When the first Corporate Sustainability Reporting Directive (CSRD) reports appeared in 2025, I reviewed disclosures on value chain social risk across 74 banks in a dataset hosted by the standard-setting body EFRAG, plus seven of Norway’s largest banks.
Climate, own workforce, business conduct and consumers were all assessed as material by more than 90 percent of reports.
Workers in the value chain (S2) were only regarded as material in 23 percent of filings, and affected communities (S3) 24 percent.
At sub-topic level, the figures were even more revealing: only 12 percent identified working conditions in the value chain as material, 8 percent did the same for civil and political rights, and none for the rights of Indigenous peoples.
It seemed premature to draw conclusions from a first reporting year. However, the same pattern is evident in the second reporting cycle. Of roughly 90 banks covered, 16 percent identified S2 as material and 27 percent did the same for S3.
Two cycles in, this is not a teething problem.
The conclusion is hard to reconcile with the standards that banks say they follow. Impact materiality under the ESRS is anchored in due diligence frameworks as set out in the OECD Guidelines for Multinational Enterprises and the UN Guiding Principles on Business and Human Rights (UNGPs).
A bank lending at scale into construction, agriculture, transport, shipping and energy is directly linked to adverse impacts on workers. A bank distributing global funds or managing assets for clients is directly linked to the impacts of those holdings.
“Directly linked” often reads as the mild end of the scale, compared to corporates operating in the real economy. The exposure is different, not lesser, and carries an expectation to use leverage, escalate where impacts persist, and consider exits where they do not change.
Identifying impacts without managing them is not due diligence.
Severity of scale, scope and remediability matters too: a few severe potential impacts outrank many minor ones. Under the ESRS, the UNGPs and the OECD Guidelines, severity is assessed by impact, actual and potential, and is not netted or averaged.
Inconsistent disclosures
What makes this more than a dispute about methodology is that the same banks say something different elsewhere.
Many have committed to the UNGPs and OECD Guidelines. Their own ESG credit models classify clients in construction, transport, agriculture and shipping as carrying elevated social risk – including forced labour.
Disclosures made in Norway are a case in point. The country’s Transparency Act requires a separate human rights due diligence statement covering the same ground.
Read the two reports side by side and one finds that risks described as immaterial in the annual report are identified and prioritised against the UNGPs and OECD Guidelines in the due diligence statement.
The UNGPs require policy commitments to be embedded across the business and integrated into the functions that can act on it (principles 16 and 19), otherwise it is considered incoherent.
The coherence problem is also highlighted by the fact that banks seem to consider their own workforce and consumers and end-users material, with sub-topics such as work-life balance, but not workers in the value chain or affected communities.
Measure to manage
The absence of S2 and S3 from annual reports matters for three reasons.
A statement that omits a bank’s most severe potential human rights connections cannot be called a faithful representation of its business. It leaves investors with an incomplete picture of risk exposures.
Second, it has consequences for risk management and attention. What is defined as immaterial gets no oversight and no board time.
That sits awkwardly with the EBA’s guidelines on the management of ESG risks, which have required large banks to assess social risks against the OECD Guidelines and the UNGPs since January 2026.
A statement that omits a bank’s most severe potential human rights connections cannot be called a faithful representation of its business
Third, it affects credibility. Banks ask clients and suppliers to document responsible business conduct in relation to labour and human rights. This is hard to sustain while reporting that the same issues in their own value chain fall below the threshold of materiality.
Two blind spots follow the same logic.
Green and transition books are growing fast, but a green purpose does not displace due diligence: battery, solar and wind value chains carry documented human rights risks, and fossil fuel phase-out affects workers and communities. The Just Transition remains a footnote in climate and green finance frameworks.
Secondly, banks are largely delegating responsibility for savings products to fund providers, though as distributors they must also know product-related impacts.
Any attempt to argue that the EU’s Sustainability Omnibus has changed what banks are expected to report is misplaced. What simplification actually changes is discretion.
The revised ESRS 1 lets a company work top-down and conclude on materiality from its strategy, business model, sector and geographies.
The Just Transition remains a footnote in climate and green finance frameworks
Practically, a sector-and-geography assessment means that a bank lending into sectors and distributing funds exposed to markets with documented labour risks should emphasise S2 and S3. Less prescription makes a bank’s reasoning matter more, not less.
Notes for engagement
For investors, analysts and supervisors engaging with banks on the next reporting cycle, five questions are worth asking:
- Which impact topics were screened out, and on what reasoning? Ask for the assessment, not the conclusion, and ask who reviewed it.
- How does that assessment square with the bank’s other documents – its human rights policy, its ESG credit risk classifications, its human rights statement?
- What happens when a corporate client scores poorly on social risk? Ask about escalation, changes achieved, and relationships ended where breaches persisted.
- What view does the bank take of the funds it distributes? Reliance on the provider is a position, not an assessment, particularly for global index exposure.
- Does the green book carry the same due diligence as the rest? Ask how social risks in transition minerals and renewables supply chains are assessed, and how the workers and communities affected by fossil fuel phase-outs are addressed.
John E Grova is a member of EFRAG’s Sustainability Reporting Technical Expert Group and senior adviser, ESG Advisory, at SpareBank 1 Sør-Norge Forretningspartner. The article is written in a personal capacity.
