Understanding the Value Chain

The value chain represents the series of activities a company undertakes to deliver a product or service to market. It comprises primary activities (like production, marketing, sales, and customer service) and support activities (such as procurement, technology development, human resource management, and infrastructure). In a Materiality Assessment, one needs to consider the entire value chain.

Value Chain Analysis in Materiality Assessments

In your Materiality Assessments, you’ll need to consider all your company’s direct and indirect relationships across the value chain, including both upstream (i.e. suppliers) and downstream (i.e. distribution, third-party channels, waste disposal). This involves identifying key activities and processes within the value chain that directly or indirectly impact financial performance or ESG issues.

For example, in a manufacturing company, production efficiency, supply chain management, and marketing strategies are critical aspects of the value chain that can significantly affect financial results.

Why is this important?

By understanding the materiality of different activities across the value chain, businesses can allocate resources effectively, focus on high-impact areas for improvement, and make informed decisions to optimise costs, enhance revenue generation, and create long-term value for stakeholders.

The European Financial Reporting Advisory Group (EFRAG) provides value chain guidance alongside their double materiality assessment guidance, outlining the steps companies can take to determine their material impacts, risks and opportunities (IROs) for reporting against the European Sustainability Reporting Standards (ESRS) in line with the Corporate Sustainability Reporting Directive (CSRD).

Within the individual topics, companies should describe the policies, targets and actions aiming to address material IROs in their value chains. Although there aren’t many metrics for value chain disclosures in the ESRS, companies can use their own metrics if the requirements aren’t sufficient to enable users to understand the company’s IROs. If primary value chain information cannot be collected, companies can use sector data, estimates or proxies where possible, describing the metrics used and their accuracy in their report.

We understand that EFRAG guidance can be confusing, difficult to decipher and tough to implement. Therefore, we have made it easy to deliver your CSRD reporting requirements with the step-by-step CSRD module in our ESG management software.

Selecting from the below options, users can uncover what part of the value chain creates the biggest material impact for each issue: