EFRAG recently published updated implementation guidance on how to report on the upstream and downstream value chain (VC) under the European Sustainability Reporting Standards (ESRS), and thus CSRD. This article summarises the seven key points. Find the full report here.
What is the value chain (VC)? 'The full range of activities, resources and relationships related to the undertaking's business model and the external environment in which it operates'. It includes, but is not limited too, the supply chain.
Summary in seven key points
Scope of sustainability statement:
The sustainability statement must cover all material impacts, risks, and opportunities (IROs) within the company’s upstream and downstream value chain.
This includes any indirect business relationships.
Business relationships - relationships the undertaking has with business partners, not limited to direct contractual relationships (includes indirect relationships, shareholdings, join ventures, investments).
Disclosure requirements:
Value chain information is only required in disclosures if it relates to material IROs beyond the company's own operations
Any IROs in the value chain that are not material do not have to be disclosed, but they can be if it assists with the comprehension of the report.
Double materiality assessment:
The double materiality assessment should identify material IROs in the VC, and where they are likely to materialise
E.g., geographies, activities, sectors, operations, suppliers, customers, other relationships etc.
Policies, Actions, and Targets (PATs):
The sustainability report must disclose on PATs for material matters. It should thus also include PATs for material matters in the VC, or a statement for their absence.
PATs should include information on how they address material IROs in the VC.
Example: disclose on policies in place to prevent and control pollution by an undertaking's VC actors.
Metric disclosures:
Only a couple of topical standards require the mandatory inclusion metrics on the value chain.
However, if material IROs in the value chain are not sufficiently covered by ESRS, additional entity-specific disclosures, including metrics, should be provided.
The topical standards for which metric data on the VC is required:
ESRS E1-6: Gross Scopes 1, 2, 3 and total GHG emissions
ESRS E1-7: GHG removals and GHG mitigation projects financed through carbon credits
Most ESRS topical standards, the IRO and location in the VC should be defined, but the metric data can be given only on own operations, unless the undertaking chooses to include VC data.
Estimating missing information:
If primary VC information cannot be collected, the company must use reasonable effort to estimate the missing information.
Estimated data can be collected using available data, proxies, and sector data.
The accuracy and basis for these estimations must be described.
Reporting boundaries:
VC information in the sustainability statement does not change the reporting boundaries, which align with the entities included in the consolidated financial statements.
Associates and other non-consolidated investees are treated as actors in the value chain when relevant.
Want to know more? See the full report here, or get in touch with us!