Deep Dive S1: Occupational accidents, gender pay gap & co. – What are the special features, what do you need to know?

The European Sustainability Reporting Standards (ESRS) set new benchmarks for transparency and accountability in corporate reporting. A total of approximately 780 datapoints is distributed between overarching standards and th​​e three dimensions environmental, governance and social, whereby the latter comprises around 260 narrative, semi-narrative and numerical datapoints (this number can be narrowed down by a preliminary materiality assessment). While some of those datapoints can be fulfilled with little effort, others require the installment of new processes for data compilation, thus a significant amount of time.  

This article covers the more challenging disclosure requirements ESRS S1-14 Health and Safety and S1-16 Renumeration metrics from topic standard S1 – own workforce. As of now, S1 is the only social standard that requires the disclosure of parameters. Parameters for S2 to S4 might be published within the second set of ESRS. 

It is important to note that some datapoints are required to be disclosed for employees only, while others are expanded to employees and non-employees (see ESRS S1.4). A precise definition is provided within the standard. 

 

However, the disclosure of information concerning non-employees is part of the phase-in provisions and can be excluded for all users for the first year of reporting. 

 

Furthermore, the disclosure of the number of fatalities as a result of work-related injuries and work-related ill health comprises (ESRS S1.88b) in addition to employees and non-employees other workers at the entity’s sites. 

S1-14 covers paragraph 86 to 90 and is supplemented by application requirement 80 to 95, whereby paragraphs 88d and 88e are excluded for the first year. 

 

The objective of this Disclosure Requirement is to allow an understanding of the coverage, quality and perfor­mance of the health and safety management system established to prevent work-related injuries. 

The European Sustainability Reporting Standards (ESRS) S1-14 focuses on health and safety metrics within an organization's workforce. This disclosure requirement aims to provide stakeholders with crucial information about occupational health and safety performance. However, the standard presents some challenges in interpretation and implementation.  

 

One of the primary issues is the lack of a clear definition for “recordable work-related injuries or illnesses” within the standard or its glossary. Despite this ambiguity, it's generally understood that the term “recordable” is at least linked to insurance requirements. Companies may also have more comprehensive internal reporting systems that go beyond national minimum legal requirements. Data collection for these metrics can occur through various channels, submitted to insurance carriers, or by company doctors.   

 

The standard defines “reportable work-related injuries or illnesses” as those resulting in death, days of incapacity, restricted work or job transfer, medical treatment beyond first aid, loss of consciousness, or any other significant injury or illness diagnosed by a healthcare professional. These incidents are typically caused by “work-related hazards”, which include events such as slips, fires, electric shocks, or even instances of harassment. 

 

The lack of distinction between work-related injuries and work-related ill-health also creates challenges for ESRS applicators. To address this, companies can refer to the application requirements (AR) within the standard, which offer more concrete guidance for specific cases. Additionally, the International Labour Organization's (ILO) list of occupational diseases can serve as a helpful reference. 

 

Recording work-related illnesses presents unique challenges compared to accidents. While accidents are often clearly defined events, proving the work-relatedness of an illness can be more complex. Companies can only report on illnesses that are known to them, and legal restrictions such as data protection laws may limit the completeness of illness records. 

 

To overcome these hurdles, companies should consider including a statement in their report acknowledging that reported illnesses are those known to the company, and that due to legal restrictions, the record may not be exhaustive. This approach ensures transparency while recognizing the limitations of data collection in this area, particularly in the first year of application.  

Disclosure Requirement S1-14 underlines the importance of robust health and safety management systems in protecting workers. By mandating detailed disclosures on workplace incidents, it aims to foster safer working environments and enhance corporate accountability in occupational health matters. Companies must carefully navigate legal requirements and privacy concerns while striving for transparency in their reporting practices.  

 

S1-16 covers paragraph 95 to 99 and is supplemented by application requirement 98 to 112. 

 

The objective of this Disclosure Requirement is twofold: to allow an understanding of the extent of any gap in the pay between women and men amongst the undertaking’s employees; and to provide insight into the level of remuneration inequality inside the undertaking and whether wide pay disparities exist. 

At its core, ESRS S1-16 requires companies to disclose the percentage difference in pay between their female and male employees, known as the gender pay gap. This metric is intended to provide a clear picture of gender pay equality within the organization. The standard does not mention a third gender.  

 

The methodology for calculating the metric is precisely defined: The gross hourly pay level will lead to the impure gender pay gap. 

 

According to ESRS, “remuneration” or “pay” is defined as the ordinary basic or minimum wages and salaries and any other consideration, whether in cash or in kind, which the worker receives directly or indirectly from the employer in respect of employment (“complementary or variable components”). This definition encom­passes all forms of compensation, including base salary, cash benefits, benefits in kind, and long-term incentives (IDW RS FAB 100).  

 

Consequently, when calculating remuneration metrics, companies are expected to include all these compo​­nents to provide a comprehensive view of employee compensation – irrespective of whether a remuneration component has been contractually agreed between the parties or is paid voluntarily as consideration for the work performed by the employee. 

 

Bonus payments are paid late and relate to the previous year.  

 

Contextual information necessary to understand the data shall be added and breakdowns, e.g. between blue collar and white collar workers can be made to avoid distortion of results. This serves as vital information for investors assessing the social impacts of companies. ​

 

From the 2nd reporting year onwards, comparative information from the previous reporting period must be provided. 

Additionally, companies are required to disclose the total compensation ratio, which is the ratio between the total annual compensation of the highest-paid individual and the median annual total compensation for all employees, excluding the highest-paid individual. This metric offers insights into income inequality within the organization. The calculation of the KPI and other requirements follow the methodology of the gender pay gap.  

By mandating detailed disclosures on remuneration metrics, it not only enhances transparency but also encourages companies to take proactive steps toward creating more equitable workplace environments. This requirement is thus a key component in efforts to embed and advance social sustainability in the corporate world. 

At the same time, they promote corporate accountability by encouraging companies to actively address wage disparities and foster fair compensation practices. 

 

The ESRS S1-14 and S1-16 standards represent a significant step towards enhanced corporate transparency, compelling organizations to provide comprehensive insights into workforce health, safety, and compensation practices, thereby promoting a more equitable, accountable, and socially responsible business environment. 

By adhering to these disclosure requirements, enterprises not only comply with ESRS standards but also demonstrate their commitment to worker safety, fair compensation, and overall transparency in workforce management. This information allows stakeholders to make informed decisions and promotes accountability in corporate practices related to employee well-being and fair compensation. ​