The EU Social Taxonomy

Focusing exclusively on environmental matters may create more inequality in society and ignores the inter-relationship between environmental and social considerations.

As a result, the European Commission’s technical expert group on sustainable finance was tasked to develop a taxonomy – similar to the one produced on environmental activities. Although the report was not ratified, it still serves to promote a focus on the protection of human rights and on the social impact of businesses, employees, customers and communities.

The proposed social taxonomy followed the same structure as the environmental taxonomy to support asset managers and banks that wished to combine investments with social and environmental objectives in one financial product. The table below shows how this structure had been applied to both taxonomies.

The proposed social taxonomy prioritised three stakeholder groups and set one objective per group.

For each proposed social objective, there were sub-objectives:

decent work: promoting decent work, promoting equality and non-discrimination at work, and ensuring respect for human rights and workers’ rights of affected workers in the value chain

adequate living standards and well-being of end-users: healthy and safe products and services, durable and repairable products, and responsible marketing practices

inclusive and sustainable communities and societies: promoting equality and inclusive growth, supporting sustainable livelihoods and land rights, and ensuring respect for the human rights of affected communities by carrying out risk-based due diligence.

Three types of substantial contributions were proposed:

• avoiding and addressing negative impact

• enhancing the positive impacts of social goods and services and basic economic infrastructure, and

• enabling activities.

Do No Significant Harm

The criteria should serve the social taxonomy in the same way they serve the environmental taxonomy. Hence, an economic activity that makes a substantial contribution to one social objective should not significantly harm the other social objectives.

Corporate Sustainability Reporting Directive (CSRD)

Regulation 2019/2088 of the European Parliament defines ‘sustainable investment’ as an investment in an economic activity that contributes to a social objective:

• to tackling inequality

• social integration and labour relations

• an investment in human capital or economically or socially disadvantaged communities, provided that such investments do not significantly harm any of those objectives and that the investee companies follow good governance practices.

European Sustainability Reporting Standards

This is a new reporting standard developed by the European Financial Reporting Advisory Group based on CSRD. It is still being developed but the following are planned:

• S1 – own workforce

• S2 – workers in the value chain

• S3 – affected communities

• S4 – consumers and end users.

For S1, the Standard requires an explanation of the general approach taken to identify and manage any material actual and potential impacts on its own workforce in relation to the following factors:

(a) working conditions, including:

i. secure employment

ii. working time

iii. adequate wages

iv. social dialogue

v. freedom of association and the participation rights of workers

vi. collective bargaining

vii. work-life balance, and

viii. health and safety.

(b) equal treatment and opportunities including:

i. equal pay for work of equal value

ii. training and skills development

iii. employment and inclusion of persons with disabilities

iv. measures against harassment in the workplace, and

v. diversity.

(c) other work-related rights, including:

i. child labour

ii. forced labour

iii. adequate housing, and

iv. privacy.