Workers in the Value Chain
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The goal of this standard is to specify disclosure requirements that would enable users of the sustainability statement to understand material impacts on value chain workers connected with the company’s own operations and value chain, including through its products or services, as well as through its business relationships, and its related material risks and opportunities. This includes:
how the company affects workers in its value chain, in terms of material positive and negative actual or potential impacts;
any actions taken, and the result of such actions, to prevent, mitigate or remediate actual or potential negative impacts, and to address risks and opportunities;
the nature, type and extent of the company’s material risks and opportunities, including those related to its impacts and dependencies on workers in the value chain, and how the company manages them; and
the financial effects on the company over the short-, medium- and long-term of material risks and opportunities, including those arising from the company’s impacts and dependencies on workers in the value chain.
In order to achieve the goal of this standard, the company needs to provide an explanation of the general approach it takes to identify and manage any material actual and potential impacts on value chain workers, in relation to:
working conditions, for example, secure employment, working time, adequate wage, social dialogue, freedom of association, including the existence of work councils, collective bargaining, work-life balance and health and safety;
equal treatment and opportunities for all, for example, gender equality and equal pay for work of equal value, training and skills development, the employment and inclusion of persons with disabilities, measures against violence and harassment in the workplace, and diversity;
other work-related rights, for example, child labour, forced labour, adequate housing, water and sanitation and privacy.
The company may also consider disclosing information about temporary issues like worker health and safety during a pandemic. However, the company is not required to disclose all the matters listed above, only those that are material to its operations.
The company should explain how its impacts and dependencies on workers could create material risks or opportunities for the business. For example, poor treatment of workers could harm its reputation, while supporting workers’ rights could bring business benefits, like more reliable suppliers or expanding the customer base.
This standard covers all workers in the company’s upstream and downstream value chain who are or can be materially impacted by the company, including impacts that are connected with the company’s own operations and value chain, including through its products or services, as well as through its business relationships. This includes all workers who are not included in the scope of “own workforce” (see ESRS S1).
Examples of workers that fall within the scope of this standard are:
workers of outsourced services working in the company’s workplace e.g., third party catering or security workers;
workers of a supplier contracted by the company who work on the supplier’s premises using the supplier’s work methods;
workers of a ‘downstream’ entity which purchases goods or services from the company;
workers of an equipment supplier, who work at a workplace controlled by the company and perform regular maintenance on the supplier’s equipment (e.g., photocopier) as stipulated in the contract between the equipment supplier and the company;
workers deeper in the supply chain who are extracting commodities that are then processed into components that go in the company’s products.
(Expand each chapter below to view more details about the disclosure requirements of this standard.)
CH 1. Strategy
Value chain workers are an important group of stakeholders, and their concerns should be taken into account when forming the company’s strategy and business model.
The company should explain how the interests, rights, and views of value chain workers could be affected by the company. This includes respecting their human rights and considering how this impacts the company’s strategy and business model.
The company should disclose whether and how it considers its strategy and business model in relation to creating, worsening, or reducing significant impacts on value chain workers. It should also explain how the strategy and business model are adjusted to address these impacts.
The company should disclose:
whether and how actual and potential impacts on value chain workers, as identified in ESRS 2 IRO-1:
originate from or are connected to the company’s strategy and business models, and
inform and contribute to adapting the company’s strategy and business model;
the relationship between its material risks and opportunities arising from impacts and dependencies on value chain workers, and its strategy and business model.
The company should disclose whether all value chain workers who are likely to be materially impacted by the company, including impacts that are connected with the company’s own operations and value chain, its products or services, as well as through its business relationships, are included in the scope of its disclosure under ESRS 2. In addition, the company should provide the following information:
a brief description of the types of value chain workers who could be materially impacted by the company’s operations and specify whether they are:
workers working on the company site but who are not part of own workforce, i.e., who are not self-employed workers or workers provided by third party companies primarily engaged in employment activities;
workers working for entities in the company’s upstream value chain e.g., those involved in the extraction of metals or minerals or harvesting of commodities, in refining, manufacturing or other forms of processing;
workers working for entities in the company’s downstream value chain e.g., those involved in the activities of logistics or distribution providers, franchisees, retailers;
workers working in the operations of a joint venture or special purpose vehicle involving the reporting company;
workers who (within the prior categories or additionally) are particularly vulnerable to negative impacts whether due to their inherent characteristics or to the particular context, such as trade unionists, migrant workers, home workers, women or young workers.
any geographies, at country level or other levels, or commodities for which there is a significant risk of child labour, or of forced labour or compulsory labour, among workers in the company’s value chain;
in the case of material negative impacts, whether they are either
widespread or systemic in contexts where the company operates or has sourcing or other business relationships (e.g., child labour or forced labour in particular commodity supply chains in specific countries or regions), or
related to individual incidents (e.g., an industrial accident or an oil spill) or to specific business relationships. This includes consideration of impacts on value chain workers that may arise from the transition to greener and climate-neutral operations. Potential impacts include impacts associated with innovation and restructuring, closure of mines, increased mining of minerals needed for the transition to a sustainable economy, and solar panel production;
in the case of material positive impacts, a brief description of the activities that result in the positive impacts (e.g., updated purchasing practices, capacity-building to supply chain workers), including providing opportunities for the workforce such as job creation and upskilling in the context of a ‘just transition’, and the types of value chain workers that are positively affected or could be positively affected. The company may also disclose whether the positive impacts occur in specific countries or regions; and
any material risks and opportunities for the company arising from impacts and dependencies on value chain workers.
When describing the main types of value chain workers who might be negatively affected, based on the materiality assessment in ESRS 2 IRO-1, the company should explain if and how it identified which workers are at greater risk of harm. This includes considering workers with certain characteristics, those working in specific situations, or those performing certain activities that may make them more vulnerable.
The company should disclose if any of its material risks and opportunities, which come from its impacts and dependencies on value chain workers, apply to specific groups of workers. This could include particular age groups, workers in certain factories, or workers in specific countries, rather than applying to all value chain workers.
Impacts on value chain workers can arise from the company’s strategy or business model in several ways. For example, a company’s focus on offering low-cost products or fast delivery might put pressure on workers’ rights in its value chain. Similarly, relying on commodities with unclear origins might mean the company doesn’t have visibility into how workers are treated in its supply chain. Other impacts could come from cost-cutting measures, like shifting inventory risk to suppliers, which may affect workers’ rights in those suppliers’ operations.
These impacts can also create risks for the company. For example, companies that depend on temporary workers with limited health benefits might face severe operational risks during a health crisis like a pandemic. These workers might be forced to work while sick, spreading the illness and disrupting the supply chain. If a company sells products based on offering the lowest prices, suppliers under pressure might sub-contract work, leading to lower quality and less control over the supply chain. There are also reputational risks if the company is seen to exploit low-paid, low-skilled workers in regions with minimal worker protections, especially with rising consumer demand for ethically sourced goods.
The company should also consider the specific characteristics of certain workers who may be more vulnerable to impacts. For example, young workers may face physical and mental risks, or women workers in places where discrimination is common. Migrant workers may be at risk if the labor market is poorly regulated, and some workers may be exposed to dangerous tasks, like handling chemicals or operating heavy machinery.
Finally, material risks can arise because the company depends on value chain workers. Even low-likelihood events, like a global pandemic, could have a huge financial impact if it disrupts production and distribution. Other risks could include shortages of skilled workers or changes in laws affecting logistics workers. For instance, if a company’s value chain involves forced labor, it could face risks when importing goods into countries where products made with forced labor can be confiscated by authorities.
CH 2. Impact, risk and opportunity management
The company should explain the policies it has in place to manage the IROs related to value chain workers, in order to show it addresses the identification, assessment, management, and potential remediation of these impacts.
This disclosure should include information about the company’s policies, how they address material impacts on value chain workers, and how they manage risks and opportunities. It should also clarify whether the policies cover all value chain workers or just specific groups.
The company should also describe its human rights policies, especially those that affect value chain workers. This includes processes and mechanisms for ensuring compliance with key international standards, such as the UN Guiding Principles on Business and Human Rights, the ILO Declaration on Fundamental Principles and Rights at Work, and the OECD Guidelines for Multinational Enterprises. The company should focus on matters related to human rights, labor rights, engagement with value chain workers, and providing remedies for human rights issues.
Additionally, the company should also state whether its policies specifically address issues like human trafficking, forced labor, compulsory labor, or child labor. It should also confirm if it has a supplier code of conduct.
Moreover, the company should explain how its policies align with internationally recognized instruments like the UN Guiding Principles on Business and Human Rights. It should also disclose any cases of non-compliance with these international standards in its value chain, including the nature of those cases.
If the company’s policies only apply to its own employees and not to workers in its upstream or downstream supply chain, these should be disclosed under ESRS S1 rather than under this requirement. If it already disclosed relevant information about value chain workers in its ESRS S1 report, it can reference that here and complete the remaining disclosures under this requirement.
The company can also explain any significant changes to its policies during the reporting year, such as new expectations for suppliers or new approaches to due diligence and remediation.
A particular policy could be a separate document specifically about value chain workers, or it may be part of a broader policy like a code of ethics or sustainability document. If this is the case, the company should provide a clear reference to the relevant parts of the policy.
To explain how the company’s external-facing policies are embedded, it may refer to its internal policies related to responsible sourcing and alignment with other policies that affect value chain workers e.g., policies on forced labour. If the company has a supplier code of conduct, it should explain whether it covers issues such as worker safety, precarious work e.g., temporary or subcontracted workers, human trafficking, forced labour, or child labour. It should also confirm if these provisions comply with ILO standards.
The company can also illustrate how it communicates its policies to relevant groups, such as employees, contractors, and suppliers, or to those who have a direct interest in their implementation e.g., workers or investors. This can include the tools and channels used for communication e.g., newsletters, websites, social media, or face-to-face meetings. It can also explain how it ensures accessibility to these policies, such as through translation or graphic depictions.
The company should explain how it engages with value chain workers and their representatives to discuss any impacts (both positive and negative) that affect them now or in the future. It should explain how it uses the perspectives of value chain workers to shape its decisions and actions on managing impacts on those workers. This includes:
whether it engages directly with workers or their representatives, or uses trusted intermediaries with knowledge of their situation;
when, how, and how often this engagement happens;
which senior role in the company ensures this engagement occurs and influences company actions;
whether the company has any global agreements with unions or similar organizations that help understand workers’ views, especially on human rights and collective bargaining.
how the company measures the success of its engagement, and any outcomes or agreements resulting from it.
The company should also explain the steps it takes to understand the views of workers who may be more vulnerable or marginalized, such as women, migrant workers, or workers with disabilities;
If the company doesn’t have a process for engaging with workers in its value chain, it should disclose this and, if applicable, share a timeline for when it plans to establish such a process.
When explaining which role or function is responsible for engaging with workers, the company may clarify if this is a dedicated role or part of a broader function, and whether any training has been provided to help staff with this task. If no specific role is identified, the company should state this. This disclosure can also be linked to information shared under ESRS 2 GOV-1 regarding the governance structure.
When disclosing engagement details, the company could consider providing examples like:
stages of engagement e.g., deciding on how to address impacts or evaluating mitigation effectiveness;
types of engagement e.g., participation, consultation, or simply sharing information;
frequency of engagement e.g., regular check-ins, seasonal updates, or in response to legal or stakeholder demands;
for the role with operational responsibility, whether staff is trained or required to have specific skills for this task.
To demonstrate how worker perspectives have influenced decisions, the company could provide examples from the current reporting period.
The company should describe the processes it follows for addressing and cooperating in the remediation1 of negative impacts on value chain workers. This includes providing channels for workers to raise concerns and ensuring these issues are addressed effectively.
The company should disclose:
its approach and processes for providing remedies for negative impacts on value chain workers and how it ensures the remedy is effective;
specific channels for workers to raise concerns, including whether the company has established them or if they are third-party mechanisms;
support or requirements for such channels in the workplace, including those provided by the company or other stakeholders;
tracking and monitoring of concerns raised, ensuring these channels are effective, and involving relevant stakeholders in this process;
how it ensures workers are aware of and trust these channels for raising concerns; and
any policies protecting individuals from retaliation when using these channels. If this information is already covered in ESRS G1-1, the company may refer to that disclosure.
If the company has not set up such channels or processes, it should disclose this and provide a timeline for when it plans to implement them.
Channels for raising concerns or needs include grievance mechanisms, hotlines, trade unions (where workers are unionized), and dialogue processes. These channels can be provided directly by the company or by other entities where the workers are employed. Additionally, the company may use mechanisms like compliance audits to understand how impacts on workers are managed. If the company is relying on information from its business relationships about these channels, it can simply state that in its disclosure.
To provide more clarity on this disclosure, the company may explain whether value chain workers who might be affected by the company’s activities have access to grievance channels. These channels can be at the level of the company they are directly employed by or contracted to work for, and should be linked to addressing each material impact workers may experience.
Third-party mechanisms for raising concerns can be run by governments, NGOs, industry associations, or other collaborative initiatives. The company should disclose whether these mechanisms are accessible to all workers who might be impacted by the company’s activities, or to individuals or organizations acting on their behalf.
The company should explain how it protects individuals who use grievance mechanisms from retaliation. This includes ensuring that grievances are treated confidentially and that workers’ privacy and data protection rights are respected. The company should also disclose if the mechanisms allow workers to raise concerns anonymously, such as through a third party, to further safeguard their protection.
The company should disclose how it knows that value chain workers are aware of and trust the grievance channels available to them. This can be done by providing data on the effectiveness of these channels, as reported by the workers themselves. For example, the company may share results from surveys conducted with workers who have used the channels, including their satisfaction with the process and outcomes.
In describing the effectiveness of channels for value chain workers to raise concerns, the company may be guided by the following questions, based on the “effectiveness criteria for non-judicial grievance mechanisms”, as laid out in principle 31 of the UN Guiding Principles on Business and Human Rights:
do the channels have legitimacy by providing appropriate accountability for their fair conduct and building stakeholder trust?
are the channels known and accessible to stakeholders?
do the channels have clear and known procedures, with indicative timeframes?
do the channels ensure reasonable access for stakeholders to sources of information, advice, and expertise?
do the channels offer transparency by providing sufficient information both to complainants and, where applicable, to meet any public interest?
do outcomes achieved through the channels align with internationally recognized human rights?
does the company identify insights from the channels that support continuous learning in both improving the channels and preventing future impacts?
does the company focus on dialogue with complainants as the means to reach agreed solutions, rather than seeking to unilaterally determine the outcome?
The company should explain how it addresses significant impacts on value chain workers, manages related risks, and pursues opportunities. Additionally, it should disclose how effective these actions are in achieving their intended outcomes.
For material impacts, the company should describe:
actions taken, planned or underway to prevent or mitigate material negative impacts on value chain workers;
whether and how it has taken action to provide or enable remedy in relation to an actual material impact;
any additional actions or initiatives it has in place with the primary purpose of delivering positive impacts for value chain workers; and
how it tracks and assesses the effectiveness of such actions and initiatives in delivering intended outcomes for value chain workers.
The company should also explain:
the processes through which it identifies what action is needed and appropriate in response to a particular actual or potential negative impact on value chain workers;
its approach to taking action in relation to specific material negative impacts on value chain workers, including any action in relation to its own purchasing or other internal practices, as well as capacity-building or other forms of engagement with entities in the value chain, or forms of collaborative action with industry peers or other relevant parties; and
how it ensures that processes to provide or enable remedy in the event of material negative impacts are available and effective in their implementation and outcomes.
In relation to material risks and opportunities, the company should describe:
what action is planned or underway to mitigate material risks for the company arising from its impacts and dependencies on value chain workers and how it tracks effectiveness in practice; and
what action is planned or underway to pursue material opportunities for the company in relation to value chain workers.
The company may consider the following:
risks related to the company’s impacts on value chain workers, which may include the reputational or legal exposure where value chain workers are found to be subject to forced labour or child labour;
risks related to the company’s dependencies on value chain workers, which may include disruption of business operations where a pandemic closes significant parts of its supply chain or distribution network;
opportunities related to the company’s impacts on value chain workers, which may include market differentiation and greater customer appeal from guaranteeing decent pay and conditions for non-employee workers; and
business opportunities related to the company’s dependencies on value chain workers, which might include the achievement of a future sustainable supply of a commodity by ensuring smallholder farmers earn enough to persuade future generations to keep farming that crop.
The company should disclose whether and how it takes action to avoid causing or contributing to material negative impacts on value chain workers through its own practices, including, where relevant, in relation to procurement, sales and data use. This may include disclosing what approach is taken when tensions arise between the prevention or mitigation of material negative impacts and other business pressures.
The company should also disclose whether severe human rights issues and incidents connected to its upstream and downstream value chain have been reported and, if applicable, disclose these.
Additionally, it should disclose what resources are allocated to the management of its material impacts, with information that enables users to gain an understanding of how the material impacts are managed.
When the company discloses its involvement in an industry or multi-stakeholder initiative to address significant negative impacts, it may explain how the initiative and its participation aim to tackle the issue. It can also disclose the relevant targets set by the initiative and progress towards them under ESRS S2-5.
In disclosing how it tracks the effectiveness of its actions to manage material impacts during the reporting period, the company may disclose any lessons learned from the previous and current reporting periods. Processes used to track the effectiveness of actions can include internal or external auditing or verification, court proceedings and/or related court decisions, impact assessments, measurement systems, stakeholder feedback, grievance mechanisms, external performance ratings, and benchmarking.
With regard to initiatives or processes the company has in place that are based on affected workers’ needs and with regard to progress in the implementation of such initiatives or processes, the company may disclose:
information about whether and how value chain workers and legitimate representatives or their credible proxies play a role in decisions regarding the design and implementation of these programs or processes; and
information about the intended or achieved positive outcomes for value chain workers of these initiatives or processes.
When disclosing whether initiatives or processes also play a role in mitigating material negative impacts, the company may e.g., consider programs that aim to advance women workers’ financial literacy that have resulted in more women being promoted as well as in reports of reduced sexual harassment in the workplace.
When disclosing the resources allocated to the management of material impacts, the company may disclose which internal functions are involved in managing the impacts and what types of action they take to address negative and advance positive impacts.
CH 3. Metrics and targets
The company should disclose any time-bound and outcome-oriented targets it has set related to:
reducing negative impacts on value chain workers;
advancing positive impacts on value chain workers; and/or
managing material risks and opportunities related to value chain workers.
The summarized description of the targets to manage material IROs related to value chain workers should include the requirements defined in ESRS 2 MDR-T.
The company should disclose the process for setting targets, including whether and how it engaged directly with workers in the value chain, their legitimate representatives, or credible proxies who have insight into their situation in:
setting any such targets;
tracking the company’s performance against them; and
identifying any lessons or improvements based on the company’s performance.
When disclosing information about targets, the company may include:
the intended outcomes to be achieved in the lives of value chain workers, being as specific as possible;
the stability of the targets over time in terms of definitions and methodologies, ensuring comparability over time;
the standards or commitments on which the targets are based, such as codes of conduct, sourcing policies, global frameworks, or industry codes.
Targets related to material risks and opportunities may be the same as or separate from targets related to material impacts. For example, a target to ensure living wages for supply chain workers could both reduce impacts on those workers and lower associated risks, such as the quality and reliability of the supply.
The company may also distinguish between short-, medium-, and long-term targets under the same policy commitment. For example, the company could have a long-term target to reduce health and safety incidents affecting workers of a specific supplier by 80% by 2030, and a near-term target to reduce overtime hours for delivery drivers by a certain percentage while maintaining their income by 2024.
When modifying or replacing a target during the reporting period, the company may explain the change by referencing significant changes in the business model or broader changes in accepted standards or legislation from which the target is derived, to provide contextual information, as outlined in ESRS 2 BP-2.
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Footnotes
Remediation is the process of correcting or fixing a problem.↩︎