It greatly expands reporting beyond a business's immediate operations to include the whole value chain, claims Greenomy. This covers operations both upstream and downstream as well as goods, services, and commercial partnerships.

At its core, the European Sustainability Reporting Standards (ESRS) Delegated Act (CSRD) requires businesses to carefully map out and openly report on the sustainability impacts, risks, and opportunities associated with their value chain. The purpose of this essay is to provide insight into how companies can effectively manage these reporting obligations in order to ensure compliance and a stronger dedication to sustainable practices.

Though the differences between the value chain and the supply chain are important, they are frequently misunderstood. The value chain is described by the ESRS as a wide range of tasks, materials, and connections that are essential to a company's business plan and external surroundings.

This term stresses the importance of organizations evaluating their effects, risks, and opportunities (IROs) throughout these vast networks, encompassing both upstream suppliers and downstream distributors or customers. Most importantly, this is figuring out important economic ties that go beyond straight contracts to include indirect ties and ownership stakes in investments or joint ventures.

It can be difficult to decide where in the value chain to focus efforts in order to find material IROs. According to the European Financial Reporting Advisory Group (EFRAG), companies should concentrate on regions where their business model is highly dependent on certain products or services, or "hot spots" with significant risks of repercussions. Businesses can more efficiently prioritize their evaluations and reporting on material IROs with the support of this dual strategy.

CSRD requires the identification of material effects that are contributed to or directly linked by business relationships in the value chain in addition to those that are directly caused by a company's operations.

This requirement emphasizes how crucial it is to understand the various ways in which a business might be involved in, and consequently accountable for, impacts within its value chain. This knowledge is essential for carrying out exhaustive Double Materiality Assessments (DMAs) and figuring out the extent of reporting that is necessary.

Businesses are required to reveal their policies, actions, and targets (PATs) addressing these areas once IROs have been discovered through DMAs. Although the majority of reporting will concentrate on the business's internal activities, value chain data is required in some situations, such as Scope 3 GHG emissions.

The ESRS urges businesses to make thorough disclosures, especially when they go beyond direct operations, and establishes a framework for when and how to report on value chain IROs.

The CSRD recognizes the difficulty of compiling full value chain data and includes provisions that permit reasonable attempts to be made in this regard. Until more accurate data can be found, companies may first rely on estimations, proxies, or sector data. Here, the concept of "reasonable effort" is crucial in weighing the practical challenges of data collecting against the requirement for high-quality information.

Companies have three years to adjust to the ESRS in order to ease the transition to full value chain reporting. Businesses can use this time to improve their ability to gather data, interact with stakeholders, and gain a deeper comprehension of the value chain. Companies are encouraged to openly report their progress, detailing their efforts and future plans for comprehensive reporting, even with initial allowances for limited data.