Value chain — The value chain in the European sustainability regulatory framework
The comprehensive scope of CSRD reporting, encompassing upstream, own operations and downstream, with a principle of proportionality based on influence. Codified in ESRS 1 §39-41.
Context
The value chain is the canonical ESRS 1 §39 concept that defines the comprehensive scope of CSRD sustainability reporting. It encompasses all the activities, resources and relationships of the business model: upstream (suppliers and suppliers' suppliers), own operations and downstream (distributors, customers, end of life).
Regulatory origin
Codified in ESRS 1 §39-41 (Commission Delegated Regulation (EU) 2023/2772). EFRAG IG 2 Value Chain Implementation Guidance provides the operational framework for mapping the chain, identifying relevant actors and applying the principle of proportionality.
«In identifying and assessing the impacts, risks and opportunities, the undertaking considers its full upstream and downstream value chain.»
View verbatim quote in English
“In identifying and assessing the impacts, risks and opportunities, the undertaking shall consider its full upstream and downstream value chain”
The three layers of the value chain
Direct suppliers (tier 1) + indirect suppliers (tier 2-4) up to raw material. In textiles: cotton cultivation, synthetic fibre production, spinning, dyeing, garment making.
The undertaking's own activities: design, marketing, e-commerce, retail, direct logistics.
Distributors + customers + product use + end of life (repair, resale, recycling, landfill).
Principle of proportionality
EFRAG IG 2 establishes that the depth of reporting is adjusted to the undertaking's control and influence over each actor. Granularity scales with materiality — the entire chain is not reported symmetrically. Actors that are critical by severity of impact receive greater documentary attention.
Timeline
ESRS Set 1
Commission Delegated Regulation (EU) 2023/2772 codifies the value chain in ESRS 1 §39-41.
EFRAG IG 2
Value Chain Implementation Guidance published, with operational proportionality criteria.
CSRD wave 1 application
Large listed companies report the value chain in their Sustainability Statement.
Applied case
A textile brand maps its full value chain for CSRD reporting. The roll-out identifies actors at each layer with proportionality criteria based on severity of impact.
Cotton cultivation in Pakistan (Better Cotton Initiative cooperatives · 8 cooperatives account for 70 per cent of the volume) + recycled polyester production in Taiwan (1 RCS supplier).
Spinning in Turkey (3 BSCI A-rated plants) + dyeing in Portugal (2 plants with OEKO-TEX STANDARD 100 certification).
Garment making in Morocco (2 factories with semi-annual amfori BSCI audit) + Portugal (1 own factory with SA8000 certification).
Design and head office in Madrid + 4 physical stores + e-commerce with logistics outsourced to a 3PL.
B2B distributors (15 EU wholesalers) + final B2C consumers + repair service (partnership with Sojo) + take-back programme (donation to the Red Cross + mechanical recycling with SOEX).
Common mistakes
The ESRS value chain is NOT limited to direct contractual relationships — it includes the full upstream and downstream.
ESRS 1 ¶43 in fine, in faithful paraphrase: business relationships include those in the upstream and downstream value chain and are not limited to direct contractual relationships. The ESRS value chain covers actors with whom the undertaking has no direct contract (e.g. cotton farms in Pakistan from which the brand buys via intermediary traders) — materiality is assessed by the connection and the severity of the impact, not by the existence of a contractual relationship.
The ESRS value chain and the CSDDD «chain of activities» are NOT legal synonyms — they are close concepts but with distinct scopes.
CSDDD (Directive (EU) 2024/1760) refers to the
«chain of activities»
as the subjective scope of mandatory due diligence and is limited, upstream, to the undertaking's own business activities plus tier 1, with gradual extension. The ESRS value chain is a reporting scope and covers the full upstream + downstream without a tier limit. An undertaking with valid CSDDD due diligence over its chain of activities does not automatically have ESRS value chain reporting covered — they are distinct scopes.Value chain reporting does NOT require information on each actor: only on the parts where a sustainability matter is material.
ESRS 1 ¶64, in faithful paraphrase: ¶63 does not require information on each actor in the value chain, but rather the inclusion of material information upstream and downstream. The materiality filter operates value-chain by matter: an undertaking may have materiality over tier 4 cultivation in S2 (workers in the value chain) but not in E5 (circular economy). Reporting is selective by materiality, not exhaustive.
The value chain phase-in lasts ONLY 3 years — from the fourth reporting year it is reported in full.
ESRS 1 ¶135, in faithful paraphrase: from the fourth year of reporting under the ESRS, the undertaking shall include the upstream and/or downstream value chain information in accordance with ¶63. The ¶132-133 phase-in (in-house information + publicly available + Appendix B datapoints) applies only during the first 3 reporting years. Undertakings that began reporting in 2024 (large PIEs) have a phase-in through 2026 inclusive — from 2027, full reporting.
Estimates using sector averages do NOT exempt from the qualitative characteristics — they must preserve comparability and verifiability.
ESRS 1 ¶72, in faithful paraphrase: the incorporation of estimates made using sector averages or other proxies shall not result in information that fails to meet the qualitative characteristics of information. The qualitative characteristics of Appendix B (relevance, faithful representation, comparability, verifiability, understandability) are mandatory to preserve. Estimates that use sector averages without documenting methodology, assumptions, sources and limitations under ESRS 2 BP-2 (Disclosures in relation to specific circumstances ¶10) fail to meet ¶72.
Frequently asked questions
What is the value chain in CSRD?
A canonical ESRS 1 §5 concept: the comprehensive set of activities, resources and relationships connected with the undertaking's business model, including upstream (suppliers and suppliers' suppliers) and downstream (distributors, customers, end of life). The CSRD reporting scope covers the entire value chain, not just own operations.
Who must report value chain information?
Any undertaking subject to CSRD, for the relevant material matters. The principle of proportionality applies: the depth of reporting is adjusted to the undertaking's control and influence over each actor in the chain. EFRAG IG 2 Value Chain Implementation Guidance sets out the operational framework.
How is the value chain reported under ESRS?
In accordance with ESRS 1 §5 + EFRAG IG 2: (i) an initial mapping of upstream and downstream actors, (ii) identification of material impacts/risks at each level, (iii) prioritisation by severity and proximity, (iv) reporting of preventive/corrective measures + targets + progress. Granularity scales with materiality — the entire chain is not reported symmetrically.
What is the difference between the CSRD value chain and a traditional supply chain?
A traditional supply chain covers only upstream (suppliers). The CSRD value chain covers upstream + own operations + downstream (customers + end of life). It is a broader concept that also recognises the impacts that arise after the finished product — use, repair, collection, recycling, landfill.
How does the CSRD value chain relate to CSDDD?
CSRD uses "value chain" as a reporting framework (what to report). CSDDD uses "chain of activities" as a framework of conduct (what to do · due diligence). The scope is similar but the verb is different: CSRD reports impacts in the value chain; CSDDD applies due diligence in the chain of activities. They coexist and reinforce each other.
Fuentes oficiales
- European Commission · Delegated Regulation (EU) 2023/2772 · Annex I31 jul 2023Delegated act in force
- European Commission · Delegated Regulation (EU) 2023/2772 · Annex I31 jul 2023Delegated act in force
- European Financial Reporting Advisory Groupmayo 2024Non-binding technical guidance
- European Parliament and Council · OJEU13 jun 2024Directive in force
