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A vital component of the Corporate Sustainability Reporting Directive (CSRD) is a comprehensive understanding of an organisation’s value chain. The CSRD mandates that companies report on their activities across the whole value chain, upstream and downstream, rather than purely internal operations.
Where the CSRD mandates the reporting, the European Sustainability Reporting Standards (ESRS) dictate the specific standards and guidelines that organisations must adhere to in order to be CSRD compliant. This includes what information needs to be reported as well as how it needs to be presented, ensuring that all relevant aspects of the value chain are covered.
What is the value chain?
The value chain refers to all the activities, resources, and relationships that a business relies on to operate within its business model and external environment. This includes everything from the initial idea of a product or service to its final delivery, consumption, and disposal. Essentially, the value chain represents the entire lifecycle of a product or service offered by a company; this includes both upstream (e.g. suppliers) and downstream (e.g. distributors, customers/clients) activities.
Key components of the value chain:
The activities that comprise the value chain can be segmented into two main areas – primary activities and support activities.
Primary activities:
- Inbound logistics - Activities related to receiving, storing, and distributing raw materials or components. This includes inventory management and transportation.
- Operations - Activities involved in transforming raw materials into finished products. This includes manufacturing, assembly, and packaging.
- Outbound logistics - Activities related to distributing the finished products to customers. This includes warehousing, order fulfilment, and shipping.
- Marketing and sales - Activities that promote and sell the product. This includes advertising, pricing strategies, and sales tactics.
- Service - Activities that maintain and enhance the product’s value after it has been sold. This includes customer support, repairs, and maintenance.
Support activities:
- Procurement - Activities related to acquiring the raw materials and other inputs needed for the primary activities.
- Technology development - Activities related to improving processes and products, research and development, and innovation.
- Human resources management - Activities related to recruiting, hiring, training, and managing employees.
- Firm infrastructure - Activities related to a business's overall management, planning, finance, and legal aspects.
Why is the value chain important in the context of CSRD and ESRS?
The CSRD's end goal is to broaden the level of transparency and sustainability management across the relevant organisations affected by it. Additionally, it encourages companies to develop more robust strategies to improve their sustainability, as well as providing investors and stakeholders with more information about a company's sustainability impacts, risks, and opportunities.
Reporting that focuses solely on an organisation's internal operations rather than across the value chain would only provide a partial glimpse at the organisation's impacts on people and the environment. An organisation's major impacts, risks, and opportunities often exist outside of the organisation itself, usually occurring upstream or downstream in the value chain.
The nature of the CSRD and ESRS, alongside the goals they seek to achieve, demands that a broader scope of ESG data is captured in sustainability statements and reporting, ensuring that that the most well-rounded and transparent information possible is provided.
Become CSRD-ready with RSM’s leading ESG and sustainability experts
RSM can help you and your business prepare for CSRD compliance with our two primary service offerings:
- Double Materiality Assessment services – Conducting an independent Double Materiality Assessment to support the company’s auditors meet their assurance reporting requirements.
- CSRD compliant audit and assurance services - Subject to observing independence issues, RSM also provides CSRD Assurance services.
Frequently Asked Questions
The value chain includes both upstream and downstream activities, covering all tiers of the supply chain and business relationships beyond just direct contractual partners.
Companies are expected to make "reasonable efforts" to obtain value chain information. If data is not available, they can use estimates or proxies initially.
Yes, there is a 3-year transitional period where companies can omit certain value chain data if it's not available, as long as they explain their efforts to obtain it.
The CSRD's climate-related disclosures are designed to be consistent with TCFD recommendations, potentially allowing companies to meet both requirements simultaneously.
SMEs may be asked to provide data by larger companies subject to CSRD, but expectations should be lower for smaller SMEs with no prior sustainability reporting experience.
Companies can use internal estimates, sector data, or other reasonable proxies if direct data is not obtainable without undue cost or effort.
No, the reporting boundary remains aligned with consolidated financial statements. The value chain is additional information about impacts beyond this boundary.
The value chain should be included when assessing material impacts, risks and opportunities across environmental, social and governance topics
Some ESRS standards have specific value chain metrics (e.g. Scope 3 emissions), while others may require entity-specific disclosures for material value chain topics.