Value chain: why it matters
The European Sustainability Reporting Standards (ESRS) introduce a number of reporting requirements under which companies will have to report impacts and data not just for their own operations but also for their value chain. The value chain is currently defined very broadly by the ESRS as “the full range of activities, resources and relationships related to the undertaking’s business model(s) 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”.
This definition can be relatively easy to understand and apply for a company whose core business is, for example, to manufacture furniture. It has to consider how its raw materials, such as wood, are sourced from the original suppliers and travel through the various intermediaries, its own manufacturing processes and then how the goods are delivered to and used by the customer.
However, the application of the value chain concept is less clear and linear for insurance companies. For example, we do not think that insurers should be required to report on their customers’ customers. Therefore, careful thought is needed about how to apply the concept of value chain for insurers because this will have a significant impact on how insurers report and the usefulness of the information provided.