ESRS S2 – Workers in the value chain
The ESRS S2 is one of 4 social-specific standards of the European Sustainability Reporting Standards. The standards were developed by EFRAG and are to be applied in accordance with the CSRD. This article is based on the final delegated regulation on the ESRS (European Sustainability Reporting Standards), which was published in the Official Journal of the EU on 22 December 2023. Here you can get a general overview of the ESRS.
ESRS S2 is intended to specify the information to be disclosed regarding the material impacts on value chain workers as well as material impacts that arise because of products, services and business relationships. Furthermore, companies should explain how such impacts, as well as dependencies on value chain workers, can result in material risks or opportunities for the company.
Which workers have to be considered within the scope of ESRS S2?
All workers along the company’s upstream and downstream value chain who are or could be materially impacted by the company must be included in reporting in accordance with ESRS S2.
Interactions with other ESRS
The standard is to be applied if material impacts or material risks and opportunities in connection with workers in the company’s value chain are identified through the materiality analysis in accordance with ESRS 2.
The standard should be applied in conjunction with ESRS 2 (General Disclosures), ESRS S1 (Own Workforce), ESRS S3 (Affected Communities) and ESRS S4 (Consumers and end-users). Reporting in accordance with S2 should be consistent, coherent and, where relevant, show links with Standard S1.
ESRS S2 Disclosure Requirements
The S2 standard standard includes five environmental disclosure requirements (S2-1 bis S2-5) as well as two requirements from ESRS 2 (ESRS 2 SBM-2, ESRS 2 SBM-3). For an overview, these are listed in table 1 and described in the following subchapters (without claiming to be complete).
| No. | Disclosure requirements | Description |
| 1. | ESRS 2 SBM-2 | Interests and views of stakeholders |
| 2. | ESRS 2 SBM-3 | Material impacts, risks and opportunities and their interaction with strategy and business model |
| 3. | S2-1 | Policies related to value chain workers |
| 4. | S2-2 | Processes for engaging with value chain workers about impacts |
| 5. | S2-3 | Processes to remediate negative impacts and channels for value chain workers to raise concerns |
| 6. | S2-4 | Taking action on material impacts on value chain workers, and approaches to managing material risks and pursuing material opportunities related to value chain workers, and effectiveness of those actions |
| 7. | S2-5 | Targets related to managing material negative impacts, advancing positive impacts, and managing material risks and opportunities |
Ad 1) Disclosure requirement ESRS 2 SBM-2 – Interests and views of stakeholders
In the context of ESRS SBM-2, companies disclose how the interests, views and rights of value chain workers could be materially affected and how these issues are incorporated into the strategy and business model.
Ad 2) Disclosure requirement ESRS 2 SBM-3 – Material impacts, risks and opportunities and their interaction with strategy and business model
With reference to ESRS SBM-3, the company should disclose, among other things, whether and how material actual and potential impacts on value chain workers are attributable to the business model and strategy. In addition, the company should describe how the material impacts influence the business model and strategy.
Ad 3) Disclosure requirement ESRS S2-1 – Policies related to value chain workers
Disclosure in accordance with S2-1 requires a description of the company’s policies for managing the material impacts on value chain workers and the associated opportunities and risks.
Ad 4) Disclosure requirement ESRS S2-2 –Processes for engaging with value chain workers about impacts
The company shall disclose its processes for engaging with value chain workers and their representatives in relation to actual and potential impacts on them.
Ad 5) Disclosure requirement ESRS S2-3 – Processes to remediate negative impacts and channels for value chain workers to raise concerns
The company should describe it´s methods for the remediation negative impacts on value chain workers that it has caused or contributed to. Furthermore, the company should describe the options available to value chain workers to express their concerns.
Ad 6) Disclosure requirement ESRS S2-4 – Taking action on material impacts on value chain workers, and approaches to managing material risks and pursuing material opportunities related to value chain workers, and effectiveness of those actions
Among other things, S2-4 is intended to create an understanding of the company’s measures and initiatives to prevent, mitigate or remedy significant negative impacts associated with labour in the value chain and to achieve significant positive impacts.
Ad 7) Disclosure requirement ESRS S2-5 – Targets related to managing material negative impacts, advancing positive impacts, and managing material risks and opportunities
The company should disclose time-bound and outcome-orientated targets with regard to the following topics:
- the reduction of negative impacts on value chain workers
- the promotion of positive impacts on value chain workers
- the management of material risks and opportunities related to value chain workers.
