Responding to ESRS-S1 and ESRS-S2

Liudmila Chambers

Principal Consultant

Operations & Supply Chain

Ellie Wilson

Senior Consultant

Operations & Supply Chain

Contents

• What are ESRS S1 and ESRS S2?
• What does the standard cover?
• Who do the standards apply to?
• Connection with sustainability regulations
• How to get started
• How can Anthesis support?
• Contact us

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Liudmila Chambers, Anthesis’ Service Line Lead for Supply Chain Due Diligence, and Ellie Wilson, Senior Consultant for Operations & Supply Chain, share insights into the two ESRS social standards, detailing what they encompass, their connection to the broader sustainability reporting landscape, and how organisations can prepare.

Overview of the ESRS standards

Two cross-cutting ESRSs and ten topic-specific ESRSs (5 environmental, 4 social and 1 on governance) will require disclosure on governance, strategy, and impact, risk and opportunity management.

Number	Subject
ESRS 1	General Requirements
ESRS 2	General Disclosures
ESRS E1	Climate
ESRS E2	Pollution
ESRS E3	Water and marine resources
ESRS E4	Biodiversity and ecosystems
ESRS E5	Resource use and circular economy
ESRS S1	Own workforce
ESRS S2	Workers in the value chain
ESRS S3	Affected communities
ESRS S4	Consumers and end users
ESRS G1	Business conduct

What are ESRS S1 and ESRS S2?

ESRS S1 (Own Workforce) and S2 (Workers in the Value Chain) are two of the ten topical standards that form part of the Corporate Sustainability Reporting Directive (CSRD), developed by the European Financial Reporting Advisory Group (EFRAG). These topical standards focus on human rights impacts, risks and opportunities (IROs) related to workers in an organisation’s operations. This includes both direct employees and “non-employees” (such as self-employed individuals or temporary workers provided by employment agencies), as well as workers in the organisation’s upstream and downstream value chains.

The two standards address very similar human rights issues, with the only difference being that ‘water and sanitation’, is explicitly listed as a sub-sub-topic for ESRS S2 but not for S1.

Explore the topics covered by ESRS S1 and S2

Topics covered by ESRS S1 and S2

Working conditions	• Secure employment • Working time • Adequate wages • Social dialogue • Freedom of association • Collective bargaining • Work-life balance • Health and safety
Equal treatment and opportunities for all	• Gender equality and equal pay for work of equal value • Training and skills development • Employment and inclusion of persons with disabilities • Measures against violence and harassment in the workplace • Diversity
Other work-related rights	• Child labour • Forced labour • Adequate housing • Privacy • ESRS S2 only: Water and sanitation

What do the ESRS S1 and ESRS S2 standards cover?

ESRS S1 includes up to 200 data points, while ESRS S2 includes up to 70. Both standards cover the company’s strategy, management of impacts, risks, and opportunities related to human rights in own operations and value chains, as well as specific metrics and targets. Although the requirements for strategy and managing of impacts, risks, and opportunities are quite similar between ESRS S1 and S2, ESRS S1 includes significantly more metrics and targets for reporting.

Explore the Disclosure Requirements in ESRS S1 and S2

Disclosure Requirements in ESRS S1 and S2

Requirements	ESRS S1	ESRS S2
Strategy	• ESRS 2 SBM-2: Interests and views of stakeholders • ESRS 2 SBM-3: Material impacts, risks and opportunities and their interaction with strategy and business model	• ESRS 2 SBM-2: Interests and views of stakeholders • ESRS 2 SBM-3: Material impacts, risks and opportunities and their interaction with strategy and business model
Management of impacts, risks and opportunities	• S1-1: Policies related to own workforce • S1-2: Processes for engaging with own workforce and workers’ representatives about impacts • S1-3: Processes to remediate negative impacts and channels for own workforce to raise concerns • S1-4: Taking action on material impacts on own workforce, and approaches to managing material risks and pursuing material opportunities related to own workforce, and effectiveness of those actions	• S2-1: Policies related to value chain workers • S2-2: Processes for engaging with value chain workers about impacts • S2-3: Processes to remediate negative impacts and channels for value chain workers to raise concerns • 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
Metrics and targets	• S1-5: Targets related to managing material negative impacts, advancing positive impacts, and managing material risks and opportunities • S1-6: Characteristics of the undertaking’s employees • S1-7: Characteristics of non-employees in the undertaking’s own workforce • S1-8: Collective bargaining coverage and social dialogue • S1-9: Diversity metrics • S1-10: Adequate wages • S1-11: Social protection • S1-12: Persons with disabilities • S1-13: Training and skills development metrics • S1-14: Health and safety metrics • S1-15: Work-life balance metrics • S1-16: Remuneration metrics (pay gap and total remuneration) • S1-17: Incidents, complaints and severe human rights impacts	• S2-5: Targets related to managing material negative impacts, advancing positive impacts, and managing material risks and opportunities

Each requirement is broken down into specific Disclosure Requirements (DRs), with detailed guidance provided in the accompanying Application Requirements (ARs). These DRs and ARs cover over 30 pages for ESRS S1 and over 10 pages for ESRS S2. Additionally, like other standards, both are subject to materiality based on the specific material impacts, risks and opportunities identified by the business. Given this complexity, it’s no surprise that companies find these two standards particularly challenging.

Who do ESRS S1 and ESRS S2 standards apply to?

As with other topical standards, companies under the scope of the CSRD are only required to report on the ESRS S1 and S2 standards if the human rights issues addressed by these standards are considered material in the Double Materiality Assessment process. Since a company’s success relies heavily on its workforce, we expect that all companies subject to the CSRD will need to report on ESRS S1 metrics. However, the ESRS standards include phase-in provisions for this standard, which include:

• Businesses with fewer than 750 employees can omit the information required by ESRS S1 for the first year of preparing their sustainability statement
• Businesses with more than 750 employees can omit data points on non-employee workers, employees with disabilities, certain aspects of health and safety, work-life balance, collective bargaining and social dialogue, social protection, and training and skills development in the first year of CSRD reporting 

Similarly, for most companies under the CSRD, impacts, risks and opportunities related to workers in the value chain will likely be material, particularly for industrial companies or those in the agriculture or apparel/textiles sector. ESRS S2 may be less material for businesses in the service sector, where office-based companies may have limited impacts on – and dependence on – their value chains. Like other topical standards, if a company concludes that the sub-topics and sub-sub-topics covered by ESRS S2 are not material, it must provide a detailed explanation of this conclusion. Therefore, companies will not be able to simply omit this standard without well-substantiated reasons. 

For smaller businesses subject to CSRD, ESRS S2 can be fully omitted by companies with fewer than 750 employees for the first two years of preparing their sustainability statement. Thus, smaller companies will have an additional year to collect their ESRS S2 data before their reporting obligations under ESRS S1 begin.

It’s easy to feel overwhelmed by the complexity of what may or may not be omitted. In our experience working with companies on their human rights due diligence in operations and supply chains, many of these data points are not easily available in centralised systems. It is therefore critical that companies start their data collection journey early, even if they have a few more years before these data points need to be reported. 

Connection with the wider sustainability regulatory landscape

Reporting on ESRS S1 and S2 standards will also support compliance with other sustainability regulations, such as the recently adopted Corporate Sustainability Due Diligence Directive (CSDDD). The CSDDD requires companies to conduct rigorous risk-based due diligence in their operations and ‘chains of activities’ to identify, assess, prevent, mitigate, bring to an end, and remediate their adverse impacts on human rights and the environment. Human rights topics covered by the CSDDD and the ESRS S1 and S2 standards are broadly aligned. Therefore, by collecting data required to report on ESRS S1 and S2 standards, companies can gather a substantial amount of information they will need for CSDDD in the future.

However, there are several important distinctions between ESRS S1 and 2 and CSDDD. Under ESRS S1 and S2 standards, companies are required to report not only on adverse impacts but also on material positive impacts. Additionally, CSRD-compliant reports must include data points on financial risks and opportunities related to the company’s own workforce and value chain workers. This goes beyond the CSDDD’s focus on adverse impacts alone. 

Another significant difference is the terminology: the CSDDD’s ‘chain of activities’ is slightly narrower than the ESRS S2’s ‘value chain.’ The term ‘chain of activities’ in the CSDDD encompasses all upstream activities (Tier 1 and beyond) but only some downstream activities (e.g., distribution, transport and storage of products). In contrast, ‘value chains’ under ESRS S2 include all downstream activities, meaning that ESRS S2 requires considering impacts on workers in a wider range of contexts.

How to get started with ESRS S1 and S2

Based on our experience assisting companies in developing human rights and supply chain due diligence policies and processes, we recommend that businesses within the scope of the CSRD begin their ESRS S1 and S2 reporting journey by taking the following steps:

• Human rights policy: Review and update policies that address respect for human rights in both their own operations and value chains
• Stakeholder engagement: Engage with stakeholders to gain a deeper understanding of the impacts, risks and opportunities related to their workforce and workers in the value chain
• Risk assessments: Conduct human rights risk and impact assessments covering own operations and value chains to identify operations, commodities and geographies with significant human rights risks, in particular focusing on forced labour and child labour.
• Due diligence processes: Design due diligence processes related to employees and workers in the value chain and ensure that monitoring systems are in place to track the effectiveness of these due diligence efforts
• Grievance mechanisms: Review and, if necessary, design new grievance mechanisms to allow employees, as well as workers in the value chain, to raise concerns
• Remediation processes: Ensure a robust remediation process is in place to provide for or cooperate in the remediation of adverse impacts
• Targets: Define measurable targets to track the success of due diligence efforts in coordination with internal teams (such as Human Resources, Health and Safety, Procurement and Sustainability)
• Data collection: Work across teams to collect specific metrics on the workforce

How can Anthesis support?

Reporting on ESRS S1 and ESRS S2 requires technical knowledge of human rights due diligence, as well as an understanding of global supply chains and procurement processes. Our global Human Rights and Supply Chain team has extensive expertise in developing human rights and other related policies, conducting human rights and supply chain risk assessments, designing grievance mechanisms and remediation processes, as well as supporting companies in defining targets, KPIs, and tracking progress against them. Our sector-specific experts can also advise on how to manage, prevent and mitigate material risks, for example through sourcing guidelines, strategies and roadmaps, and support with the implementation of these through activities such as capacity building and tailored supplier engagement programmes.