The Amended ESRS Exposure Drafts

Context

In late 2023, the European Commission (EC) adopted the European Sustainability Reporting Standards (ESRS), which outline detailed requirements for companies to report their material impacts, risks, and opportunities. UNICEF supports the ESRS because a variety of stakeholders, including regulators, investors, and child rights advocates, benefit from a better understanding of how well companies address children’s rights.

To help companies reporting under the ESRS disclose better information on the impacts, risks, and opportunities related to children’s rights, UNICEF created guidance briefs on key aspects of the reporting process and additional child rights-focused disclosure recommendations for specific topics in the context of digital technologies.

At the request of the EC, EFRAG (which authored the ESRS) has launched a public consultation to simplify the ESRS. The ESRS simplification process includes clarifying provisions that appear unclear, focusing more on material topics, improving consistency with other EU legislation, and enhancing interoperability with global sustainability reporting standards. This paper summarizes UNICEF’s response to the consultation.

Response

UNICEF welcomes the overall direction outlined in the ESRS exposure draft. We believe that simplifying the ESRS while maintaining its core features and desired outcomes will enable companies to focus on their most material impacts, risks, and opportunities, and provide more decision-useful information to their stakeholders. We highlight the following six key points, informed by our recent work on child rights disclosures by companies and based on our belief that companies should strengthen their respect for child rights.

The link between due diligence, double materiality, and disclosure should be retained. The coherent step-by-step logic that requires (1) identifying and prioritizing impacts on people (including children) using due diligence methods based on international human rights standards, (2) determining material impacts (“impact materiality”), and (3) understanding material risks and opportunities (“financial materiality”) provides a strong foundation for high-quality and decision-useful disclosure. The revised ESRS should continue to emphasize that impact materiality is informed by the due diligence process defined in the international instruments of the UN Guiding Principles on Business and Human Rights and the OECD Guidelines for Multinational Enterprises.

The Convention on the Rights of the Child (CRC) should be referred to in the ESRS. Children under 18 years old account for almost one-third of the world’s population, so it is essential that the rights of children be highlighted when determining material topics. Including a reference to the CRC in the ESRS will enhance consistency with Recital 49 of the EU Corporate Sustainability Due Diligence Directive (upon which the ESRS are founded) and help ensure that companies consider the full range of child rights as a reference point, since companies potentially impact virtually any of these rights.

The ESRS should emphasize the importance of entity-specific disclosures. UNICEF seeks decision-useful material disclosures on the impacts companies have on child rights. These impacts on children are often specific to a particular company or sector, and are not always included in the ESRS, which are written for companies from all industries. Given that EFRAG will no longer create sector-specific standards, we encourage an emphasis on the importance of entity-specific material disclosures in EFRAG's communications, as well as a clear direction that companies should not use the ESRS as an exhaustive checklist.

Topic-specific guidance provided by multilateral and multi-stakeholder organizations can be referenced in the revised ESRS. There are several examples of credible organizations developing guidance for company disclosures that are interoperable with the ESRS, but provide more detail on specific entity-specific and sector-specific topics. One example is UNICEF’s disclosure recommendations for corporate reporting on child rights in relation to the digital environment, and these can be referenced in the ESRS.

The importance of children as stakeholders should be highlighted. UNICEF appreciates the clarity that engagement with affected stakeholders during the due diligence process provides critical input to a materiality assessment; we also support the emphasis on "persons in vulnerable situations" in stakeholder engagement. However, we believe it is crucial to specifically mention children as a stakeholder group in the materiality assessment. This is particularly important given the growing emphasis on the materiality assessment as a key filter for report content.

Several revised ESRS disclosures can be enhanced. UNICEF has identified some specific improvements that can be made:

• Adequate/living wages: This is important for UNICEF, given its relevance for meeting the basic needs of children, reducing the likelihood of child labor, and improving the well-being of children. ESRS S1-9 should be revised to eliminate methodological discrimination between workers within and outside the EU.
• Parental and family leave: All parents have a right to be involved in their child’s upbringing, and parental rights should not be constrained by traditional gender roles. In ESRS S1-10, we disagree with the narrowing of “parental leave” to “maternity leave”, and in ESRS S1-14 we believe that companies should report the percentage of employees taking family leave in practice, and not just the percentage of employees entitled to take family leave.
• Breadth of relevant rights: The proposed removal of the term “for example” from the list of economic, social, cultural, civil, and political rights of potential relevance to ESRS S3 and S4 contradicts one of the core tenets of human rights-based approaches by suggesting that only a narrower list of sub-topics be considered by companies, not a complete set of potentially relevant human rights.