But our recent research on CSRD early adopters revealed a significant gap: value chain reporting is one of the biggest areas where companies are falling short, often giving little or no insight into the full scope of their value chains. For many, this means starting from square one.
So, let’s break it down:
What is a value chain?
The value chain is the entire ecosystem of activities, resources, and relationships a business relies on to create and deliver value. It stretches far beyond direct suppliers, encompassing everything that influences your operations, even indirectly.
Don’t confuse value chains with supply chains:
- Supply chain: Focuses on sourcing materials and delivering goods to customers.
- Value chain: Covers everything from sourcing to product delivery, waste management, and more. It’s a full-spectrum view of all the activities and partnerships that bring your product or service to life—from upstream suppliers to downstream customers and beyond.
The value in value chain reporting
Value chains are essential for sustainability reporting, because many risks and opportunities can lie outside of a company’s direct operations. Focusing solely on internal processes means you can miss the bigger picture of your environmental and social impact. By evaluating the entire value chain, businesses can identify these key risks and opportunities—leading to more accurate, comprehensive reporting.
It’s no wonder that the CSRD and ESRS require companies to include material information on the upstream and downstream value chain in their sustainability statements. EFRAG also recommends that reporters visually map out their entire value chain in a ‘value chain map’. The map highlights key players (such as suppliers, distributors, and customers) and stages where material issues—such as environmental risks or human rights concerns—might arise. Our latest research highlights good practice in value chain mapping—check it out here: https://insights.luminous.co.uk/csrd-is-here.-are-you-ready
Using the materiality assessment for value chain mapping
A robust double materiality assessment is the bedrock of ESRS reporting, helping you capture key impacts, risks and opportunities (IROs) in your value chain. But where to begin? As highlighted in the ESRS guidelines, your materiality process should be designed to meet your company’s specific needs and circumstances. One of the first critical steps is understanding the context in which your company operates.
- Know your value chain: Start by understanding the business actors involved in your value chain, their size, locations, and processes to identify potential IROs.
- Link to strategy: Consider how your company’s strategy and business model are connected to these IROs, including upstream (suppliers) and downstream (customers) activities.
- Map your value chain: Trace or map your value chain to pinpoint high-risk areas. If information is limited, use general data about global value chains relevant to your materials or products.
- Leverage existing knowledge: Use your due diligence process to make sure your assessment is as thorough and relevant as possible.
- Engage stakeholders: Collaborate with stakeholders to validate impacts and gain insights into potential risks and opportunities.
In short, understanding your value chain’s context and engaging your stakeholders are vital for uncovering material IROs. A well-designed materiality assessment sets the stage for strategic decision-making.
Curious about our CSRD early adopters research and findings? Download our report here. Whether you’re new to sustainability reporting or have years of experience, evolving regulations are reshaping the landscape. If you need help thinking about how you can prepare, please get in touch with sarah.roper@luminous.co.uk.
{%- endset -%} {%- set hs_blog_post_summary -%}In May, EFRAG published a three-part guidance series to help ESRS reporters. One shed light on how to effectively report on the value chain. This guidance breaks down the steps—from assessing material impacts to setting clear policies, actions, metrics, and targets.
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