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The ESRS explains: ESRS S2 - Workforce in the value chain

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DATE

5.9.2025

AUTHORS

Luka Marie Sauer

Kevin Möller

TOPICS

Governance & regulation

In our ongoing blog series on the European Sustainability Reporting Standards (ESRS), today we’re focusing on ESRS S2, which addresses reporting on workers outside the company but who are active in the value chain. This standard requires companies to increase transparency regarding their social impacts along the supply chain and to disclose measures taken to mitigate risks.

examine in greater detail the social impacts on workers throughout the value chain. This standard helps ensure transparency regarding how companies influence workers in upstream and downstream value chains and ensures that human rights are respected.

What is ESRS S2?

ESRS S2 focuses on employees and workers who, although not directly employed by the reporting company, may be affected by its business activities. These include, for example:

Employees of suppliers,
Employees working at the company's location,
Workers in upstream stages (such as raw material extraction),
Contractors who regularly work at the site.

The goal is to understand how a company influences these groups—whether through procurement practices, contract terms, or control mechanisms—and how risks arise and opportunities can be leveraged.

Disclosure requirements in accordance with ESRS S2

According to ESRS S2, companies are obliged to report on their strategies and measures with regard to the workforce in their value chain. An overview of the main disclosure requirements can be found here:

ESRS S2 Workforce in the value chain Disclosure requirements

Duty of disclosure	Description
S2-1	Strategies related to labor in the value chain.
S2-2	Process for involving workers in the value chain in relation to impacts.
S2-3	Procedures to address negative impacts and channels through which workers in the value chain can raise concerns.
S2-4	Measures to mitigate significant risks and opportunities associated with labor in the value chain and their effectiveness.
S2-5	Objectives for managing significant negative impacts, promoting positive impacts and managing significant risks and opportunities.

Objective of ESRS S2

ESRS S2 aims to ensure that companies fulfill their responsibilities towards workers throughout the value chain. This includes both upstream and downstream activities that can have a significant impact on working conditions. Companies must take measures to mitigate risks, seize opportunities and promote respect for human rights.

Synergies with other ESRS standards

ESRS S2 is closely linked to other social standards, such as ESRS S1, which pertains to an organization’s own workforce. In addition, there are overlaps with standards in the areas of governance (e.g., ESRS G1) and environmental standards (e.g., ESRS E5, which covers resource use and the circular economy). ESRS S2 complements and overlaps with other standards:

ESRS S1: Focuses on the organization’s own workforce – S2 broadens this perspective to include external workers.
ESRS G1: Governance aspects such as contract management and procurement practices have a direct impact on the value chain.
ESRS E-Standards (e.g., E5): Sustainable procurement and resource use indirectly influence working conditions.

Challenges in Implementing ESRS S2

The practical implementation of ESRS S2 presents a number of challenges:

Data availability and transparency: In many cases, data on suppliers’ working conditions is limited or incomplete. Companies must therefore establish appropriate mechanisms to collect and validate information.

Engaging stakeholders: Engaging with workers outside the company requires appropriate channels and platforms. This is particularly true for labor unions or industry initiatives, which can serve as intermediaries.

Effectiveness and Monitoring: It is not enough to simply adopt measures—their effectiveness must also be evaluated and made transparent. Companies should define KPIs or metrics and review them regularly.

The complexity of global supply chains: In global structures with many intermediate stages and laws and labor standards that vary by region, ensuring traceability becomes a challenge.

Recent Changes Introduced by the EFRAG Draft – ESRS S2

As of July 2025 – Draft, Consultation & Quick Fix

The requirements for ESRS S2—Workforce in the Value Chain—were further clarified in the summer of 2025. The latest draft includes important adjustments designed to make the standard more practical and to ease the burden on companies, particularly during the first implementation phase (“Wave 1”). The focus is on greater transparency in the supply chain, a reduction in the number of reportable data points, and transitional provisions under the Quick Fix. In addition, a clear timeline for consultation and finalization has been published. An overview of the most important changes:

Latest Updates – ESRS S2: Workers in the Value Chain

As of September 2025 – Drafts, Quick Fixes & Simplifications

Exposure Draft S2 (July 31, 2025): Greater emphasis on transparency in supply chain processes, with clear disclosures regarding labor rights, health and safety, and due diligence obligations.
Quick Fix Additions: “Wave 1” companies benefit from simplified reporting requirements, particularly when it comes to collecting detailed data in complex supply chains.
Reduced data points: Certain duplicate entries have been removed to reduce the reporting burden. The focus is on material risks and opportunities along the value chain.
Consultation & Timeline: The consultation on the revised drafts will run through September 29, 2025. The final standard is expected to become mandatory starting with the 2026/2027 fiscal years.

Conclusion: These updates make ESRS S2 more practical and easier to implement. However, companies should implement processes for supply chain transparency and human rights due diligence early on in order to benefit from transitional provisions.

Consultation period: The draft is open for public comment until September 29, 2025. The final standard is expected to take effect starting with the 2026/2027 fiscal years.

Conclusion & Outlook

ESRS S2 is a key component in ensuring human rights throughout the supply chain. Companies that begin a structured implementation early on can minimize risks and secure a competitive advantage.

ESRS S2 FAQ – Workers in the Value Chain

ESRS S2 covers all employees in the value chain who are not part of the company’s own workforce, such as suppliers, subcontractors, or external service providers.

S1 covers the company's own workforce, while S2 covers workers in the upstream and downstream value chain.

Companies with fewer than 750 employees may defer ESRS S2 for the first two years. Additional quick-fix relief applies to Wave 1 companies.

No, ESRS S2 does not prescribe fixed parameters. Companies set their own targets, but must present them in a consistent and transparent manner.

The implementation begins with the CSRD requirements. The initial exemptions will expire in 2026/2027, after which ESRS S2 will become mandatory for all affected companies.

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Last updated: September 5, 2025