Key Takeaways
- The reporting entity discloses value chain information only where the connected sustainability matter is material after the double materiality assessment.
- Omnibus I (published 26 February 2026) caps the information a reporting entity may request from value chain partners with fewer than 1,000 employees at the VSME standard.
- EFRAG's IG 2 guidance provides a practical upstream and downstream mapping framework for preparers implementing value chain reporting.
- Wave 1 companies could rely on the value chain data-gap relief for the first three reporting years, but that relief expires after FY 2026.
What is value chain?
Most first-time CSRD preparers discover the same problem in their second month of work: the sustainability statement cannot stop at the reporting entity's own operations. ESRS 1.63 requires the entity to extend its reporting boundary to include material impacts, risks, and opportunities connected through direct and indirect business relationships upstream and downstream. In our experience, this is where about half the project timeline goes, because the entity depends on counterparties it does not control.
Under ESRS 1.63-64, the entity does not report on every actor. It reports only on the parts of the value chain where a sustainability matter is material, as determined by the double materiality assessment. Upstream covers suppliers of raw materials and components. Downstream covers distributors, retail customers, wholesale customers, and end-of-life treatment of products. The entity maps these relationships during the IRO assessment and identifies where its most significant impacts and risks sit. ESRS 2 IRO-1 then requires disclosure of the process the entity followed to identify material value chain matters.
The data challenge is real. The entity depends on counterparties for emissions figures, labour practices data, resource-use metrics, and supply chain traceability. The Omnibus I directive (published 26 February 2026) addressed this by capping the information a CSRD-reporting entity may request from value chain partners with fewer than 1,000 employees. Those partners can refuse requests that exceed the scope of the forthcoming VSME voluntary standard (delegated act expected June 2026). Where supplier-specific data is unavailable, the entity uses estimates and discloses the estimation approach per ESRS 1.67. The file should tell a story: show the mapping, the data requests sent, the responses received, and the estimation methods used for gaps.
Worked example: Fernandez Distribucion S.L.
Client: Spanish wholesale distribution company, FY 2027, revenue EUR 34M, IFRS reporter, 620 employees. Fernandez is a first-time CSRD reporter under the revised Omnibus I thresholds (it exceeds both the 1,000-employee and EUR 450M-turnover thresholds at group level through its parent company, which consolidates Fernandez into its sustainability statement). The group engagement team asks Fernandez to map its own value chain for the consolidated sustainability statement.
Step 1. Map the upstream and downstream value chain
Fernandez identifies its upstream value chain as 140 product suppliers across four EU member states, a single warehousing subcontractor, two inbound logistics providers, and one cold-chain partner. Downstream, Fernandez sells to 2,300 retail customers, predominantly independent grocery stores. The team categorises these relationships into tiers: Tier 1 (direct contractual relationship) and Tier 2 (sub-suppliers and end consumers).
Documentation note: record the value chain map with the number of entities per tier and the geographic scope. Include the industry classification of each tier. Cross-reference the map to the IRO assessment per ESRS 2 IRO-1.
Step 2. Identify material value chain matters
The double materiality assessment flags two topics as material in the value chain. Workers in the value chain (ESRS S2) is impact-material because 38 of Fernandez's 140 suppliers operate in sectors with documented migrant labour risks. Climate change (ESRS E1) is financially material because rising fuel costs across the logistics chain affect Fernandez's distribution margins by an estimated EUR 1.1M annually.
Documentation note: record the materiality scoring for each value chain topic and the threshold applied. Include the evidence base (supplier audit reports, logistics cost projections). Document why other value chain topics were assessed as not material per ESRS 2 IRO-2.
Step 3. Collect data within the Omnibus I cap
Of Fernandez's 140 suppliers, 132 have fewer than 1,000 employees. Under the Omnibus I value chain cap, Fernandez limits its data requests to these suppliers to the VSME datapoints. The remaining eight larger suppliers receive full ESRS-aligned questionnaires. For suppliers that do not respond, Fernandez uses sector-average estimates from EFRAG guidance and discloses the estimation percentage.
Documentation note: record which suppliers received VSME-capped requests versus full requests. Document the response rate and the estimation methods applied where data was unavailable. Record the proportion of value chain emissions derived from estimates versus primary data per ESRS 1.67.
Step 4. Disclose value chain information in the sustainability statement
Fernandez reports under ESRS S2 that 27% of its supplier base operates in high-risk sectors for labour practices. Under ESRS E1, it reports upstream Scope 3 emissions of 9,400 tonnes CO2e, of which 62% relies on sector-average estimates. Both disclosures include a narrative explaining the data limitations and the planned actions to increase primary data coverage.
Documentation note: ensure the value chain disclosures reconcile to the underlying IRO assessment and the data collection working papers (WPs). Record the basis for the 27% high-risk classification and the Scope 3 estimation methodology. File supplier responses and refusal notices where applicable.
Fernandez's value chain reporting is defensible because the mapping follows ESRS 1.63-64, the data collection respects the Omnibus I cap, estimation methods are disclosed, and every material topic traces back to the double materiality assessment.
Why it matters in practice
Entities frequently treat value chain mapping as a one-off exercise completed during the first reporting year and fail to update it when supplier relationships change. ESRS 1.63 applies at each reporting date. A value chain map produced in 2025 that does not reflect a major supplier change in 2026 leaves the assurance provider unable to verify completeness of the reported impacts and risks. Nobody enjoys chasing suppliers for data they are not obligated to provide, but skipping the annual refresh is how files get flagged for completeness gaps.
Teams also request granular ESG data from small suppliers without informing them of their right to refuse under the Omnibus I value chain cap. The Omnibus I directive requires the reporting entity to notify value chain partners with fewer than 1,000 employees that any request exceeding the VSME standard may be declined. Failing to issue this notification exposes the reporting entity to challenge from regulators and damages supplier relationships. We have seen engagement teams copy last year's supplier questionnaire without checking whether Omnibus I changed the scope (SALY thinking at its worst).
Value chain vs. own operations (reporting boundary)
| Dimension | Value chain | Own operations |
|---|---|---|
| Reporting boundary | Upstream suppliers, downstream customers, end-of-life activities, and logistics intermediaries connected through business relationships | Entities and activities within the consolidation scope of the FS |
| Data control | Entity depends on third parties; estimation is common | Entity controls source data from internal systems |
| ESRS reference | ESRS 1 paragraphs 63-68 (value chain extension) | ESRS 1 paragraphs 59-62 (reporting undertaking) |
| Omnibus I restriction | Data requests to partners with fewer than 1,000 employees capped at the VSME standard | No cap on internal data collection |
| Assurance challenge | Higher estimation uncertainty; assurance provider evaluates the reasonableness of proxies and sector averages | Lower uncertainty; data verifiable against operational records |
The distinction matters on engagements because an assurance provider evaluating a sustainability statement must assess whether the entity correctly identified which sustainability matters extend beyond own operations into the value chain. Omitting a material value chain segment (upstream labour risks in a supply chain with documented issues, for instance) creates a completeness gap that the assurance opinion should address.
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Frequently asked questions
How do I map a value chain for ESRS reporting?
Start with your procurement and sales ledgers to identify direct counterparties (Tier 1). Then assess which Tier 1 relationships have material sub-suppliers (Tier 2) using spend analysis or sector risk data. ESRS 1.63 does not require mapping every actor. It requires mapping where material sustainability matters exist. EFRAG IG 2 provides a practical upstream-downstream framework with worked illustrations.
What happens if my suppliers refuse to share sustainability data?
The Omnibus I directive gives value chain partners with fewer than 1,000 employees the right to refuse requests that exceed the VSME standard. If a supplier refuses, the reporting entity uses estimates (sector averages, spend-based proxies) and discloses the estimation approach per ESRS 1.67. Document the refusal and the alternative data source in the working papers, noting the resulting uncertainty band.
Does the value chain reporting boundary include end consumers?
Yes, where a downstream sustainability matter is material. ESRS 1.63 covers both upstream and downstream relationships. If end-of-life treatment of your products creates a material environmental impact (packaging waste, electronic waste), that downstream segment falls within the reporting boundary. The entity discloses the impact and the data sources used to quantify it.