We used our Global Impact Database to investigate the value chain impact of some of the largest companies in different sectors. As data shows, more than 90% of the impact is indirect. The increasing complexity of value chains demands a quantitative and comprehensive view of impacts, including both upstream and downstream segments. Without robust data and sound attribution methodologies to minimize double counting, value chain responsibility will remain a blind spot, inaccessible to most decision makers.
Value chain impact: Going beyond companies’ own operations
Today, companies are embedded in large and global value chains, having several tiers of suppliers and clients located in multiple regions and spanning across many industries. Such interconnectedness implies a substantial exchange of business value between different organizations, sectors, and countries, and a complexity challenge for tracing companies’ impacts.
Value chain impact assessment requires considering externalities and adverse impacts on climate, biodiversity, or human rights. This impact arises not just from a company’s own operations, but also from business operations across the value chain, where most of the actual impact often lies. However, indirect impact generated by corporations is still far from being completely and consistently captured by common ESG and sustainability metrics.
The complexity of portfolio value chain impact
While regulatory pressure to report increases, the world’s largest investment funds and companies are attempting to align. More and more, financial institutions are aiming to understand their portfolio’s value chain impact to strengthen reporting and due diligence, increase transparency, and measure their exposure to sustainability risks. Attempts to obtain consistent estimations of companies’ scope 3 emissions are already a step in that direction, and such efforts are likely to expand to other sustainability themes (e.g., health and safety, biodiversity, living wages).
Measuring value chain impact
For the financial world to create value for society and all stakeholders within, value chain impact assessment needs to become common practice. To get a real grip on value chain impact, assessments must cover the following requirements:
More than 90% of the largest companies’ impact is in the value chain
Our GID portfolio data solution provides data on various environmental and social impact metrics, including direct, upstream, and downstream value chain impacts of listed companies. It identifies value chain responsibility without double counting, making it easy to quantify the impact generated by each participant in the value chain, according to their value added.
For example, when looking at the value chain of pasta production, (scarce) water use is likely to be larger for wheat production than for a pasta processing plant. However, as the pasta processor uses wheat, some of the impact arising in wheat production is attributed to the processor: the more value the pasta processor adds, the more impact of other links in the value chain are attributed to it.