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Reporting on the standards underlying CSRD across the value chain

EFRAG recently published their implementation guidance (IG) that pertains to both the upstream and downstream segments of the value chain (VC) of the enterprise and excludes its internal operations. Please note that these guidelines are draft implementation guidelines.

1. The sustainability statement of the enterprise must encompass details regarding all significant impacts, risks, and opportunities (IROs), including those arising or potentially arising from its business associations within the upstream and downstream value chain. Business relationships extend beyond direct contractual connections.

2. Disclosure of value chain (VC) information is not mandatory for all reports. It is required only when associated with significant IROs beyond the enterprise's own operations, stemming from its business relationships.

3. The materiality assessment must identify significant IROs within the VC, focusing on the likely occurrence of these impacts in various aspects of the VC (geographies, activities/sectors, operations, suppliers, customers, other relationships, etc.).

4. Adherence to relevant standards mandates disclosures about policies, targets, and actions (PATs) for material matters. Specifically, disclosure should include information on how these PATs address significant upstream and/or downstream VC IROs.

5. While topical standards specify VC data for a few metrics, the enterprise must include additional entity-specific disclosures, including metrics, if a material IRO in the VC is not adequately addressed by ESRS requirements. This is essential to help users understand the enterprise's significant impacts, risks, or opportunities.

6. If primary VC information for the materiality assessment or disclosure of material IROs cannot be collected after reasonable efforts, the enterprise should estimate missing information using all reasonable and supportable data, including proxies, sector data, and information from indirect sources. The basis for preparation should describe the value chain estimation metrics and the resulting level of accuracy.

7. The inclusion of VC information in the sustainability statement does not alter the enterprise's reporting boundary, corresponding to entities within the perimeter of its consolidated financial statements. It refers to the extent to which the sustainability statement covers relationships that all entities within the consolidation perimeter have with their respective VC counterparts, including beyond the first tier. Associates and other investees not consolidated in financial statements are treated as other business relationships, acting within the value chain as applicable. Refer to chapter 2.3 below on operational control, which is relevant for ESRS E1 Climate change.

The table above maps the disclosure requirements in the sector-agnostic ESRS and whether reporting undertakings have to report VC information.