This article includes a summary of how to use the value chain in ESRS and probably of more interest, unveils a straightforward template of how to describe the value chain, including a real example to be disclosed under ESRS 2 SBM-1 42 c “Description of main features of upstream and downstream value chain and undertakings position in value chain”.
The template is made based on the definition of Value chain according to ESRS and designed to be able to answer on various disclosure requirements and cross-references throughout the ESRS.
Video summary:
What is Value chain in ESRS and how to use it?
The concept of the value chain in the European Sustainability Reporting Standards (ESRS) is extensive, capturing the entire spectrum of activities, resources, and relationships essential to the operation and impact of a business.
When using the Mentcon model for ESRS, describing the Value chain is one of the first things to do.
Definition of Value Chain in ESRS
“The full range of activities, resources and relationships related to the undertaking’s business model and the external environment in which it operates.
A value chain encompasses the activities, resources and relationships the undertaking uses and relies on to create its products or services from conception to delivery, consumption and end-of- life. Relevant activities, resources and relationships include:
- those in the undertaking’s own operations, such as human resources;
- those along its supply, marketing and distribution channels, such as materials and service sourcing and product and service sale and delivery; and
iii. the financing, geographical, geopolitical and regulatory environments in which the undertaking operates.
Value chain includes actors upstream and downstream from the undertaking. Actors upstream from the undertaking (e.g., suppliers ) provide products or services that are used in the development of the undertaking’s products or services. Entities downstream from the undertaking (e.g., distributors, customers) receive products or services from the undertaking.
ESRS use the term “value chain” in the singular, although it is recognised that undertakings may have multiple value chains”.
Brief Description of How to Use the Value Chain in ESRS
The description of the value chain will be used throughout various aspect and data points in ESRS to be able to report according to ESRS in your organisation’s Sustainability statement.
- Double Materiality Assessment and Reporting
Identify Material Impacts, Risks and Opportunities. Understand and assess how different segments of the value chain contribute to the sustainability impacts, risks, and opportunities. This is crucial for identifying which parts of the value chain might cause sustainability concerns or offer potential for positive sustainability contributions.
Due Diligence Processes. Implement due diligence across the value chain to identify, prevent, mitigate, and account for negative sustainability impacts, and enhance positive impacts. This involves engaging with various value chain actors to ensure compliance with sustainability standards and practices.
- Disclosure and Transparency
Sustainability Statement. Include detailed information about the value chain in the sustainability statement. This should cover how the undertaking manages its relationships with stakeholders as upstream suppliers and downstream customers to mitigate risks and leverage opportunities for sustainability.
Extended Reporting and Data. Report on the material impacts, risks, and opportunities associated with the value chain, extending the reporting beyond the immediate operations of the undertaking to include upstream suppliers and downstream customers. This includes information on data required to disclose under each ESRS topic.
- Engagement and Collaboration
Stakeholder Engagement. Actively engage with stakeholders across the value chain to gather insights and feedback on sustainability practices, impacts, and improvement areas. This includes suppliers, customers, and other key actors who are part of the business ecosystem.
Collaborative Initiatives. Participate in or initiate collaborative efforts with value chain partners to address common sustainability challenges such as reducing emissions, ensuring fair labor practices, and promoting circular economy practices.
- Management and Strategy Integration
Strategic Decision-Making. Integrate value chain considerations into strategic planning and decision-making processes. This includes selecting suppliers based on sustainability criteria, designing products for lower environmental impact, and choosing distribution methods that minimize carbon footprints.
Risk Management. Identify and manage risks that arise from the value chain, such as supply chain disruptions, compliance risks, or reputational risks related to suppliers’ practices.
- Enhancing Sustainability Practices
Improvement and Innovation. Use insights from value chain analysis to drive sustainability innovations and improvements. This could involve developing new, more sustainable product lines, improving resource efficiency, or implementing more sustainable logistics solutions.
Performance Metrics and Targets. Set specific, measurable targets for sustainability performance across the value chain and monitor progress through established metrics.
In conclusion, the value chain concept in ESRS is used to widen the scope of sustainability reporting and management, ensuring that an undertaking not only looks at its direct operations but also considers the broader network of activities and relationships that influence its sustainability footprint. By doing so, businesses can better manage their sustainability impacts and align more closely with global sustainability objectives.
Template of How to describe the value chain in ESRS
How to describe the value chain in ESRS is one of the most frequently asked questions from Mentcon’s partners and customers in the recent year. Efrag, the EU-financed organisation responsible for developing the ESRS, has published an implementation guideline, EFRAG IG 2: Value Chain.
Unfortunately, there is not much help on how to describe the value chain in IG 2. We at Mentcon hoped for instructions of how to define and describe the value chain. Therefore, we had to develop our own template. We wish to share it as this is a foundation to be able to report on ESRS and is a really difficult task to interpret throughout all data points requiring value chain information from different perspectives and cross references throughout the ESRS. Still, the information in the IG 2 has been supportive for Mentcon when developing the template of how to describe the value chain in ESRS.
A template is available in Mentcon model for ESRS web-app. The template is based on the definition of value chain according to CSRD and ESRS and is designed to answer various disclosure requirements throughout ESRS.
If your company does not have access to Mentcon model for ESRS, feel free to use the text template of how to describe the main features of upstream and downstream value chain and the undertakings position in value chain. It’s also free to use for consultancy companies to educate and help customers describe its value chain. Just don’t to forget to include Copyright information: Mentcon model Value chain template for ESRS © Copyright Mentcon AB. When having filled out the template and using it in the sustainability statement, no copyright information is needed.
We can also send you a free Microsoft Word template in your preferred language. Contact us at Mentcon and mention the preferred language of the template. It’s available in English, Dansk, Deutsch, Español, Français, Italiano, Nederlands, Polski, Soumi and Swedish and soon in Norsk.
(If your undertaking have multiple value chains, please contact us, and we can assist on how to disclose this as well).
Mentcon model Value chain template for ESRS ©
- Upstream (Input and Supplier Relationships)
- Supply Chain Management:
- Activities: (Describe the sourcing of raw materials and services).
- Resources: (Identify key suppliers and the logistics systems).
- Relationships: (Explain the nature of agreements, collaborations, and dependencies with suppliers).
- Financing (Can be moved to point 4):
- Activities: (Describe how the company is financed (e.g., loans, equity funding) ).
- Resources: (List major financial partners or investors).
- Relationships: (Explain relationships with banks, financial institutions, or investors).
- Own Operations (Internal Processes)
- Company’s Position in the Value Chain:
- (Describe the company’s role and strategic importance within the broader industry value chain. This should highlight the company’s role in adding value, its competitive advantage).
- Human Resources:
- Activities: (Key human resource processes such as recruitment, training, and development).
- Resources: (Describe the human capital and expertise available).
- Relationships: (Explain internal relationships and organizational culture).
- Research and Development:
- Activities: (Outline the processes for product development, innovation, and improvement).
- Resources: (Specify technology, facilities, and intellectual property used).
- Relationships: (Describe collaborations with educational institutions or technology partners).
- Production/Services:
- Activities: (Explain the production and/or service processes used to create products or services).
- Resources: (List the key equipment, technology, facilities and human resources involved).
- Relationships: (Detail interactions between different production teams or departments).
- Other Operational Functions: (Specify other relevant operational areas such as IT, finance, etc divided in Activities, Resources and Relationships.)
- Activities: (Insert text)
- Resources: (Insert text)
- Relationships: (Insert text)
- Other Operational Functions: (Specify other relevant operational areas such as IT, finance, etc divided in Activities, Resources and Relationships.)
- Activities: (Insert text)
- Resources: (Insert text)
- Relationships: (Insert text)
- Downstream
- Marketing and Sales:
- Activities: (Outline strategies for market research, advertising, and sales).
- Resources: (Detail the tools and platforms used (e.g., digital marketing tools, CRM systems) ).
- Relationships: (Describe partnerships with marketing agencies or other external entities).
- Distribution:
- Activities: (Explain the distribution methods and logistics).
- Resources: (Identify distribution centers and transportation modes).
- Relationships: (Detail relationships with logistics partners and distributors).
- Customers/End Users:
- Activities: (Describe customer service operations and/or end-user engagement strategies).
- Resources: (Mention tools and technologies used to support customer interactions and services).
- Relationships: (Outline the nature of the relationship with end users and feedback mechanisms to enhance customer satisfaction).
- Geographical, Geopolitical and Regulatory Environments Affecting the Value Chain
- Geographical and Geopolitical Considerations:
- Activities: (Describe how location affects operations, including geopolitical risks).
- Resources: (Mention key regional assets or infrastructures where actors in the value chain operates).
- Relationships: (Explain any regulatory bodies or regional organizations the company interacts with).
- Regulatory Environment:
- Activities: (Outline compliance processes and regulatory engagements).
- Resources: (Specify departments or tools dedicated to managing compliance throughout the Value chain).
- Relationships: (Describe key interactions with regulatory authorities and industry associations).
© Copyright Mentcon AB
Just don’t to forget to include Copyright information: Mentcon model Value chain template for ESRS © Copyright Mentcon AB. When having filled out the template and using it in the sustainability statement, no copyright information is needed.
Example of a value chain in a ESRS Sustainability Statement
Here is an example of a description of a value chain and its main features when using Mentcon model, disclosed in ESRS 2 SBM-3 42 c “Description of main features of upstream and downstream value chain and undertakings position in value chain”:
Please note that this example is shortened to not reveal which enterprise has made the description and is approved by the enterprise for use as an example for other companies.
Main features of the Value chain
As a multinational company in the home appliances industry, the analysis of our value chain is crucial for understanding how we manage operations, create value, and interact with various stakeholders across different stages. The main features of upstream and downstream value chain and Company XYZ’s own operations and position in the value chain is described.
Upstream Value Chain
Supply Chain Management
Activities: Company XYZ’s sourcing strategy involves the procurement of high-quality raw materials and components necessary for the manufacturing of home appliances. This includes metals like steel and aluminum, plastics, electronic components, and packaging materials. We also source specialized services such as precision engineering and design consultancy to enhance our product offerings. Our sourcing activities are global, with a significant focus on maximizing efficiency, reducing costs, and ensuring sustainability.
Resources: Our key suppliers are strategically located across various regions, including Asia, Europe, and North America, to leverage local market advantages and mitigate risks associated with supply chain disruptions. We utilize advanced logistics systems that integrate just-in-time manufacturing and RFID tracking to optimize inventory levels and ensure timely delivery of materials.
Relationships: The nature of our agreements with suppliers includes long-term contracts that provide stability and secure supply at negotiated prices. These agreements often include clauses that enforce compliance with our quality and ethical standards. We maintain collaborative relationships through regular supplier engagement sessions, joint development initiatives, and performance incentives that align supplier operations with our strategic objectives.
Financing
Activities: Company XYZ is financed through a combination of equity and debt. This includes public equity from our listing on several stock exchanges and debt acquired through corporate bonds and bank loans. These financial activities are designed to support our capital expenditures, primarily in production and R&D, and to ensure liquidity for operational needs.
Resources: Our major financial partners include top global banks and investment firms, as well as institutional investors and equity holders. These entities provide the financial backing necessary to sustain and grow our operations.
Relationships: We maintain strong relationships with a consortium of banks that provide us with necessary capital facilities, including revolving credit and term loans. Our relationships with financial institutions are characterized by mutual trust and governed by agreements that stipulate the terms of financing, interest rates, and repayment schedules. Regular communications and meetings ensure that these financial partners are well-informed of our financial health and strategic directions.
Own Operations (Internal Processes)
Company’s Position in the Value Chain
Company XYZ is positioned as a key innovator and manufacturer in the home appliance industry. We add value through our commitment to quality, sustainability, and cutting-edge technology. Our competitive advantage lies in our ability to integrate smart technology with eco-friendly features, meeting consumer demands for products that enhance convenience and reduce environmental impact.
Human Resources
Activities: Our key HR processes include strategic recruitment aimed at attracting skilled talent in engineering, design, and operations. We focus heavily on training and development programs to continually enhance the skills of our workforce, fostering innovation and leadership across all levels.
Resources: Our human capital consists of a diverse, global team of over 65,000 employees, including seasoned industry experts, innovative engineers, and dynamic management professionals.
Relationships: Internally, we cultivate a culture of collaboration, integrity, and continuous improvement. Regular team meetings, cross-functional projects, and a transparent communication policy facilitate effective relationships and a cohesive organizational culture.
Research and Development
Activities: Our R&D is centered on developing advanced, consumer-centric products. This includes ongoing research into energy efficiency, user interface improvements, and integration of IoT capabilities.
Resources: We utilize state-of-the-art R&D facilities located in major technology hubs around the world, equipped with the latest in product testing and prototyping technology. Intellectual property, including patents and trademarks, forms a crucial resource in protecting our innovations.
Relationships: We collaborate with leading universities, tech startups, and research institutes to stay at the forefront of technological advancements, often co-developing solutions that push the boundaries of what home appliances can achieve.
Production/Services
Activities: Our production processes involve advanced manufacturing techniques including automation and robotics. Quality control is rigorous, ensuring that each product meets our high standards before reaching the consumer.
Resources: Production facilities are equipped with high-precision machinery and automation systems, strategically located close to major markets to minimize logistics costs and maximize efficiency.
Relationships: Production teams work closely with supply chain managers and R&D personnel to ensure smooth operation and integration of new technologies into product lines.
Information Technology (IT)
Activities: Management of IT infrastructure, data security, and the development of enterprise software solutions to support various business functions.
Resources: State-of-the-art data centers and a suite of advanced software applications that facilitate everything from CRM to supply chain management.
Relationships: IT department works closely with all business units to ensure they have the technological support needed to operate efficiently.
Finance
Activities: Financial planning, risk management, and compliance operations, ensuring financial stability and adherence to international financial reporting standards.
Resources: A skilled finance team supported by advanced financial analysis tools and systems.
Relationships: Regular interaction with external auditors, investors, and regulatory bodies to maintain transparency and investor confidence.
Downstream Value Chain Operations
Marketing and Sales
Activities: Our marketing strategy integrates extensive market research to understand consumer preferences and market trends. This research informs our advertising campaigns, which utilize a mix of traditional media and digital marketing to reach a broad audience effectively. Sales strategies are tailored to different markets, with a strong emphasis on both online and in-store promotions to drive sales.
Resources: We employ advanced digital marketing tools, including SEO, PPC, and social media platforms, along with sophisticated CRM systems to manage customer relationships and personalize marketing efforts.
Relationships: Company XYZ partners with a variety of marketing agencies and consultants globally to enhance our marketing campaigns. These partnerships allow us to leverage local market expertise and innovative advertising techniques.
Distribution
Activities: Our distribution network is designed to ensure efficient and timely delivery of products to various markets. This includes managing inventory levels, coordinating with manufacturing plants, and organizing logistics to minimize delays.
Resources: We operate several key distribution centers strategically located around the world to optimize our supply chain. These centers are equipped with modern logistics technology to handle and ship products efficiently. Our transportation modes include trucking, rail, sea, and air freight, depending on geographical needs and product requirements.
Relationships: We maintain strong relationships with logistics partners and third-party distributors who help us manage the physical movement of goods. These partners are critical in overcoming logistical challenges and ensuring that our products reach retailers and consumers without issues.
Customers/End Users
Activities: Customer service is a cornerstone of our end-user engagement strategy. We provide comprehensive support through various channels, including call centers, online chat support, and email. Our engagement strategies are designed to enhance the customer experience, with proactive communication, after-sales support, and loyalty programs.
Resources: To support these activities, we utilize state-of-the-art customer service technology platforms that include CRM systems, automated response systems, and customer feedback tools that help us track satisfaction and respond to customer needs effectively.
Relationships: The relationship with our end users is built on trust and reliability. We encourage continuous feedback through surveys, product reviews, and direct customer interactions, which help us understand their needs and improve our offerings. Our customer service teams are trained to build positive relationships with customers, addressing their concerns promptly and efficiently.
Geographical, Geopolitical and Regulatory Environments
For Company XYZ, operating in the global home appliances market necessitates careful management of the geographical, geopolitical, and regulatory environments that affect our value chain.
Geographical and Geopolitical Considerations
Activities: Our operations are strategically located to optimize access to key markets and manage costs. Geopolitical risks, such as trade tensions, tariffs, and regional instability, are continually assessed to mitigate potential impacts on our supply chain and sales. For example, our manufacturing facilities in Asia are positioned to benefit from lower labor costs and proximity to raw material sources, while also considering the risks associated with regional geopolitical tensions.
Resources: Key regional assets include manufacturing plants in Europe, Asia, and North America, along with R&D centers and regional headquarters that support local operations. These assets are critical in maintaining the flexibility and resilience of our operations.
Relationships: We engage with regional organizations and governmental bodies to stay informed and compliant with local regulations and to participate in discussions that may affect our industry. This includes trade associations and chambers of commerce that provide platforms for dialogue and influence on policy-making.
Regulatory Environment
Activities: Compliance is a cornerstone of our operations. We maintain rigorous processes to ensure our products meet international and local standards related to safety, environmental impact, and consumer rights. Our regulatory engagements include monitoring changes in legislation, participating in industry consultations, and submitting products for certification in new markets.
Resources: The compliance function within Company is supported by dedicated departments, including Legal and Compliance teams that work across our value chain. We utilize advanced compliance management systems to track legislation changes, manage risks, and ensure all aspects of our operations meet legal requirements.
Relationships: Relationships with regulatory authorities are managed through ongoing engagement and cooperation. We interact regularly with entities such as the U.S. Consumer Product Safety Commission (CPSC), the European Committee for Standardization (CEN), and other regulatory bodies in markets where we operate. Additionally, we are active members of various industry associations that help shape standards and best practices.
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