Each year, our Sustain Conference brings together sustainability and procurement leaders from multinationals, governments, NGOs and academia to share ideas and explore the megatrends shaping global supply chains. Underpinning this year’s event was a fundamental question: In the face of unprecedented uncertainty, how do we ensure companies move rapidly from setting commitments to taking much-needed action on environmental and human rights challenges in their supply chains? As highlighted in an interview with Didier Reynders, the EU Commissioner for Justice, and a panel discussion with cross-sectoral experts, the mandatory supply chain due diligence requirements being rolled out by governments around the world are a key part of this complex puzzle. In this article, we share expert insights on these regulations and why proactive companies should view them as an opportunity rather than a burden.
Labor & Human Rights Risks Are Proliferating
Modern supply chains – as the past three years have exposed – are exceptionally interconnected and vulnerable to disruption. With the deeper tiers of the supply chain remaining opaque to most companies, serious labor and human rights risks persist across all regions and industries. While many companies have made progress on improving labor conditions and eliminating the worst abuses in their value chains, the data shows that there is more work to be done than ever before. A recent ILO report revealed that 27 million people remain subjected to forced labor on a daily basis (of which 3.3 million are children) – an increase in both absolute terms and prevalence since 2016. Beyond modern slavery, the Global Rights Index found that workers’ rights abuses – from punishments for striking to a lack of access to justice in the face of violations – reached record levels in 2022. No region is immune from these challenges: Almost three-quarters of European countries curtailed the right to strike in 2022 to some degree and workers were subjected to violence in 26% of Europe (up from 12% in 2021).
Co-CEOs Frédéric Trinel and Pierre-François Thaler discuss the state of global supply chain sustainability during their Sustain address.
A New Supply Chain Due Diligence Paradigm is Emerging
With nearly half of the world’s largest companies still unable to demonstrate tangible progress on addressing human rights issues in their supply chains, it’s clear that the existing HRDD paradigm lacks the scope and teeth needed. A growing number of European countries, including France, Norway and Germany, have stepped up to this legislative challenge. The latest of these efforts, the German Supply Chain Due Diligence Act (or LkSG), entered into force at the start of this year. At the regional level, the EU’s Corporate Sustainability Due Diligence Directive (CSDDD) is poised to become the most stringent and impactful piece of HRDD legislation to date. Once in effect, it will compel all companies based or operating in Europe with more than 500 employees and turnover of at least €150 million (generated within the single market) to systematically identify, mitigate and report on the negative environmental and human rights impacts within their supply chains. These thresholds are lowered for companies operating in high-risk sectors like agriculture and mineral extraction.
During a plenary session at Sustain, Didier Reynders (the current European Commissioner for Justice) shared insights on the CSDDD and how it could impact the sustainability landscape of the EU and beyond. Here are some key takeaways:
- The Directive aims to level the playing field and promote harmonization of due diligence requirements: The CSDDD is designed to level the private sector playing field in the EU by rooting out any competitive advantages gained through poor labor & human rights and environmental practices in supply chains. According to Reynders, European companies will also benefit from the legal harmonization that the Directive will bring: “If we continue to have different legislation in different member states, it will be very difficult for companies to be in compliance.”
- Beyond human rights, climate goals and transition plans will be part of the Directive’s requirements: As highlighted by Reynders, the Directive is set to require companies to “take into account, of course, the fight against climate change. We have asked that, on top of the due diligence process, companies share their climate transition plans and how they will reach climate neutrality goals for 2050.” This echoes the opinion of the European Parliament’s Environment Committee, which voted in February to strengthen the climate requirements outlined in the draft Directive with the goal of ensuring that in-scope companies take a value chain-wide approach to decarbonization in line with the Paris Agreement.
- The Directive has the potential to accelerate the adoption of similar laws in other regions: When asked about the potential influence of the CSDDD around the world, Reynders pointed to what he’s learned through his experience guiding the implementation of the EU’s General Data Protection Regulation (GDPR). He anticipates that mandatory due diligence will undergo “the same kind of evolution that we have had with the GDPR.” Nearly five years on from its launch, the GDPR has inspired similar legislation in more than 20 countries across five continents.
Mandatory Due Diligence is an Opportunity for Companies
With the CSDDD on the horizon, it’s clear that in-scope companies and SMEs that may be indirectly impacted should prepare now. However, many companies are unsure of where they stand from a compliance standpoint and view the rapidly evolving HRDD landscape with some trepidation. This was explored in the Sustain session Strategies for Supply Chain Risk & Resilience Management, where panelists drew upon their experience preparing – and helping other companies prepare – for the recently enacted LkSG. They highlighted that emerging regulations give proactive companies the opportunity to better manage ESG risks in the supply chain, build resiliency and collaborate with like-minded trading partners.
Jan Geisler speaks during the Strategies for Supply Chain Risk & Resilience Management session.
During the session, Jan Geisler (VP of Purchasing Strategy at P&G) spoke about how his organization’s holistic approach to sustainability is helping them prepare for HRDD requirements: “It’s amazing how much overlap there is in driving responsible sourcing, ESG compliance and positive impact in the supply chain, as well as just strengthening our business operations.” He touched on the fact that, while there was some initial concern around LkSG compliance within his team, trusting in the solid foundation they had built and viewing it as an opportunity to accelerate efforts further made all the difference. Geisler also sees the massive potential for this legislation to drive collaboration around sustainability: “I’m quite confident that if enterprises, NGOs, regulators and supply chain partners work together understanding the intent of what is to be achieved [through the law], it’s a wonderful combination and will develop partnerships that will get us where we need to be.” Also on the panel was Yvonne Zwick, Chairwoman of B.A.U.M. – a German-based network that promotes sustainable business across Europe. She spoke on the importance of building a strong sustainability management system. According to Zwick, those that do have no reason to fear due diligence laws but rather “have huge chances in establishing trustworthy business relationships around the world.”
How EcoVadis Helps Companies Go Beyond Compliance
Building a sustainability management system capable of standing up to increasingly stringent HRDD legislation requires commitment and consistent effort, but it doesn’t have to be daunting. EcoVadis provides the tools and support companies need to integrate sustainability into their corporate governance and conduct supply chain due diligence. Our Sustainability Intelligence Suite enables companies to screen their entire supply base for ESG risks, verify them through supplier assessments, collaborate with suppliers to drive improvement, and monitor and report on progress. By engaging in this ongoing cycle, companies can not only ensure compliance with HRDD laws but also build a resilient sustainability management system capable of driving positive impact and unlocking value throughout the supply chain. As the due diligence landscape continues to evolve, companies across all regions and industries need to stay one step ahead – and seize the opportunities that come with becoming a sustainability leader.
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