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TAC Public Meeting July 2024 Paper 5: Value chain

Executive summary

Date 15 July 2024
Paper reference 2024-TAC-012
Project Technical assessment of IFRS S1 and IFRS S2
Topic Value chain

Objective of the paper

This paper considers the requirements in IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information (IFRS S1) and IFRS S2 Climate-related Disclosures (IFRS S2) relating to the value chain. This includes the definition for 'value chain' and the requirements for how an entity might reassess the scope of its value chain. The TAC is asked to consider the technical challenges associated with collecting data from the value chain and whether the instructions to reassess the scope of sustainability-related risks and opportunities in the value chain is sufficiently clear.

Decisions for the TAC

The TAC is asked to tentatively decide to:

  • maintain the requirements in IFRS S1 and IFRS S2 for entities to disclose information about sustainability-related risks and opportunities in the value chain.
  • maintain the definition for 'value chain' but request that the ISSB provide additional implementation guidance, including how an entity might disclose information about other sustainability-related matters in the value chain and align value chain reporting with information in the financial statements.
  • maintain the requirement for entities to reassess the scope of the sustainability-related risks and opportunities in the value chain on the occurrence of a significant event or change in circumstance.

Appendices

There are no appendices to this paper.

This paper has been prepared by the Secretariat for the UK Sustainability Disclosure Technical Advisory Committee (TAC) to discuss in a public meeting. This paper does not represent the views of the TAC or any individual TAC member.

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Context

1IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information (IFRS S1) and IFRS S2 Climate-related Disclosures (IFRS S2) set out requirements for the disclosure of sustainability-related risks and opportunities in an entity's value chain. IFRS S1 also includes a definition for ‘value chain’—which is also used in IFRS S2—and sets out the requirements for how an entity might reassess the scope of its value chain. The relevant references to the requirements in IFRS S1 and IFRS S2 are as follows:

  • IFRS S1 paragraphs 2, 32, B6–B7, B11–12 and Appendix A
  • IFRS S2 paragraphs 13 and Appendix A

2IFRS S2 also includes a number of requirements relating to Scope 3 greenhouse gas emissions, which are the indirect greenhouse gas emissions in an entity's value chain. Discussion specifically about Scope 3 greenhouse gas emissions is not included in this paper. The TAC will discuss Scope 3 greenhouse gas emissions, including financed emissions, in a future meeting. The requirements in IFRS S1 and IFRS S2 relating to value chain also relate to matters beyond Scope 3 greenhouse gas emissions. For example, an entity may consider water scarcity or child labour in the supply chain, or the upstream waste generated during a product's life cycle as relevant sustainability-related matters relating to the value chain.

3In this paper, ‘reporting entities’ are differentiated from ‘entities in the value chain’.

4This paper also discusses matters relating to identifying sustainability-related risks and opportunities, materiality, aggregation and disaggregation, reporting entity boundary and connectivity. However, the TAC is not asked to make a decision about these technical areas in this paper, as these are the focus of other papers being presented to the TAC.

Endorsement criteria

5The endorsement criteria applied in the analysis of this technical area include whether:

  1. use of the IFRS Sustainability Disclosure Standard is likely to support companies in making disclosures that are understandable, relevant, reliable and comparable.
  2. use of the IFRS Sustainability Disclosure Standard is likely to improve the quality of corporate reporting within the UK in the long-term.
  3. companies are likely to be able to provide the disclosures required by the IFRS Sustainability Disclosure Standard within the timeframes that a company normally reports without undue cost or effort.
  1. use of the IFRS Sustainability Disclosure Standard is likely to be conducive to the UK’s economic growth and international competitiveness, taking into account the costs and benefits of compliance.

Analysis

6In relation to the requirements relating to the value chain, there are a number of matters for the TAC to discuss, including:

  1. the requirements for entities to identify sustainability-related risks and opportunities in the value chain. Stakeholders have indicated that these requirements are the most onerous in IFRS S1 and IFRS S2. However, stakeholders have also indicated that value chain information is critical to understanding an entity’s exposure to sustainability-related risks and opportunities. Paragraphs 7–11 discuss this feedback further.
  2. the definition of ‘value chain’ in both IFRS S1 and IFRS S2. Some stakeholders have raised concerns that the definition used in IFRS S1 and IFRS S2 is too broad and that there is currently a lack of guidance beyond Scope 3 greenhouse gas emissions. Paragraphs 12–15 discuss the definition of ‘value chain’ further. The TAC may consider maintaining the definition for ‘value chain’ but request that the ISSB provides additional implementation guidance to support the application of the requirements.
  3. the requirement for entities to reassess the scope of sustainability-related risks and opportunities in the value chain only on the occurrence of a significant event or change in circumstances. Although this requirement is intended to remove the burden of reassessing the scope on an annual basis, it may not be clear how these requirements work in practice with the requirements to identify sustainability-related risks and opportunities annually. Paragraphs 16–20 discuss this requirement further. The TAC may consider whether this requirement is an appropriate proportionality mechanism.
  4. the practical challenges with collecting information from the value chain. This was one of the biggest challenges raised by stakeholders, especially in relation to data availability and data quality challenges in the value chain. Paragraphs 25–31 describe the challenges and the reliefs in IFRS S1 to support entities in collecting information from the value chain. The TAC discussed some of these challenges in its June 2024 meeting, and it is an area that is likely to feature in future discussions.
  5. connectivity with the financial statements. The concept of value chain reporting is uncommon in financial statements and goes beyond the traditional reporting boundary used for financial statements, which could create misalignment between sustainability-related information and information in the financial statements. Paragraphs 32–35 introduce the concerns relating to the value chain and the financial statements.

7IFRS S1 and IFRS S2 require an entity to disclose information about sustainability-related and climate-related risks and opportunities throughout its value chain. Stakeholders broadly agreed that information about the effects of sustainability-related risks and opportunities on an entity’s value chain is necessary to understand the complete picture of an entity’s exposure to these risks and opportunities. Some entities are likely to identify the majority of their sustainability-related risks and opportunities in the value chain, especially if their direct operations are not directly exposed to these risks and opportunities. However, stakeholders have also noted that this is one of the most onerous requirements of the standards which may require substantial cost and effort from the entity. Some stakeholders were concerned that this requirement could lead to lengthy disclosures and require significant judgement and interpretation that could affect the consistency and comparability of disclosures.

8As discussed in paper 2024-TAC-010 on identifying sustainability-related risks and opportunities, stakeholders raised concerns about the large breadth of sustainability-related matters that could be considered by an entity in their process of identifying risks and opportunities. Stakeholders noted that this issue may be exacerbated by also including all sustainability-related risks and opportunities in the value chain. Similar to the challenges outlined in paper 2024-TAC-010 relating to the requirement to disclose ‘all’ sustainability-related risks and opportunities, some stakeholders noted that it is difficult to know the parameters used in the assessment of risks and opportunities and to what extent the disclosures can be considered ‘complete’. This is especially important for primary users who want to understand whether an entity has identified and disclosed a complete picture of the sustainability-related risks and opportunities, including those in the value chain, that could affect the entity’s prospects.

9Paper 2024-TAC-010 on identifying sustainability-related risks and opportunities, notes that the requirement in IFRS S1 is for entities to identify sustainability-related risks and opportunities that could affect an entity’s cash flows, its access to finance or cost of capital over the short, medium or long term (shortened to ‘prospects’). Some stakeholders believe that the expectation in IFRS S1 to only identify and disclose information about how those sustainability-related risks and opportunities affect an entity’s prospects is clear. Using this additional filter to identify sustainability-related risks and opportunities of risks and opportunities it would be acceptable for an entity to only identify information about the sustainability-related risks and opportunities in the value chain that are reasonably expected to affect an entity’s prospects. For example, an entity need only disclose information about an entity in the supply chain for which a risk has been identified that may ultimately affect the reporting entity’s prospects. However, this narrower scope does not alleviate concerns about how entities assess and understand how risks and opportunities are likely to manifest in the value chain, especially in the longer term. To understand whether a risk or opportunity is likely to affect an entity’s prospects, the entity will still have to complete an assessment of all risks and opportunities it is exposed to.

10Additionally, IFRS S1 paragraph B6 specifies that entities are expected to use all reasonable and supportable information that is available to the entity at the reporting date without undue cost or effort when determining the scope of the value chain—including the breadth and composition of the value chain. As explained in IFRS S1 paragraph B10, this proportionality mechanism means that ‘an entity need not undertake an exhaustive search for information’. Paragraphs 25–31 discuss challenges associated with collecting information in the value chain.

11When disclosing information about the effects of sustainability-related risks and opportunities on the value chain, entities are only required to provide qualitative information. IFRS S1 paragraph 32 and IFRS S2 paragraph 13 require an entity to disclose ‘a description of the current and anticipated effects of sustainability-related risks and opportunities on the entity’s business model and value chain’. Additionally, the standards require a description of where in the value chain the risks and opportunities are concentrated—which suggests that entities are required to assess the areas in the value chain that are most exposed to sustainability-related risks and opportunities. One stakeholder requested clarity as to the types of ‘concentration’ and the nature of information that an entity would be required to disclose.

Definition of value chain

12Some stakeholders raised concerns about the definition of ‘value chain’, which is defined in IFRS S1 and IFRS S2 Appendix A as:

The full range of interactions, resources and relationships related to a reporting entity’s business model and the external environment in which it operates.

A value chain encompasses the interactions, resources and relationships an entity uses and depends on to create its products or services from conception to delivery, consumption and end-of-life, including interactions, resources and relationships in the entity’s 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 the financing, geographical, geopolitical and regulatory environments in which the entity operates.

13Some stakeholders raised concerns that this definition was too broad and that there is currently a lack of guidance beyond Scope 3 greenhouse gas emissions. The expectation may be that this guidance and further clarity will be provided when the ISSB begin working on additional topic standards. However, stakeholders also noted that the composition and nature of value chains will differ significantly between industries and therefore industry-specific guidance may be helpful. Stakeholders suggested that without clear definitions and robust guidance and methodologies, reporting in relation to the full value chain may lead to inconsistent disclosures that are less comparable, especially in the initial years of reporting.

14The European Sustainability Reporting Standards (ESRS), define the value chain as:

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:

  1. those in the undertaking’s own operations, such as human resources;
  2. those along its supply, marketing and distribution channels, such as materials and service sourcing and product and service sale and delivery; and
  3. 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.

15Although the definition in IFRS S1 and IFRS S2 is predominantly the same as the one used for the ESRS, some stakeholders suggested the additional wording in ESRS enables an end point in the value chain to be defined based on disclosure limitations or influence. For example, ESRS 1 General Requirements (ESRS 1) paragraph 64 notes that entities do not need to disclose information about ‘each and every actor in the value chain’, but only the information that is material and is necessary for an understanding of the entity’s significant sustainability-related impacts, risks and opportunities. Stakeholders that raised this issue were concerned that the difference between IFRS Sustainability Disclosure Standards and ESRS could lead to different scoping of the value chain and ultimately disclosures that are not consistent or comparable. However, it is important to note that different scoping of the value chain for ESRS and IFRS Sustainability Disclosure Standards may be appropriate when the actor in the value chain is creating an impact rather than being exposed to sustainability-related risks and opportunities that could affect the reporting entity’s prospects.

Reassessing the scope of risks and opportunities in the value chain

16IFRS S1 paragraph B6(b) permits entities to use reasonable and supportable information available to the entity at the reporting date without undue cost or effort to determine the scope of the value chain. The scope of the value chain includes its breadth and composition. This concept was added to the final standard as the ISSB acknowledged that an entity may face significant difficulties and increased costs when collecting information to assess the scope of the value chain.

17As outlined in IFRS S1 paragraph B11, an entity is required to reassess the scope of sustainability-related risks and opportunities in the value chain only on the occurrence of a significant event or change in circumstances. In IFRS S1 Basis for Conclusions paragraph BC60, the ISSB acknowledged that the ‘costs an entity would incur to reassess the scope of each sustainability-related risk and opportunity throughout its value chain at each reporting date would outweigh the benefit to users of general purpose financial reports, who typically would benefit from a reassessment only if a significant change had occurred.’ Therefore, entities are not expected to reassess the scope of the value chain every reporting date, which may alleviate some concerns from stakeholders.

18IFRS S1 paragraphs 74–75 require an entity to disclose information about the judgements used in the process of preparing its sustainability-related disclosures, including the judgements used when assessing whether it is necessary to reassess the scope of sustainability-related risks and opportunities throughout the entity’s value chain. This information may be expected to help users understand the reason why the scope has, or has not, been reassessed.

19However, despite this principle, assessing the scope of the value chain will still be a significant undertaking, especially when trying to understand the complex, and sometimes extensive, relationships between third parties in the value chain. For example, tier two suppliers may supply multiple tier one suppliers in an entity’s value chain. IFRS S1 Basis for Conclusions paragraph 57 notes that despite requests from some stakeholders to limit the scope of the value chain an entity is required to consider—e.g., to only consider tier 1 and tier 2 suppliers—the ISSB confirmed that an entity is required to disclose information about sustainability-related risks and opportunities throughout the value chain. As the breadth and composition of an entity’s value chain is likely to be entity-specific, the broad definition and scope within IFRS S1 allows for flexible application and for entities to apply their own judgement as to what is in scope.

20Additionally, it may be unclear how this requirement to reassess the scope of sustainability-related risks and opportunities in the value chain interacts with the other requirements in the standards. For example, it is implicitly expected that an entity will identify all sustainability-related risks and opportunities during every reporting period. If an entity only reassesses the sustainability-related risks and opportunities in the value chain on the occurrence of a significant event or change in circumstances, and these risks and opportunities are a large proportion of those disclosed by the entity, then an entity’s disclosure may not change year on year. There might also be changes to sustainability-related risks and opportunities in the value chain from year to year that are not caused by a significant event or change in circumstances. For example, an entity in the value chain may experience changes in its organisational structure—e.g., acquisitions and disposals—that might not be immediately apparent to the reporting entity.

Assessing the materiality of information in the value chain

21Information might be material at the level of the entity in the value chain, but not material to the reporting entity. For example, water availability in a specific location that affects the operations for an entity in the value chain might not be material to the reporting entity. If an entity aggregates its sustainability-related risks and opportunities at the reporting entity level, and therefore does not identify the information about these risks and opportunities as material, this may obscure information that may otherwise be considered as material to users. Aggregating information in this way is similar to financial reporting for consolidated groups and therefore current practice exists that may be transferable to these situations.

22On the other hand, information about sustainability-related risks and opportunities at an aggregated level may be material to the reporting entity, but not at the level of the entity in the value chain. For example, biodiversity loss may be a systemic issue that a reporting entity has identified might affects its prospects and is a sustainability-related matter that investors are asking for information about. However, for individual entities in the value chain the matter of biodiversity loss may not be considered material. Despite not being considered material, these entities in the value chain could nevertheless be required to provide information to the reporting entity to satisfy information needs.

23IFRS S1 paragraph 23 also requires an entity to consider ‘whether information about low-probability and high-impact outcomes might be material either individually or in combination with information about other low-probability and high-impact outcomes.’ The example used in IFRS S1 is that an entity could be exposed to several sustainability-related risks which may be low-probability but could all together cause disruption to the entity’s supply chain. In this example, information for the individual risks may not be material, but could be in aggregate.

24Although the TAC has not been asked to consider the market-wide impact of implementing the IFRS Sustainability Disclosure Standards, information demands through the value chain will inevitably create significant cost to smaller entities in the value chain who might not themselves be required to collect and report sustainability-related financial information. This is a broader and known concern relating to sustainability-related reporting which is not unique to the IFRS Sustainability Disclosure Standards. The following paragraphs discuss the challenges with collecting information from the value chain, including the impact on smaller entities in the value chain.

Collecting information from the value chain

25One of the biggest challenges raised by stakeholders is related to collecting information from the value chain. In particular, stakeholders commented on data availability and data quality challenges in the value chain that make disclosure of reliable information challenging for reporting entities.

26There are two different but overlapping stages when collecting information from the value chain. Firstly, reporting entities will need to gather information—mostly qualitative—from the value chain to identify the sustainability-related risks and opportunities in the value chain. Secondly, reporting entities will need to collect specific quantitative data to be able to disclose certain metrics relating to the value chain. Although many of the challenges for these two stages are the same—namely the availability and quality of data—it may be considered easier to collect information for the purpose of identifying sustainability-related risks and opportunities as this information does not necessarily require a specific figure (i.e., it could be qualitative or a range), nor is it necessarily bound by the reporting date (i.e., entities can collect this information throughout the reporting period).

27Reporting entities are likely to experience data challenges when the entity in the value chain:

  • is not itself required to comply with IFRS Sustainability Disclosure Standards, or other sustainability reporting standards, and therefore may not have the experience, resources or processes necessary for the collection of information for these purposes;
  • is outside the operational control of the reporting entity and therefore is not required to use the same reporting processes and systems;
  • has not disclosed this information before and is not prepared or equipped to provide the information in a timely manner;
  • has used a different calculation methodology or has estimated the information without providing sufficient information about the basis of preparation;
  • does not have robust internal control mechanisms which might lead to unreliable information being provided to the reporting entity;
  • is part of other reporting entities’ value chains and is required to provide similar or different information to satisfy the information needs of multiple reporting entities, potentially applying a range of different methodologies;
  • is unable or unwilling to provide the information due to confidentiality or legal reasons;
  • has a different reporting period; and
  • discloses its information after the reporting entity’s reporting date.

28Many of the challenges listed above may lead to inconsistent estimates and judgements, incomplete data or errors which may not be immediately identified and could affect the quality and reliability of the reporting entity’s disclosure.

29These challenges could also impact the reporting entity’s ability to disclose information at the same time as its general purpose financial report, which was discussed by the TAC in its June meeting. In particular, the issues relating to timely disclosure and reporting dates mean that the reporting entity may not receive the necessary information from the entities in the value chain until after its reporting date. In some cases, these challenges will resolve over time as data collection processes used by entities in the value chain will improve. However, it is likely that some data from the value chain will always have a lag. IFRS S2 permits Scope 3 greenhouse gas emissions to be disclosed using a different reporting period to account for the time lag. However, this permission does not explicitly extend to other sustainability-related information in IFRS S1, in the absence of further topic specific standards.

30IFRS S1 paragraphs 77–81 require an entity to disclose information about the most significant uncertainties affecting the amounts reported in its disclosures. As noted by many stakeholders and in paragraph 27, there are likely to be significant challenges and uncertainties associated with the collection of information in the value chain especially when entities have to rely on the use of estimates. It is expected that these challenges should not limit an entity in disclosing information about the value chain, and instead entities may provide information that is subject to significant uncertainties so long as these uncertainties, including the use of estimates, are described and explained in the disclosure.

31Additionally, IFRS S1 allows entities to use reasonable and supportable information that is available to the entity at the reporting date without undue cost or effort in relation to determining the scope of sustainability-related risks and opportunities in the value chain. IFRS S1 paragraph 58 notes that this ‘also provides relief to entities that face challenges associated with obtaining information from entities throughout their value chain’. The practical challenges in paragraph 27 will need to be recognised and addressed by reporting entities either through early engagement with entities in the value chain, or by providing information in the disclosures that explains how these challenges have affected the quality and reliability of the disclosures. The TAC will discuss the challenges of timing of reporting in the context of transition reliefs in a future meeting.

Reporting entity boundary

32IFRS S1 paragraphs 20 and B38 specify that an entity’s disclosures are required to be for the same reporting entity as the financial statements. However, the concept of value chain reporting is uncommon in financial statements and goes beyond the traditional reporting boundary used for financial statements. Although most stakeholders recognise the importance of including information about the value chain, others have noted that it could create misalignment between sustainability-related information and information in the financial statements. For example, if an entity identifies a large portion of sustainability-related risks and opportunities in the value chain, then it may not be able to easily connect information about these risks and opportunities to information in the financial statements. This may also create inconsistencies when requiring an entity to disclose current and anticipated financial effects of sustainability-related risks and opportunities, especially if only qualitative information is collected from the value chain. The TAC will discuss the requirements relating to current and anticipated financial effects in a future meeting. However, not all information in the narrative section of a general purpose financial report will easily be connected to the information in the financial statement, especially in the current year financial statements. In the case of value chain information, despite not necessarily connecting with the financial statements, it may still be useful information for users to understand the full picture and where sustainability-related risks and opportunities are concentrated.

33Additionally, some stakeholders noted that it is unclear how they are expected to deal with joint ventures, associates and investments. IFRS S1 Basis for Conclusions paragraph BC55 suggests that joint ventures, associates and investments are to be considered part of the value chain as it notes:

IFRS S1 does not specify how to include sustainability-related financial information about joint ventures, associates and investments. However, specific IFRS Sustainability Disclosure Standards, including IFRS S2, will provide requirements and guidance related to the disclosure of information about the sustainability-related risks and opportunities arising throughout an entity’s value chain.

34IFRS S2 provides some guidance on how to deal with joint ventures, associates and investments in relation to Scope 1 and Scope 2 greenhouse gas disclosure requirements only, but does not provide further guidance on the other aspects of the disclosure requirements. For example, neither IFRS S1 or IFRS S2 provide guidance on how to identify sustainability-related risks and opportunities in relation to joint ventures, associates and investments and how an entity should disclose the current and anticipated financial effects of these risks and opportunities on the entity’s financial position, financial performance and cash flows. Additionally, the issues relating to data collection and timing of reporting that are outlined in paragraphs 26–28 are also relevant to joint ventures, associates and investments, especially when they may have non-coterminous reporting periods.

35Consolidated entities may also observe challenges when collecting value chain information from their subsidiaries—an activity that could require substantial resource. As noted in paragraph 31, IFRS S1 allows entities to use reasonable and supportable information that is available to the entity at the reporting date without undue cost or effort in relation to determining the scope of sustainability-related risks and opportunities in the value chain. This relief is intended to allay concerns and means that a reporting entity need not complete an exhaustive assessment of sustainability-related risks and opportunities in the value chain. However, without clear parameters around the definition of value chain, this activity may still require substantial resource.

Endorsement recommendations

36In considering the TAC’s endorsement recommendations on the requirements relating to the value chain, the Secretariat considered alternative options that have been disregarded. The criteria for amending the standards—notably that changes are considered necessary for the effective application within the UK and that failure to amend the standard would be detrimental to the long-term public good—have not been met in this instance. The TAC may decide to amend the standards in relation to value chain reporting at a future meeting.

37The alternative options that were considered but not recommended included:

  1. adding a transition relief that allows entities to disclose information about the value chain in the second or third year of reporting. This will give entities time to assess the scope of their value chain, and collect information to be able to identify SRRO and understand the materiality of the information. The current transition reliefs in IFRS S1 and IFRS S2 permit an entity to only disclose climate-related information and to not include Scope 3 greenhouse gas reporting in the first year of reporting, which should already provide some relief to entities. The TAC will be asked to consider all available transition reliefs in a future meeting.
  2. removing the requirements for entities to disclose information about the value chain. As one of the most onerous parts of the standard, removing the requirement altogether would reduce the burden on reporting entities and would follow traditional financial reporting where reporting on entities in the value chain is not required. However, stakeholders have broadly welcomed the requirements relating to the value chain to enable a complete view of the sustainability-related risks and opportunities an entity may be affected by.
  3. removing the requirement for entities to reassess the scope of the sustainability-related risks and opportunities in the value chain on the occurrence of a significant event or change in circumstance. To ensure the reporting entity has assessed all sustainability-related risks and opportunities that could affect its prospects at each reporting date, it may be appropriate to remove the relief that permits entities to only reassess the scope of the sustainability-related risks and opportunities in the value chain on the occurrence of a significant event or change in circumstance. However, reassessing the scope of the sustainability-related risks and opportunities in the value chain is likely to require substantial resource. It may also prevent entities from disclosing information within the timeframes in which they normally report without undue cost or effort. The TAC may decide that this relief is an appropriate proportionality mechanism.

Suggested endorsement recommendation

38On balance, and based on the analysis provided in this paper, the TAC is asked to tentatively recommend:

  1. to maintain the requirements in IFRS S1 and IFRS S2 for entities to disclose information about sustainability-related risks and opportunities in the value chain. Despite the challenges relating to data collection, most stakeholders agree that relevant information about sustainability-related risks and opportunities in the value chain is important to understand the full picture and to improve the quality of sustainability-related disclosures. Additionally, the ISSB allows entities to use reasonable and supportable information that is available to the entity at the reporting date without undue cost or effort in relation to the requirements relating to the value chain. This relief should reduce the anticipated cost and burden to reporting entities.
  2. to maintain the definition for ‘value chain’ but request that the ISSB provides additional implementation guidance, including how an entity might disclose information about sustainability-related matters other than climate change in the value chain, and how to align value chain reporting with information in the financial statements. Reflecting on stakeholder views that the definition is too broad and there is insufficient guidance beyond Scope 3 greenhouse gas emissions, the TAC may decide to encourage the ISSB to issue implementation guidance relating to the value chain. The ISSB may also consider the value chain requirements as they conduct research projects on biodiversity, ecosystems and ecosystem services and human capital. The challenges associated with the value chain are not unique to the UK and therefore it would be appropriate to request that the ISSB produces any guidance. Recommending that the ISSB produces this guidance should also support international comparability. This recommendation is aligned to the TAC discussions about timing of reporting during the June 2024 meeting.
  3. to maintain the requirement for entities to reassess the scope of the sustainability-related risks and opportunities in the value chain on the occurrence of a significant event or change in circumstance. Although it would be ideal for entities to reassess the risks and opportunities at every reporting date, reassessing the scope of the sustainability-related risks and opportunities in the value chain is likely to require substantial resource and may prevent entities from disclosing information within the timeframes in which they normally report without undue cost or effort. The TAC may decide that this relief is an appropriate proportionality mechanism.

Questions for the TAC

  1. Does the TAC agree with the analysis in this paper in relation to the value chain in IFRS S1 and IFRS S2?
  2. Does the TAC agree to tentatively recommend to maintain the requirements in IFRS S1 and IFRS S2 for entities to disclose information about sustainability-related risks and opportunities in the value chain?
  3. Does the TAC agree to tentatively recommend to maintain the definition for ‘value chain’, but request that the ISSB provide additional implementation guidance including how an entity might disclose information about other sustainability-related matters in the value chain and how to align value chain reporting with information in the financial statements?
  4. Does the TAC agree to tentatively recommend to maintain the requirement for entities to reassess the scope of the sustainability-related risks and opportunities in the value chain on the occurrence of a significant event or change in circumstance?

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Name TAC Public Meeting July 2024 Paper 5: Value chain
Publication date 08 July 2024
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