The impact of CSRD on value chain reporting

The Corporate Sustainability Reporting Directive (CSRD) is set to significantly impact organisations within the value chains of larger companies, even if those organisations are not directly subject to the directive.

Understanding CSRD's reach

The CSRD extends sustainability reporting requirements beyond direct participants to include entire value chains. This means that smaller businesses, which might not be legally obligated to report, will still face indirect pressures to align with sustainability standards. Larger companies will require these smaller entities to provide data on environmental, social, and governance (ESG) metrics to fulfil their own reporting obligations.

According to Cathy Faria, Sustainability Manager at RSM UK, "Even if a small company is not being asked to report on sustainability data from their customers, sustainability performance will increasingly become a consideration in tender processes for new contracts and in investment mechanisms". This highlights the growing importance of ESG compliance for maintaining competitiveness. With the upcoming Corporate Sustainability Due Diligence Directive (CSDDD) further emphasising due diligence of human rights and environmental impacts, implementing comprehensive sustainability practices across reporting value chains is essential.

Preparing for increased data requests from CSRD-reporting companies

To prepare for the increased data requests from CSRD-reporting companies, organisations within the value chain must first familiarise themselves with the types of qualitative and quantitative data they may be expected to provide. For instance, they should begin assessing their greenhouse gas (GHG) emissions and consider how they can track and report this information effectively. Companies should also conduct gap assessments to identify existing processes and areas that require development. Investing time and resources into developing systems for tracking high-priority non-financial data is crucial for meeting future reporting expectations.

The implementation of technology solutions can enhance data collection efficiency, ensuring that organisations can respond promptly to incoming requests from larger companies. Companies must ensure the data they provide complies with third-party assurance requirements, as there is heightened scrutiny on data accuracy and reliability. CSRD-reporting companies may request that value chain entities to demonstrate how they ensure the accuracy of their data. This is particularly important because reporting companies are required to have their own data verified, and in many cases, value chain data—such as that related to scope 3 emissions reductions—contributes to these assurances.

SMEs should also monitor the development of the Voluntary Sustainability Management Evaluation (VSME) standard. EFRAG is in the process of finalising the standard, which is designed to help SMEs structure their reporting clearly, aligning with the needs of larger players and the financial sector.

Overcoming challenges in sustainability data collection

Gathering accurate sustainability data across an entire value chain presents several challenges. One primary challenge involves assessing which companies are part of the value chain. While identifying Tier 1 (direct) suppliers may be straightforward, understanding impacts, risks, and opportunities further down the chain requires deeper analysis. Many companies are still at the beginning stages of their ESG journeys, making it difficult to collect consistent and comparable data across various suppliers. Furthermore, supply chains are becoming increasingly complex; organisations often lack visibility over Tier 2 (indirect) materials and suppliers or raw materials at deeper tiers.

There is also a significant need for upskilling among suppliers. Larger companies cannot expect smaller organisations to bear the financial and resource burden of collecting required data independently. The regulatory landscape is continuously evolving, necessitating that companies keep pace with changing requirements to understand what information they need to collect.

Deborah Fischer, Partner at RSM Belgium, highlights that "Most companies are not yet collecting ESG information or are just starting to report which makes collection difficult at this point”. This underscores the need for robust systems and collaboration throughout the supply chain.

Strategies for engaging value chain partners in meeting CSRD requirements

To effectively engage and support their value chain partners in meeting CSRD requirements, reporting companies should focus on stakeholder engagement. Setting clear expectations through early communication can help establish strong, collaborative relationships. Training initiatives such as workshops and webinars can assist partners in understanding how to collect necessary sustainability information. Additionally, leveraging technology platforms like SEDEX allows suppliers to complete standardised questionnaires that are accessible by all customers who are SEDEX members, thereby reducing the reporting burden on suppliers.

Proactive preparation for CSRD requirements presents numerous opportunities for organisations within the value chain. Companies that take this initiative may find themselves preferred partners as larger firms set stricter criteria for selecting suppliers aligned with their ESG strategies. Furthermore, proactive engagement enables organisations to better understand sustainability-related risks and opportunities that could impact their operations. For example, identifying risks associated with supply chain disruptions—such as sourcing water-intensive materials from areas facing water stress—allows companies to seek alternative suppliers or materials proactively.

Trish Beltran, Director, RSM US, outlines that "For SMEs that fail to meet these expectations, there is a potential risk of losing business. Larger companies may prioritise suppliers aligned to their ESG and sustainability goals, putting non-compliant smaller businesses at a competitive disadvantage”. This risk reinforces how proactive measures can lead to enhanced commercial opportunities. By preparing thoroughly for CSRD requirements, organisations can gain a competitive edge while fostering trust with external stakeholders such as customers and investors.

The CSRD and its paradigm shift in sustainability reporting 

The CSRD represents a significant shift in how companies approach sustainability reporting, extending its influence across entire value chains. By understanding the Directive's implications and preparing accordingly, organisations can not only comply but also leverage this transition as an opportunity for growth and improved stakeholder relations. Faria states, "Stakeholder engagement is key – early engagement with your largest suppliers where you know they are in scope for CSRD can strengthen relationships". This proactive approach will be essential as the ESG regulatory landscape continues to evolve.

If you have any questions related to the Corporate Sustainability Reporting Directive (CSRD), or any other ESG and sustainability matters, please get in touch with us or any of our experts.