The value chain as part of the materiality analysis according to ESRS


​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​published on 4 July​​ 2024 I Reading time approx. 4 minutes

by Hanna Paulus, Rödl & Partner Munich, and Ekaterina Gelenberg​​


With the introduction of the Corporate Sustainability Reporting Directive (CSRD) and the European Sustainability Reporting Standards (ESRS), we are currently experien­cing a significant change at regulatory level in the area of sustainability reporting. The consideration of the value chain is also becoming increasingly important in this context, as a holistic perspective on sustainability-related impacts, risks and oppor​­tunities is crucial in the corporate context. ​

In December 2023, the European Financial Reporting Advisory Group (EFRAG) published draft implementation guidance IG2- Value Chain Implementation Guidance (VCIG) to provide ESRS users with guidance on how to fulfil the requirements relating to the value chain in accordance with ESRS. The aim of this guidance is to ensure both consistency and comparability of sustainability reports in accordance with ESRS with regard to analyzing the value chain and enables users to gain a deeper understanding of what information is required with regard to the value chain.  As a practical implementation aid, it complements the ESRS, but is not an integral part of it. 
The key learnings from the implementation guideline and practical tips for analyzing the value chain are presented below. ​

Definition of the value chain according to ESRS ​»

​Consideration of the value chain as part of the materiality analysis according to ESRS ​»

​Transitional determination of information in the value chain ​»

​Prioritization within value chains ​»

​Conclusion ​»​

​Definition of the value chain according to ESRS

The definition of the value chain in the ESRS standards is comparable to other sustainability reporting standards, such as the International Sustainability Standards Board (ISSB) or the standards of the Global Reporting Initiative (GRI). It encompasses both upstream and downstream activities and thus covers more than just the supply chain.

More precisely, the value chain is defined as the entire spectrum of activities, resources and relationships associated with the company's business model and the external environment in which it operates. A value chain comprises the activities, resources and relationships that the organization uses and relies on to produce its products or services from conception to delivery, consumption and end of life, see Article 23, Value Chain Implementation Guidance.

It should also be noted that a company may consist of multiple value chains. In this case, prioritization can be carried out on the basis of risk-based criteria. ​

Typical sequence of a value chain
Please click to enlarge​​

​Consideration of the value chain as part of the materiality analysis according to ESRS 

The ESRS require a materiality analysis to be carried out as a starting point for reporting. Analyzing the value chain is of crucial importance here, as many relevant sustainability-related issues result from a company's upstream or downstream activities. The materiality analysis aims to identify and assess company-specific impacts, risks and opportunities (IROs) in the context of sustainability. 
In order to be able to adequately consider the entire value chain, a certain degree of transparency about the company's own value chain must first be created. This requires detailed information about 

  • the key players in the value chain, as well as 
  • their geographical locations, 
  • the sectors and  
  • the company's activities.

This is followed by a clear differentiation of the company's own activities from those of upstream and down­stream players. This enables a comprehensive understanding of the company context. 

As a general rule, primary data, i.e., data collected by the company itself, should be favored for analysis. How­ever, if it is not possible for a company to obtain relevant information directly from the actors in its value chain, estimated values can be used. The procedure must be documented in a detailed and comprehensible manner and disclosed in the sustainability report. Reasonable efforts must be made to include all available and reliable information in the estimate. This includes, for example, the consideration of sector-specific data or other approximate values. Finally, the degree of accuracy achieved in the estimate must be categorized. 

​Transitional determination of information in the value chain 

At present, the comprehensive breakdown and analysis of one's own value chain represents a major challenge for many companies. EFRAG is responding to this fact with a simplifying transitional provision. A company can make use of these in the first three years of reporting in accordance with ESRS. With regard to the value chain, the transitional provision means that, in the event of an inadequate current data situation, companies must initially 

  • report on the efforts made to obtain the relevant data and 
  • they must indicate which plans will be implemented in the future to obtain information. 

From the fourth reporting year onwards, however, the ESRS standards must be applied in full.

​Prioritization within value chains 

Reporting on all actors in the value chain is not required as part of the ESRS. Here too, the materiality analysis tool is used with the aim of ensuring that companies only disclose the information that is relevant to their sustainability. The materiality analysis is therefore used to selectively filter out those aspects of the value chain on which the respective company has direct or indirect impacts, risks or opportunities in a sustainable context. A risk-based principle serves as a guide and key decision-making criterion. The decisive factor here is whether an aspect poses an actual or potential threat to people and the environment or harbors financial opportunities and/or risks. 

A heat map can be used to help prioritise topics by highlighting potential risks. As different and often difficult to compare criteria must be used for risk assessment within the value chain, this can make an assessment clearer and decisions easier to understand. The ability to influence an activity or size criteria such as a low percentage share of a value chain in the company's total turnover are not stand-alone exclusion criteria within the meaning of the ESRS. The materiality assessment is based on sustainability-related criteria.  


There is currently no patent recipe for analyzing the value chain in terms of the ESRS with a standardized procedure that can be applied to a wide range of companies. Companies are supported by EFRAG's implemen­tation guideline, which provides information on definitional details, answers frequently asked questions and contains cross-references to the ESRS. To achieve meaningful results as part of the materiality analysis and to ensure transparent and company-specific reporting, individual adjustments are required in accordance with the respective internal and external company context.​

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