The Corporate Sustainability Reporting Directive (CSRD) represents a significant evolution in sustainability reporting, broadening its scope to encompass the entire value chain. Under the CSRD, companies are required to disclose information in relation to their own operations and also to their upstream and downstream value chain activities, including products, services, and business relationships. This perspective necessitates a detailed understanding of the value chain, as outlined in the European Sustainability Reporting Standards (ESRSs).
What is the Value Chain?
A value chain is a model that encompasses every step a company takes to create and deliver a product or service, from the initial idea to after-sales services. It includes stages such as design, material sourcing, manufacturing, marketing, sales, delivery, and customer support. This comprehensive view emphasises the importance of both upstream and downstream activities, each playing a crucial role in the overall efficiency and effectiveness of the business.
Upstream value chain activities focus on the early stages of production, involving the procurement and handling of raw materials and components. These activities include:
- Supplier relationships: Managing interactions and negotiations with suppliers to secure quality materials at competitive prices.
- Procurement: Acquiring raw materials and components needed for production.
- Logistics: Coordinating the transportation and storage of materials to ensure they are available when needed for manufacturing.
Optimising the upstream value chain is essential for controlling costs, ensuring the quality of inputs, and maintaining a steady supply of materials.
Downstream value chain activities involve the later stages, focusing on delivering the final product or service to the customer and providing post-purchase support.
These activities include:
- Marketing and sales: Promoting products and services, engaging with customers, and facilitating sales transactions.
- Distribution: Managing the logistics of delivering products to customers or retailers.
- Customer service: Providing support and services after the sale to ensure customer satisfaction and address any issues.
The downstream value chain is critical for building customer relationships, enhancing the customer experience, and driving repeat business and brand loyalty.
Implications for Reporting in Line with the CSRD
When reporting in line with the CSRD, the ESRSs require companies to disclose their policies, actions, and targets. These disclosures relate to material impacts, risks, and opportunities (IRO) identified when conducting the materiality assessment for the upstream and downstream value chain. This means that if a policy, action, or target pertains to any part of the value chain IROs, it must be disclosed.
For instance, if a company sets a target that requires its suppliers to use a certain percentage of recycled materials, such target should be reported if it addresses an upstream value chain impact related to resource use or the circular economy. In the ESRSs, quantitative information primarily pertains to the company’s own operations and usually does not require data from value chain actors. However, there are exceptions such as Scope 3 greenhouse gas emissions. Additionally, while few metrics necessitate value chain data under topical standards, companies must provide additional entity-specific disclosures, including metrics if existing ESRS requirements do not sufficiently cover a material IRO in the value chain.
Path to Sustainable Success
Embracing value chain sustainability from sourcing to distribution is crucial for minimising environmental impact and enhancing social responsibility. Aligning with the CSRD’s reporting requirements not only drives long-term profitability but also positions businesses for a competitive advantage in a market increasingly focused on ethical practices.
How Can We Help
At ZD we apply our expertise to assist companies in managing and reducing emissions throughout their value chain. We help measure your company’s baseline and accurately calculate Scope 3 emissions, focusing on indirect emissions from suppliers and partners. By providing comprehensive analysis and actionable insights, we enable your company to reduce your carbon footprint, comply with regulatory requirements, and enhance sustainability across your entire value chain.
Mark Wirth
Partner
