The value chain cap means that a mandatorily reporting company cannot, for the purposes of sustainability reporting, require from companies with up to 1,000 employees information that goes beyond what has been specified in the standard for voluntary use (VS).
In the draft VS, the Commission included additional rules that clarify how the value chain cap will work. They boil down to two things:
- First, the Commission proposed that the value chain cap should be different (lower) for the smallest enterprises (those with up to 10 employees) than for the rest, i.e. those with 11 to 1,000 employees.
- Second, the Commission divided the information reported under the VS into four categories:
- necessary
- necessary if applicable
- voluntary
- consideration when reporting sector information.
It then decided that only the necessary information constitutes the value chain cap. Unless we're talking about a company with just a few employees, in which case, not necessarily.
Simple, right? Sure. Now, as a large mandatorily reporting company, I not only have to learn the ESRS, but also the VS and all the disclosure types it contains. And I have to know exactly how many employees each of my business partners has. What the Commission has done with the value chain cap can hardly be called simplification.
Before you sign up for one of the courses on how to use the value chain cap (and plenty of them will surely hit the market shortly), let me suggest something simpler. It's enough to remember the following four facts:
- The value chain cap in the CSRD applies only to mandatorily reporting companies. If you're a voluntary reporter, you can ask your business partners about anything you want to know. They can of course choose to answer or not, but you're free to ask; there's no prohibition.
- If you're in scope of the CSRD, you can ask your business partners with more than 1,000 employees about anything. Note: this also covers some large companies that are not themselves in scope of the CSRD. If a company has more than 1,000 employees but less than EUR 450 million in revenue, it falls outside the CSRD but it is not protected by the value chain cap either.
- From business partners with up to 1,000 employees, you cannot require information protected by the value chain cap, but you can request or ask for it. The distinction is between the word require used in the draft VS (not allowed) and the word request, which is not used there (and is therefore allowed). We'll see how this is rendered in the national versions of the standard. But regardless of the translation, a ban on requiring does not mean you can't ask.
- I've saved the best for last, although attentive readers of my newsletter probably remember that I flagged this already last year. The value chain cap applies to situations where we require certain information for the purposes of sustainability reporting. It says nothing about other purposes. This means we can demand any information from a business partner of any size for the purposes of contract performance, strategy operationalisation, managing a climate transition plan, or conducting due diligence processes. And once we've obtained such information, it sits inside our company, meaning we can use it without any restrictions for the preparation of our sustainability report.
To sum up, the value chain cap is an exceptionally convoluted provision that solves no problem and only creates a heap of complications, both for the largest mandatorily reporting companies and for their smaller business partners. The provision was crafted by politicians, not experts. It ended up in the Omnibus revision of the CSRD precisely because the Commission did not consult experts on the draft. But there's no need to worry. It's a dead-letter rule. It will not limit, to any degree, the questions large companies put to smaller ones. And it will not stop any company from obtaining information it actually needs 😊
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