ESRS S2-5 Supply Chain Targets
ESRS S2-5 requires companies to disclose targets for managing material impacts on value chain workers. Supply chain human rights targets are relatively new to corporate reporting — most companies are establishing them for the first time under CSRD. Here is how to set credible, measurable targets that demonstrate genuine programme ambition.
ESRS S2-5 requires companies to disclose targets for managing material impacts on value chain workers. ESRS S2-5 requires disclosure of any time-bound, outcome-oriented targets the company has set for managing material impacts on value chain workers — and progress against those targets.
What ESRS S2-5 requires
ESRS S2-5 requires disclosure of any time-bound, outcome-oriented targets the company has set for managing material impacts on value chain workers — and progress against those targets.
For each target: the topic the target addresses (audit coverage, corrective action, living wage, worker engagement, etc.); the baseline value and year; the target value and achievement year; interim milestones; current year performance; and explanation of any significant variance from expected trajectory.
Target types most appropriate for S2-5:
Audit coverage targets: Percentage of high-risk tier 1 suppliers with an independent social audit within the last 24 months. Baseline: current coverage percentage. Target: 100% of high-risk suppliers within 2–3 years. This is the most common and most measurable S2-5 target.
Corrective action closure targets: Percentage of critical or major audit findings closed within the required timeframe. Baseline: current closure rate. Target: 95%+ closure within required timeframes. Measures programme effectiveness beyond just audit coverage.
Living wage targets: Percentage of tier 1 suppliers demonstrating that production workers earn a living wage (as defined by Anker Research or equivalent benchmark). Baseline: assessed percentage from supplier self-declaration or audit. Target: progressive increase toward 100% over a defined timeline.
Worker voice coverage: Percentage of high-risk supplier workers with access to an independent grievance channel accessible in their local language. Baseline: current coverage. Target: progressive rollout.
Setting credible S2-5 targets — baseline challenges
Supply chain human rights targets require baselines — and establishing credible baselines is the primary challenge for first-time ESRS S2-5 reporters.
Audit coverage baseline: Calculate the current percentage of your high-risk tier 1 suppliers with a valid audit — one conducted within your required frequency by an accredited firm using an accepted standard. This calculation requires: a current supplier risk assessment to define the high-risk population; a supplier audit database tracking audit dates, standards, and firms; and a coverage calculation. For most companies, this baseline work is a 2–4 week data exercise.
Corrective action closure baseline: Extract from your CAP management system — total findings raised in the past 12 months by severity; total closed within target timeframes; closure rate by severity category. Where no systematic CAP tracking exists, this baseline reveals a data infrastructure gap that must be addressed before meaningful target-setting.
Living wage baseline: This is the most challenging baseline — it requires knowing what production workers actually earn at your suppliers and comparing to a living wage benchmark for each geography. Methods: supplier self-declaration (low confidence); third-party living wage audit (high confidence but expensive at scale); inference from minimum wage data and country-level living wage benchmarks (medium confidence). Start with high-spend, high-risk suppliers for baseline establishment.
For first-year S2-5 disclosure: set targets with clear baseline caveats — 'Baseline established from first audit coverage assessment conducted in FY2026; target trajectory will be recalibrated as coverage data matures.' This is honest and credible; targets set without credible baselines are not.
Living wage targets — the frontier of S2-5 ambition
Living wage targets for supply chain workers represent the highest-ambition category of S2-5 targets — addressing the most fundamental working condition impact in many global supply chains.
Living wage benchmarks: Several organisations publish living wage figures by country and city that can serve as S2-5 target anchors: Anker Research Institute (methodology-based, widely accepted); Global Living Wage Coalition (methodology and benchmark data); Fair Wage Network (sector-specific); WageIndicator Foundation (global, annual updates).
The living wage gap: Most supply chain workers in developing economies earn at or modestly above minimum wage — but typically below the living wage benchmark for their location. The gap varies: in some regions (Bangladesh garments) the living wage is 3–4× the minimum wage; in others (Mexico automotive) the gap is smaller.
Cascading living wage commitments: Living wage targets in ESRS S2-5 must be accompanied by supplier engagement on how the target will be achieved — because suppliers cannot increase wages without either: higher prices from buyers (buyer responsibility to ensure purchase prices allow for living wages); improved productivity (joint productivity initiatives); or more efficient operations (supplier-driven improvement). A living wage target without a buyer price commitment mechanism is unlikely to be achieved.
ACT (Action, Collaboration, Transformation): The ACT initiative brings together brands and trade unions to address living wages through industry collective bargaining — brands commit to purchasing practices that support wages, unions negotiate sectoral wages, governments set enforceable minimum wages at living wage levels. ACT participation is a credible S2-5 living wage target mechanism for fashion and apparel companies.
Frequently asked questions
Must we set S2-5 targets if we have material S2 topics?
ESRS S2-5 requires disclosure of targets where they exist — it does not mandate that targets must be set. However, where significant adverse impacts on value chain workers are material (confirmed through your double materiality assessment) but no targets are set, assurers and investors will question the programme's credibility. Best practice sets at least an audit coverage target and a corrective action closure target for any company with a material S2 assessment.
Can living wage targets apply only to tier 1 suppliers for the first years?
Yes — and this is both reasonable and expected. Tier 1 suppliers are those where you have direct relationships and greatest leverage. Living wage targets for tier 1 production workers are a credible starting point. Acknowledge in the disclosure that tier 2 and beyond is a longer-term aspiration and describe your roadmap for extending scope. Progressive scope extension (tier 1 target achieved, then extending to top tier 2 suppliers) is more credible than ambitious targets that the programme cannot realistically deliver.
How do we set audit coverage targets when our high-risk supplier population changes annually?
Define the target against a dynamic denominator — 'maintain 90% of high-risk tier 1 suppliers with a valid audit at any point in time' rather than targeting a fixed supplier count. This accounts for supplier changes (new suppliers entering high-risk tier, existing suppliers de-risked through improvement or exit) without needing to revise the target. Track and disclose both the denominator (current high-risk supplier count) and the coverage percentage at year-end.