What is CSRD ESRS S4?
ESRS S4 is a part of the European Sustainability Reporting Standards (ESRS), which focuses on consumers and end-users. It sets out guidelines for companies to report on how their activities impact the people who use their products or services. The goal of ESRS S4 is to ensure that companies are transparent about the effects of their operations on consumers and end-users.
The standard focuses on how companies manage their relationships with consumers and end-users and the broader implications of their activities. It requires companies to carefully assess and disclose the impact they have on individuals who use their products and services, ensuring transparency and accountability in how they interact with these stakeholders.
ESRS S4 is the fourth and final pillar in the “Social” (S) standards under the Corporate Sustainability Reporting Directive (CSRD). The CSRD is an EU regulation that requires companies to be transparent about their environmental, social, and governance (ESG) impacts.
ESRS S4 focuses specifically on consumers and end-users in the social section of the CSRD. This section consists of four pillars. The first pillar is ESRS S1, which covers a company’s impact on employees. The second pillar is ESRS S2, which deals with the impact on workers in the value chain. The third pillar, ESRS S3, focuses on affected communities.
One of the other aspects of ESRS S4 is that it requires companies to report on 69 different datapoints. These datapoints cover a wide range of topics, from how companies engage with consumers and end-users to the policies they implement to manage risks and opportunities.
What are the key areas of the ESRS S4?
In essence, ESRS S4 is about ensuring that companies are accountable for how they affect the people who use their products or services, encouraging responsible business practices and transparency. It requires companies to disclose information in key areas such as:
- Understanding impact: Companies must identify and explain how their products or services affect consumers and end-users, especially those who might be vulnerable or at higher risk of harm.
- Managing risks and opportunities: Companies need to have policies in place that manage the risks and opportunities related to consumers and end-users.
- Engagement with consumers: Companies must explain how they communicate with consumers and end-users, gather feedback, and include their input in decision-making processes.
- Grievance mechanisms: ESRS S4 requires companies to have clear systems in place for consumers and end-users to raise complaints or concerns.
- Actions and targets: Companies must take action to prevent or fix any negative impacts on consumers. They also need to set specific, measurable goals (or targets) to improve their impact on consumers and track progress towards these goals.
What should be reported for CSRD ESRS S4?
S4.SBM-3: Understanding the impact on consumers and end-users
Disclosure Requirement S4.SBM-3 focuses on ensuring companies identify and disclose how their activities materially impact consumers and end-users. This includes covering both positive and negative impacts. Companies must consider all consumers and end-users affected by their operations or value chain. They should provide detailed descriptions of the types of consumers impacted and when material negative impacts occur.
Additionally, companies must explain how their actions result in positive outcomes and identify which consumers benefit. Companies also need to disclose the risks and opportunities that arise from their impacts and dependencies on consumers and end-users.
Companies are expected to assess which groups of consumers or end-users, based on specific characteristics, might be more vulnerable or at a higher risk of harm. This assessment should be disclosed, along with how the company has developed its understanding of these risks.
S4-1: Policies related to consumers and end-users
Policies related to consumers and end-users are critical in managing risks and opportunities. These policies reflect the company’s commitment to addressing material impacts and respecting human rights.
As required by the CSRD ESRS S4, companies must provide a clear description of the policies and due diligence processes used to manage these sustainability issues. These policies ensure that companies take appropriate steps to manage the risks and opportunities connected to consumers and end-users.
Global frameworks such as the UN Guiding Principles and OECD Guidelines outline the need for companies to have policies in place to respect human rights. These policies should be accessible to all relevant stakeholders, including consumers and business partners, and must clearly define the company’s human rights expectations. Public communication of these commitments is essential, both internally and externally.
S4-2: Processes for engaging with consumers and end-users
Engagement with consumers and end-users is a key part of managing the impacts of a company’s activities. The CSRD requires companies to describe their engagement processes with consumers as part of their due diligence efforts.
Companies must consult directly with affected stakeholders to assess human rights impacts accurately. When direct consultation is not possible, alternative methods, such as consulting experts, must be used.
The OECD Guidelines emphasize that this engagement must be interactive, involving discussions, consultations, and ongoing dialogue. Companies should ensure that this engagement influences their decision-making regarding risks and material impacts.
S4-3: Processes to remediate negative impacts
Companies are required to establish grievance mechanisms to allow consumers and end-users to raise concerns. As per the UN Guiding Principles, these mechanisms should be easily accessible and designed to resolve issues early.
Companies must disclose how they ensure the effectiveness of these mechanisms and how consumers are made aware of them. The goal is to provide a reliable avenue for consumers to raise legitimate concerns related to human rights or other negative impacts.
These grievance channels must operate transparently, with protections against retaliation. Consumers need to trust these mechanisms, knowing they can raise concerns without fear of reprisal. Regular reviews of grievance mechanisms ensure they remain effective in addressing the needs of consumers and resolving issues efficiently.
S4-4: Taking action on material impacts and risks
When companies identify material impacts on consumers and end-users, they must take appropriate actions to mitigate risks and pursue opportunities. This includes preventing or reducing negative impacts and ensuring that responsibility for these actions is clearly assigned within the organization.
It is essential for companies to track the effectiveness of their actions. Companies should monitor how well they are managing material impacts on consumers, using both qualitative and quantitative data. Feedback from affected stakeholders is crucial to this process, ensuring that companies continually improve their risk management and impact strategies.
S4-5: Targets related to managing material impacts
Setting time-bound targets is a critical component of managing material impacts on consumers and end-users. These targets provide a framework for companies to track their progress and ensure that they are effectively managing sustainability issues. The ESRS S4 requires companies to disclose their sustainability targets and report on their progress towards achieving them. These targets must include those related to consumer rights and end-user protections.
Tracking the effectiveness of these actions is necessary for companies to ensure that their targets are met. Companies must also disclose how these targets were set and how engagement with stakeholders influenced their decisions. Regular reviews allow companies to adjust their actions to ensure they are on track to meet their sustainability goals.
Why is focusing on consumers and end-users important?
Consumer trust and corporate accountability
Today’s consumers expect transparency and accountability from businesses. They demand to know how products and services are produced and the broader impact these have on society. ESRS S4 plays a vital role in ensuring that companies publicly disclose how they manage relationships with consumers and end-users. This promotes consumer trust through clear, transparent practices.
In industries like food and beverages, consumers are increasingly interested in knowing about product ingredients, sourcing practices, and sustainability efforts. Clear reporting on efforts to improve product health and safety, such as reducing sugar content or using sustainable ingredients, helps consumers make informed decisions and builds trust in the brand.
Preventing and addressing negative impacts
Ensuring product safety and protecting consumers from negative impacts is a fundamental responsibility of businesses. ESRS S4 requires companies to proactively identify and address potential risks associated with their products or services, preventing harm before it escalates.
In sectors like consumer electronics, ensuring product safety is critical. Transparency in reporting on product recalls, safety improvements, or addressing technical faults reassures consumers that their well-being is a top priority. When companies fail to disclose potential risks, it can lead to consumer distrust, legal consequences, and damage to their reputation.
Growing focus on data privacy and digital rights
As digital services and technology play an increasingly central role in daily life, data privacy and the protection of personal information have become major concerns for consumers. ESRS S4 encourages businesses to be transparent about how they handle consumer data, ensuring that privacy and security are prioritized.
Data breaches and unauthorized use of personal information can have significant negative impacts on consumers. Clear disclosures around how companies safeguard consumer data, comply with privacy regulations, and respond to breaches build confidence and reassure consumers that their personal information is in safe hands.
Sustainability and ethical consumption
Consumers are more focused on ethical and sustainable consumption than ever before. They want to know how the products they buy affect the environment and society. ESRS S4 supports the need for companies to disclose how they create positive impacts through sustainable business practices and responsible resource use.
For example, in industries like fashion or consumer goods, consumers often seek transparency about the environmental footprint of products. Disclosure on initiatives such as reducing waste, using eco-friendly materials, or improving working conditions in the supply chain helps meet consumer demands for ethical practices and strengthens brand loyalty.
