Why value chain visibility matters for AASB S2 compliance

As climate-related financial disclosures become more rigorous under standards like AASB S2 Climate-related Disclosures (AASB S2), Australian companies are being called to look beyond their immediate operations and assess the full spectrum of climate risks and opportunities across their value chains. A value chain assessment is no longer a “nice to have”; it’s a strategic imperative. From raw material sourcing to end-of-life product disposal, understanding the environmental and financial implications of upstream and downstream activities is essential for accurate emissions reporting, credible transition planning, and long-term business resilience.

What is a value chain assessment?

A value chain assessment involves identifying, analysing, and evaluating the full range of activities, entities, and environmental impacts—both upstream and downstream—that contribute to delivering a product or service.

In the context of climate-related financial disclosure (such as under AASB S2), the focus is on understanding climate risks and emissions across the entire value chain, including:

1. Upstream activities (before the company’s operations):
   • Raw material extraction
   • Suppliers and manufacturers
   • Transport and logistics
   • Energy and water used in production.
2. Operational activities (within the company):
   • Core business operations
   • Facilities and internal processes.
3. Downstream activities (after the company’s operations):
   • Distribution and retail
   • Customer use of products or services
   • End-of-life product disposal or recycling
   • Investments and franchises.

By mapping these stages, you can gain a clearer picture of where climate-related risks and emissions occur, enabling more accurate reporting, better risk management, and stronger alignment with regulatory expectations like AASB S2.

The importance of value chain assessments

One key reason value chain assessments are essential is their role in identifying climate risks across the full spectrum of business activities.

AASB S2 mandates disclosure of climate-related risks and opportunities not just within a company’s direct operations, but also across its upstream and downstream activities. This includes everything from raw material sourcing and supplier logistics to product use and end-of-life disposal. Without this comprehensive view, companies risk overlooking critical vulnerabilities that could materially affect their business.

Value chain assessments are also central to accurate greenhouse gas (GHG) emissions reporting. While Scope 1 and 2 emissions are relatively straightforward to measure, Scope 3 emissions—those that occur outside a company’s direct control—often represent the largest portion of a company’s carbon footprint. AASB S2 requires entities to report on climate-related risks across their entire value chain, and without a robust value chain assessment, these emissions can be significantly underestimated, undermining the credibility of sustainability reporting and decarbonisation targets.

Financial impacts are another area where value chain visibility is crucial. Many climate-related risks, such as supply chain disruptions from extreme weather, rising input costs due to carbon pricing, or shifting consumer demand for low-carbon products, originate outside the company’s immediate operations. A thorough assessment helps organisations anticipate these risks and build resilience into their financial planning over the short, medium, and long term.

Transition plans and decarbonisation targets must account for emissions and dependencies across the entire value chain. This enables companies to engage meaningfully with suppliers and customers, set science-based targets, and focus efforts where they will have the greatest impact.

Finally, overlooking the value chain can create strategic blind spots. Companies may miss chances to collaborate with suppliers, develop low-carbon products, or build resilience into sourcing and logistics, ultimately weakening their competitive position in a rapidly evolving market.

Taking the next step

Stakeholder expectations are evolving rapidly; investors, regulators, and customers increasingly expect companies to take responsibility for their entire value chain. A transparent and well-executed assessment not only supports compliance but also builds trust and demonstrates maturity in climate governance.

If you need help assessing your value chain, preparing for AASB S2, or developing a robust climate transition plan, our sustainability specialists are here to help. Contact the BDO team to start a conversation about how we can support your climate reporting journey.