter period. For example, initiatives addressing community impacts caused by extreme and sudden weather events.

(Expand each chapter below to view more details about the disclosure requirements of this standard.)

CH 1. Strategy

Affected communities are identified as a key group of stakeholders. The company should disclose how their views, interests, and rights, including respect for their human rights (and their rights as indigenous people, if applicable), influence its strategy and business model.

The company should explain whether and how it considers the role of its strategy and business model in creating, worsening, or mitigating significant material impacts on affected communities. It should also disclose whether and how its strategy and business model are adjusted to address such material impacts.

While affected communities may not engage directly with the company at the strategic or business model level, their views can still inform the company’s assessment of its strategy and business model. The company may include in its disclosure the perspectives of affected communities and their representatives.

The company should disclose:

  1. whether and how actual and potential impacts on affected communities, as identified in ESRS 2 IRO-1, originate from or are connected to its strategy and business models, and how these impacts inform and contribute to adapting its strategy and business model; and
  1. the relationship between material risks and opportunities arising from impacts and dependencies on affected communities and its strategy and business model.

When fulfilling the requirements set out in this disclosure, the company should state whether all affected communities likely to be materially impacted by its operations, value chain, products, services, or business relationships are included in the scope of its disclosure under ESRS 2.

Additionally, the company should provide:

  1. a brief description of the types of communities subject to material impacts by its operations or value chain, specifying if they are:

    1. communities living or working near the company’s operating sites, factories, facilities, or other physical operations, or remote communities affected by activities at those sites (e.g., downstream water pollution);

    2. communities along the value chain (e.g., those affected by suppliers’ facilities or logistics providers);

    3. communities at endpoints of the value chain (e.g., at the point of resource extraction or around waste or recycling sites);

    4. indigenous communities.

  2. in the case of material negative impacts, whether such impacts are:

    1. widespread or systemic in contexts where the company operates or has sourcing or other business relationships (e.g., marginalised populations experiencing health impacts in industrialised areas);

    2. related to individual incidents in the company’s operations (e.g., a toxic waste spill affecting clean water access) or specific business relationships (e.g., a peaceful protest met with a violent response from security services). This includes consideration of impacts related to the transition to greener, climate-neutral operations, such as those arising from innovation, restructuring, mine closures, increased mineral extraction, or solar panel production;

  3. in the case of material positive impacts, a brief description of activities that result in these impacts (e.g., capacity-building for new forms of local livelihoods) and the types of communities positively affected. The company may also disclose whether these positive impacts occur in specific countries or regions;

  4. any material risks and opportunities for the business arising from impacts and dependencies on affected communities.

When describing the main types of communities who are or could be negatively affected, the company should disclose whether and how it has developed an understanding of how particular characteristics, contexts, or activities may place certain communities at greater risk of harm. The company should also disclose which, if any, of its material risks and opportunities related to impacts and dependencies are specific to certain groups rather than applying to all affected communities.

Impacts on affected communities may arise from the company’s strategy or business model in various ways:

  1. Value proposition. Impacts may stem from activities such as initiating projects on timelines that leave insufficient time for consulting affected groups.

  2. Value Chain. Issues may arise from activities like land use in areas with contested ownership, unreliable records, or unrecognised land users, such as indigenous people.

  3. Cost structure and revenue model. For example, aggressive strategies to minimise taxation, particularly in developing countries, may have negative impacts.

These impacts can also pose material risks to the company. For instance, if the strategy involves moving into high-risk areas to acquire certain commodities, and communities resist or oppose local practices, it could lead to costly delays and difficulties in securing future land concessions or permits. Additionally, a business model relying on intensive water extraction could limit community access to water for consumption, hygiene, and livelihoods, resulting in boycotts, complaints, or lawsuits that harm the company’s reputation.

Examples of particular characteristics of affected communities that may be considered include, a community that is physically or economically isolated and is particularly vulnerable to introduced diseases or has limited access to social services and therefore relies on infrastructure set up by the company. Additionally, in a community where land worked by women is purchased by the company and payments go to male heads of households, women become further marginalized in the community. The community could also be indigenous, and its members seek to exercise cultural or economic rights to the land owned or used by the company, or by one of the entities with which it has a business relationship, in a context where their rights are not protected by the state.

The company should consider whether different characteristics overlap. For example, characteristics such as ethnicity, socioeconomic status, migrant status and gender may create overlapping risks of harm for certain affected communities, or for distinct parts of those affected communities, since affected communities are often heterogeneous in nature.

Material risks could also arise from the company’s reliance on affected communities. For example, low-probability but high-impact events, such as a natural disaster triggering a catastrophic industrial accident, could severely harm affected communities and lead to significant financial consequences for the company.

CH 2. Impact, risk and opportunity management

The goal of this disclosure is to show whether the company has policies to identify, assess, manage, or address material impacts on affected communities and to manage related risks and opportunities. The disclosure should be in line with ESRS 2 MDR-P. It should also clarify whether the policies apply to all affected communities or specific ones.

The policies may be stand-alone documents about affected communities or part of a broader policy, like a code of ethics or sustainability policy. If part of another document, the company should provide clear references to the relevant sections.

The description should include key information to accurately represent the policies related to affected communities. This includes explaining any significant changes to these policies during the reporting year, such as new approaches to engagement, due diligence, or remedies.

The company should state if it has specific policy provisions to prevent and address impacts on indigenous people. It should also state its human rights policy commitments related to affected communities. This includes monitoring compliance with standards like the UN Guiding Principles on Business and Human Rights, the ILO Declaration on Fundamental Principles and Rights at Work, and the OECD Guidelines for Multinational Enterprises. It should focus on material matters and describe:

  1. its respect for community and indigenous rights;

  2. its engagement with affected communities; and

  3. how it provides or enables remedies for human rights impacts.

The company should disclose whether its policies align with internationally recognised standards for communities and indigenous people, like the UN Guiding Principles on Business and Human Rights. It should report any instances of non-compliance with these standards that involve affected communities, either in its operations or its value chain. If there are such cases, the company should explain their nature.

The company may provide examples of how it communicates its policies to relevant individuals or groups. These include people expected to implement the policies (such as employees, contractors, and suppliers) and those directly interested in their implementation (such as workers and investors). It may describe tools and channels like flyers, newsletters, websites, social media, face-to-face interactions, or workers’ representatives. The company may also explain how it ensures accessibility, such as translating materials into relevant languages or using visual aids to remove barriers to understanding.

When disclosing severe human rights issues or incidents related to affected communities, the company should consider any legal disputes about land rights or the free, prior, and informed consent of indigenous people.

This disclosure provides insight into whether and how the company engages with affected communities, their legitimate representatives, or credible proxies during its due diligence process. This includes understanding material positive or negative impacts that affect or could affect these communities, and how their perspectives are considered in the company’s decisions.

The company should explain whether and how the views of affected communities influence its decisions or actions to manage actual and potential impacts on those communities. This explanation should cover:

  1. whether engagement happens directly with affected communities, their representatives, or through credible proxies who understand their situation;

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

  3. the role and seniority of the person responsible for ensuring this engagement occurs and informs the company’s decisions;

  4. where relevant, how the effectiveness of engagement is assessed, including any agreements or outcomes achieved.

For disclosures described in point (b) and (c), the following examples may be considered:

  1. stages of engagement, such as:

    1. defining the approach to mitigation, and

    2. assessing the effectiveness of mitigation;

  2. types of engagement, such as participation, consultation, and/or information sharing;

  3. frequency of engagement, such as regular interactions, or engagement at specific stages of a project or process; and

  4. roles responsible for engagement, including whether the company requires staff to have specific skills or provides training and capacity building for engagement. For material IROs involving indigenous people, this includes training on indigenous people’s rights and free, prior, and informed consent.

If applicable, the company should explain how it gathers the perspectives of vulnerable or marginalized groups within affected communities, such as women and girls.

For indigenous people, the company should disclose how it respects their specific rights in its engagement approach. This includes their right to free, prior, and informed consent concerning:

  1. cultural, intellectual, religious, and spiritual property;

  2. activities affecting their lands and territories; and

  3. legislative or administrative measures that affect them.

The company should also disclose whether and how indigenous people were consulted about the mode and parameters of engagement, such as the agenda, timing, and nature of the discussions.

If the company does not yet have a general process for engaging with affected communities, it should disclose this and may provide a timeline for establishing such a process.

The company should explain how it respects and ensures the right of indigenous people to free, prior, and informed consent. This may include details about consultation processes with indigenous people to obtain their consent. The company should consider whether the consultation involves good-faith negotiations with affected indigenous people in cases where:

  1. the company affects lands, territories, or resources customarily owned, occupied, or used by indigenous people;

  2. indigenous people are relocated from their traditionally owned or occupied lands; or

  3. their cultural, intellectual, religious, or spiritual property is impacted or exploited.

When explaining which function or role has operational responsibility for such engagement or ultimate accountability, the company may disclose:

  1. whether the responsibility lies with a dedicated role or is part of a broader role or function; and

  2. whether capacity-building activities have been provided to staff to support engagement efforts.

If no such position or function exists, the company should state this. It may also fulfill this disclosure by referring to information disclosed under ESRS 2 GOV-1, which addresses the role of administrative, management, and supervisory bodies.

To illustrate how the perspectives of affected communities informed specific decisions or activities, the company may share examples from the current reporting period.

The goal of this disclosure is to explain how affected communities can formally raise concerns directly with the company, or through channels supported by the company e.g., grievance mechanisms. It also aims to show how the company follows up on issues raised, and whether these channels are effective.

The company should describe:

  1. its overall approach and processes for providing or contributing to remedies when it has caused or contributed to significant negative impacts on affected communities, including whether and how it assesses the effectiveness of these remedies;

  2. specific channels available for communities to raise concerns or needs directly, including whether these channels are created by the company or through third-party mechanisms;

  3. its processes for supporting the availability of such channels through its business relationships; and

  4. how it tracks and monitors the concerns raised, ensures the channels’ effectiveness, and involves stakeholders who use these channels.

The company should also disclose whether it assesses if affected communities are aware of and trust these channels to raise their concerns. Additionally, it should disclose whether it has policies to protect individuals using these channels from retaliation. If this information has been disclosed under ESRS G1-1, the company may reference it here.

Channels for raising concerns or needs include grievance mechanisms, hotlines, dialogue processes, or other means through which affected communities or their representatives can raise issues or express needs they want the company to address. These could be channels provided directly by the company or others it uses to understand and manage impacts on communities, such as compliance audits. If the company is relying only on information about these channels from its business relationships, it may state that.

To provide more details about the information in this section, the company may explain if and how affected communities can access channels at the level of the company relevant to each material impact. Important details include whether communities can access these channels in a language they understand, and if they were consulted in their design.

Third-party mechanisms could include those run by governments, NGOs, industry associations, and other collaborative initiatives. The company may disclose if these mechanisms are available to all affected communities that may be impacted, or to individuals or organizations acting on their behalf or who are in a position to identify negative impacts.

Regarding protection from retaliation, the company may explain whether grievances are handled confidentially, respecting privacy and data protection rights, and whether the mechanisms can be used anonymously (e.g., via a third party).

When disclosing processes related to providing remedies for indigenous people, relevant information includes whether the company has considered their customs, traditions, rules, and legal systems.

In explaining how the company knows that affected communities are aware of and trust these channels, it may provide reliable data on their effectiveness from the perspective of the communities. Examples could include surveys from community members who have used the channels, showing their satisfaction with the process and outcomes.

To assess the effectiveness of these channels, the company may follow the “effectiveness criteria for non-judicial grievance mechanisms” laid out in principle 31 of the UN Guiding Principles on Business and Human Rights. These considerations may apply individually to each channel or to the overall system.

  1. do the channels build trust and provide appropriate accountability for fair conduct?

  2. are the channels accessible and known to stakeholders?

  3. are the procedures clear, with set timeframes?

  4. do the channels offer reasonable access to information, advice, and expertise?

  5. are the processes transparent, providing sufficient information to complainants and, when applicable, the public?

  6. do the outcomes align with internationally recognized human rights?

  7. does the company use insights from these channels to improve them and prevent future impacts?

  8. does the company focus on dialogue with complainants to reach agreed solutions, instead of unilaterally deciding outcomes?

If the company does not currently have such channels or does not support them through its business relationships, it should disclose this and optionally provide a timeframe for establishing them.

The goal of this disclosure is to:

  1. explain any actions or initiatives the company takes to:

    1. prevent, reduce, or fix negative impacts on affected communities; and/or

    2. create positive impacts for affected communities; and

  2. show how the company is addressing material risks and pursuing material opportunities related to affected communities.

The company should provide a brief description of the action plans and resources used to manage its material IROs related to affected communities, as described in ESRS 2 MDR-A.

For material impacts, the company should describe:

  1. actions it has taken, plans to take, or is currently taking to prevent or reduce negative impacts on affected communities;

  2. whether and how it has taken action to provide a remedy for an actual negative impact;

  3. any additional actions it has planned to create positive impacts for affected communities;

  4. how it tracks and evaluates whether these actions are achieving the intended outcomes for the affected communities.

  5. the processes it uses to determine what actions are needed to address a particular negative impact on affected communities;

  6. how it approaches actions to address specific negative impacts, including those related to land acquisition, planning, construction, operations, or closures, and whether industry or collaborative actions with other parties are needed; and

  7. how it ensures that the processes to provide or enable remedies for material negative impacts are available and effective.

For material risks and opportunities, the company should describe:

  1. actions planned or underway to reduce material risks to the company from its impacts and reliance on affected communities, and how it tracks their effectiveness; and

  2. actions planned or underway to pursue material opportunities related to affected communities.

The company should disclose whether and how it takes action to avoid causing or contributing to negative impacts on affected communities through its practices, including in areas like planning, land acquisition, resource use, environmental impact management, and raw material production. This may include explaining its approach when conflicts arise between preventing or reducing negative impacts and other business priorities.

The company should also disclose whether severe human rights issues and incidents connected to affected communities have been reported, and if so, provide details. It should also consider using targets to track the effectiveness of actions, as outlined in ESRS 2 MDR-T.

Negative impacts affecting communities might also involve other organizations or operations outside the business’s control. The business can explain whether and how it uses its influence in relationships to address these impacts. This might include enforcing contracts, offering training, or working with others to reduce harm.

Impacts on communities may stem from environmental matters which are disclosed by the company under ESRS E1 to E5. Examples include:

  1. ESRS E1 - Climate Change: The implementation of climate change mitigation plans may require the company to invest in renewable energy projects that may affect the lands, territories and natural resources of indigenous people. If the company does not consult the affected indigenous people, it could negatively impact their right to free, prior and informed consent;

  2. ESRS E2 - Pollution: The company may negatively impact affected communities by failing to protect them from pollution from a particular production facility that causes them health-related issues;

  3. ESRS E3 - Water and marine sources: The company may negatively impact the access to clean drinking water of communities when withdrawing water in water stressed areas;

  4. ESRS E4 - Biodiversity and ecosystems: The company may negatively affect the livelihood of local farmers through operations that contaminate soil. Additional examples include the sealing of land through building new infrastructure, which can eradicate plant species that are critical for, for example, local biodiversity or to filter water for communities; or the introduction of invasive species (whether plants or animals) that can impact ecosystems and cause subsequent harm;

  5. ESRS E5 - Resource use and circular economy: The company may negatively impact the lives of communities by affecting their health through the mismanagement of hazardous waste.

Where the connection between environmental impacts and local communities is addressed in the disclosures within the disclosure requirements in ESRS E1-E5, the company may cross-reference to those and clearly identify them.

If the business takes part in an industry or multi-stakeholder initiative to address negative impacts, it should explain how the initiative and its involvement aim to fix the problem. The business can also report the progress and targets set by the initiative.

When the business decides to end any relationships, it should explain if and how it considers the effects on the affected communities. It should also explain how it addresses any negative impacts caused by ending these relationships and provide examples.

To show how effective its actions are in managing significant impacts during the reporting period, the business can share lessons learned from previous and current periods.

The business can track the effectiveness of its actions through methods like audits, court cases, impact assessments, feedback from stakeholders, grievance systems, external ratings, or benchmarking.

When reporting on the effectiveness of actions, the business should explain how its actions are helping manage impacts.

For initiatives or processes aimed at benefiting communities, the business should disclose:

  1. how affected communities or their representatives are involved in decisions about these programs;

  2. what positive results these programs have achieved for affected communities; and

  3. the scope of the communities impacted by these programs and why these communities were selected.

The business may also share whether these programs support any of the UN Sustainable Development Goals (SDGs). For example, if a program is focused on gender equality (SDG 5), the business might show how it involves women in community consultations, helping them not only participate but also benefit from the process in their daily lives.

When reporting on the positive outcomes for communities, the business should differentiate between evidence of activities that have taken place (e.g., providing training to a certain number of women to become local suppliers) and evidence of actual results (e.g., those women successfully starting small businesses and renewing contracts with the business year after year).

When reporting on initiatives that help reduce negative impacts, the business could consider programs that improve local infrastructure. For example, if the company has worked on road improvements around its operations, it may highlight how those improvements have helped reduce traffic accidents involving local community members. This would show how their efforts contribute to better outcomes for the community.

When disclosing the material risks and opportunities related to the company’s impacts or dependencies on affected communities, the company may consider the following:

  1. risks related to the company’s impacts on affected communities may include the reputational or legal exposure, as well as operational risks, where affected communities protest against resettlements or the loss of access to lands, leading to costly delays, boycotts, or lawsuits;

  2. risks related to the company’s dependencies on affected communities may include disruption of business operations where indigenous people decide to withdraw their consent to a project on their lands, forcing the company to significantly modify or abandon the project;

  3. business opportunities related to the company’s impacts on affected communities may include more easily financing projects and being a partner of choice for communities, governments and other businesses; and

  4. opportunities related to the company’s dependencies on affected communities may include the development of positive relationships between the company and indigenous people that enable existing projects to expand with strong support.

When disclosing policies, actions, resources, and targets related to managing material risks and opportunities, the business should reference its specific policies, actions, resources, and targets connected to the material impacts. This helps provide clarity and consistency in the disclosures. When disclosing this information, the business may explain the risks and opportunities that come from environmental impacts or dependencies, including any human rights or social impacts. For instance:

  1. reputational risks could arise from pollution that harms community health, which could damage the business’s public image;

  2. financial risks could disrupt operations, especially if they are in response to activities in areas with water scarcity that affect local communities. These disruptions could lead to delays or additional costs for the business.

When disclosing whether dependencies turn into risks, the business should take into account external factors or changes that might influence these dependencies. For example, shifts in laws, regulations, or public sentiment could affect how the business interacts with affected communities, potentially turning dependencies into risks if the situation changes unexpectedly.

The business should also consider how its processes for managing material risks related to affected communities fit within its broader risk management framework. This ensures that the management of community-related risks is not isolated but integrated into the overall approach to risk.

Lastly, when disclosing the resources allocated to managing these impacts, the business should explain which internal departments or teams are responsible for handling the impacts and describe the actions they take to address negative impacts and promote positive outcomes for affected communities.

CH 3. Metrics and targets

This disclosure aims to show how the business uses clear, time-bound, and measurable targets to drive progress in these areas. This information would help stakeholders understand how the company is addressing material impacts on communities and managing risks. The summary of these targets should meet the requirements specified in ESRS 2 MDR-T.

The company should also explain the process it used to set these targets, including any engagement with affected communities or their representatives, and how it tracks progress. It should also address any lessons learned or improvements made based on the results.

The company should disclose the process for setting the targets, including whether and how it engaged directly with affected communities, their legitimate representatives, or with credible proxies that have insight into their situation in:

  1. setting any such targets;

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

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

The company may disclose:

  1. the intended outcomes to be achieved in the lives of affected communities, 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 which the targets are based on, for instance codes of conduct, sourcing policies, global frameworks or industry codes.

Targets related to material risks and opportunities may be aligned with, or separate from, targets related to material impacts. For example, a target to restore the livelihoods of communities following resettlement can both reduce negative impacts and mitigate associated risks like protests.

The company can also distinguish between short-term, medium-term, and long-term targets. For example, a long-term goal might be to hire 100% of local employees by 2025, with short-term goals such as gradually increasing the percentage of local hires every year until then.

If the company modifies or replaces a target during the reporting period, it should explain the reason behind the change. This might include major changes in the business model or significant shifts in the legal or regulatory landscape that influenced the decision.


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