Practitioner's Guide to ESRS S3

Michelle Horsfield

25 years: Sustainable Finance

In this video, Michelle unpacks ESRS S3, she explains who counts as an affected community, how companies can identify and prioritise them using stakeholder mapping, and why ethical, two-way communication is vital especially with vulnerable groups like Indigenous peoples. She also walks through key disclosure requirements, from engagement processes and remediation to tracking actions and setting measurable targets.

Regulation and Initiatives

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Practitioner's Guide to ESRS S3

13 mins 42 secs

Key learning objectives:

Understand the definition and scope of “affected communities” under ESRS S3
Understand how to identify affected communities using stakeholder mapping
Outline the S3 disclosure requirements across impacts, risks, and opportunity management
Understand the importance of ethical, inclusive, and two-way communication with communities

Overview:

ESRS S3 focuses on affected communities, those impacted by a company’s operations beyond workers and consumers. The standard requires businesses to engage meaningfully, identify physical and social impacts, and disclose how risks and opportunities are managed. Using stakeholder mapping, IRO processes, and accessible communication tools, companies must foster trust, particularly with vulnerable groups like Indigenous communities. While the framework draws on international human rights principles, its emphasis is on proactive, two-way communication and tracking actions, feedback, and outcomes to uphold social responsibility.

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Summary

What does ESRS S3 cover and who counts as an ‘affected community’?

ESRS S3 focuses on people who may be impacted by a company’s operations but are not workers or consumers, such as residents near facilities or infrastructure projects. These communities may face physical effects (e.g. noise, pollution) or social impacts (e.g. freedom of expression, cultural disruption). The standard also highlights the rights of Indigenous peoples, whose land, culture, and autonomy require special protection. It frames these issues in terms of economic, social, and cultural rights, with the goal of ensuring responsible engagement and impact mitigation.

How can companies identify and prioritise affected communities?

Stakeholder mapping is used to determine who may be affected and how severely. A 9-box grid compares the level of impact a group faces with their vulnerability, helping companies prioritise who needs the most attention and what type of communication or engagement is appropriate. This process ensures companies consider both proximity and sensitivity when planning interactions, especially for marginalised or underserved populations.

What is FPIC and why is it important in community engagement?

FPIC stands for Free, Prior, and Informed Consent. It’s especially relevant when engaging Indigenous communities but applies broadly. ‘Free’ means without pressure, ‘Prior’ means before actions are taken, and ‘Informed’ means that communities understand the full implications. The script uses an example where visuals were used across language barriers to explain a project. FPIC helps avoid resentment and builds trust it’s about ensuring people genuinely understand and can respond to proposed actions that affect them.

What are the main disclosure requirements under ESRS S3?

There are five key requirements:

S3-1: Policies for identifying material impacts.

S3-2: Processes for engaging with communities (not just informing them).

S3-3: Systems for remediating harm and enabling grievances.

S3-4: Actions taken to mitigate risks and how effective they are.

S3-5: Time-bound, outcome-oriented targets for managing material impacts.

Companies should also have mechanisms to track communication and feedback, ideally before engagement begins. This supports transparency, responsiveness, and regulatory compliance.

What role do international standards play in S3 compliance?

ESRS S3 is built on global frameworks like the UN Guiding Principles on Business and Human Rights and the OECD guidelines. These provide the ethical and legal foundation for S3, though they don’t always offer specific metrics. Many companies already following these frameworks will find S3 requirements familiar. What’s new is the structured, reportable nature of disclosures, even if comparability across firms remains limited for now.

Why is two-way communication essential in working with communities?

Effective engagement isn’t just about transmitting information, it’s about listening and responding. Two-way dialogue helps companies understand how communities interpret their actions and where they may need to adjust. It also helps build trust, secure a social licence to operate, and avoid reputational or legal backlash. By taking the time to communicate clearly and inclusively, companies can ensure projects align with both community needs and corporate goals.

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Michelle Horsfield

Michelle Horsfield, an environmental scientist with a climate change specialisation, transitioned into the financial sector four years ago to apply her knowledge to the largest reallocation of capital in history, as the economy moves towards a lower carbon future.

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