Value Chain
In the ESG context, the value chain covers all of a company's upstream and downstream activities and forms the key reporting boundary of the ESRS, extending well beyond the company's own operations.
In sustainability reporting, the value chain refers to the full range of activities, resources and relationships a company uses for its business models and the external environment in which it operates. It spans the extraction of raw materials, the company's own production, and the use and disposal of products. The ESRS distinguish between the upstream value chain (for example suppliers and intermediate goods) and the downstream value chain (for example distribution, customers and end users).
Unlike traditional financial reporting, which is limited to the reporting entity and its consolidation scope, the CSRD - through the ESRS - deliberately extends the reporting boundary across the entire value chain. Material impacts, risks and opportunities (IROs) must be captured regardless of whether they arise in the company's own operations, at business partners, or further along the chain. This broader perspective is a prerequisite for fully reflecting double materiality and topics such as Scope 3 greenhouse gas emissions.
ESRS 1 grants relief for the first reporting years: where value chain information is not available, companies may initially rely on reasonable estimates and sector averages and must explain how they intend to obtain robust data in future. Defining the value chain is therefore not a static exercise but an outcome of the materiality assessment - only the parts of the chain relevant to the material topics need to be reported in detail. Clear documentation of this scope creates consistency with LkSG due diligence obligations and the forthcoming CSDDD.
Legal Basis
ESRS 1 Section 5 (Value chain), Art. 19a and 29a CSRD; complemented by ESRS 2 and topical standards (e.g. ESRS E1, ESRS S2)
Practical Example
A mid-sized machinery manufacturer determines in its materiality assessment that its greatest climate impacts lie not in its own production but in upstream steel procurement and in the downstream energy use of the machines it sells. The compliance officer therefore defines the reportable value chain, requests primary data from the key steel suppliers, and uses sector averages for the use phase. In the report she discloses for which sections of the chain estimates were used and the timeline for replacing them with robust supplier data.