Understanding and Assessing the Value Chain in a CSRD-Compliant Double Materiality Assessment
The Corporate Sustainability Reporting Directive (CSRD) requires companies to report on material impacts that may occur in their value chains. This article will discuss understanding and assessing the value chain in a double materiality assessment, outlining key points, requirements, and best practices.
What is a Value Chain?
A value chain encompasses all the activities a company undertakes, from procuring raw materials to delivering products or services to consumers. Understanding your value chain is critical for CSRD reporting as it provides insights into potential impacts, risks, and opportunities (IROs).
Double Materiality and the Value Chain
The concept of double materiality requires companies to assess the impact of sustainability matters on their business (financial materiality) and their impact on the environment and society (impact materiality). When conducting a double materiality assessment, it's vital to consider both the upstream and downstream activities within the value chain.
Steps for Mapping the Value Chain
The ESRS 2 standard provides guidance on reporting value chain information. Here's a breakdown of the steps:
Identify Upstream Processes: Determine the origin of your materials and services, including suppliers.
Examine Downstream Processes: Analyze where your products or services end up, including customers, distribution channels, and end-users.
Determine Your Position: Understand your company's place within the upstream and downstream processes.
Identify Key Partners: List crucial suppliers, customers, distributors, and end-users.
Analyze the Relationships: Evaluate how these partners connect to your company and the nature of your dependence on each other.
Reporting Requirements
The CSRD mandates that companies disclose a description of the main upstream and downstream value chain activities and the company’s position within this value chain. In some instances, visualizations are required to support the value chain’s narrative explanation.
Estimations and Data Collection
When precise information about the value chain is unavailable, estimations using indirect sources like industry data or benchmarks are acceptable. However, transparency is essential. When using estimations, companies must:
Disclose the benchmarks used.
Explain the data's basis and accuracy.
Outline measures taken to obtain accurate data in the future.
Best Practices for Value Chain Analysis
Use Internal Documents
Analyzing internal documents like purchase orders, supplier contracts, and production schedules can provide a clear picture of your company's current value chain links. By collecting this data, you gain insight into your main suppliers, production processes, and distribution channels.
Examine Industry Standards
Reviewing industry standards and practices within your sector can serve as a benchmark for evaluating your value chain. Comparing your company's practices to common industry standards allows you to determine where your value chain aligns with or diverges from industry norms. You can also gain insights from governance reports published by companies that have already implemented robust value chain mapping for CSRD reporting.
Involve Various Internal Departments
Actively involving different internal departments in the value chain analysis process is crucial. Each department possesses unique interactions with and insights into specific parts of the value chain. Organizing cross-functional workshops can facilitate the exchange of knowledge and insights between departments like purchasing, production, sales, marketing, and logistics. Using a collaborative approach ensures a thorough understanding of the value chain from various perspectives.
Utilize Software for Documentation
Using software for documentation can significantly streamline the process of documenting the value chain and translating it into the double materiality assessment and final sustainability report. Software solutions provide a structured platform for collecting, analyzing, and reporting sustainability data, ensuring accuracy and efficient integration with other aspects of CSRD reporting. Contact us today for more information on Socialsuite’s value chain mapping capabilities.
In Conclusion
Understanding and assessing the value chain is a crucial aspect of the double materiality assessment under the CSRD. By following the steps outlined above, companies can identify and address potential sustainability impacts within their operations and across their value chain, ensuring transparent and comprehensive reporting.
