INVERTO: Time to act on Supply Chain Sustainability

The Corporate Sustainability Due Diligence Directive (CSDDD) is one of the most pressing concerns currently facing supply chain and sustainability leaders. 

Passed as EU law earlier this year, the CSDDD requires firms to identify, prevent and mitigate their social and environmental impact. It also establishes companies’ legal responsibility for the social and environmental impact of their suppliers.

EU countries have two years to implement this law, with each setting up supervisory bodies to monitor and investigate compliance. Noncompliant organisations could face fines of up to 5% of their global turnover.

The deadline by which companies must implement the new rules is broken down by company size or turnover, as follows:

• 5,000+ employees or €1.5bn+ turnover – by 2027
• 3,000+ employees or €900m+ in turnover – 2028
• 1,000+ employees or €450m+ in turnover – 2029

However, fresh research from supply chain management consultancy, INVERTO, part of Boston Consulting Group, shows just a fifth (20%) of retail and consumer goods companies have taken concrete action to comply with the EU’s new supply chain law.

“This new directive is focused on creating much greater visibility of the credentials of supply chains and a clear audit trail,” explains Katharina Erfort, Principal at INVERTO.

“This new law will force many companies to take the sustainability of their supply chains much more seriously.

“Maintaining this visibility could be especially difficult for firms with suppliers in emerging markets. But, with deadlines to implement the rules now starting to approach, firms need to get this right first time – or risk facing hefty fines.”

Implementation challenges

A significant proportion of the respondents in INVERTO’S study cited difficulties with implementing CSDDD.

More than a third said they had encountered issues in obtaining full and transparent visibility of their supply chains, while 30% of firms see comprehension of the regulations as a barrier to action.

As a result, many companies in the retail and consumer goods industry find it difficult to develop an effective compliance strategy. 

Almost two in five (39%) firms reported being unfamiliar with existing national legislation regarding their social and environmental duty of care to consumers and only 57% of consumer goods companies considered themselves well-informed about these regulatory changes – 10% below the average across all sectors. 

Around one in five (22%) respondents in the consumer goods sector simply don’t know whether any action has been implemented in their own companies, indicating a lack of visibility across internal communications – seven percentage points higher than the average for all sectors (15%).

Weighing up priorities 

Almost three-quarters (73%) of consumer goods companies told INVERTO they would incur additional costs as a result of the CSDDD, although most anticipate only low to moderate additional expenditure.

In the long term, more than two-thirds (68%) of consumer goods companies surveyed believe these investments will pay off and that they could even generate a return. 

Many respondents highlighted other positives with potential to arise following the law’s introduction, including public image (63%) and improved cooperation with suppliers (57%). 

Further reasons cited by participants were competitive advantage (56%) and respect for human and labour rights (53%). 

Retail and consumer goods making ESG progress

Despite the apparent knowledge gap when it comes to regulatory change, companies operating in the consumer goods sector are more advanced in terms of ESG initiatives than those in other sectors. 

INVERTO’s take is that this is likely a result of strict legal requirements like sustainable sourcing for consumer goods and growing consumer demand for transparency. 

Overall, four in five (80%) companies feel they are already compliant or actions are in progress to adapt their supply chains to EU legislation. 

These measures include:

• Developing an annual financial report (75%),
• Optimising the process for identifying CSR risks (73%)
• Introducing criteria for supplier selection (72%)

Three in five (60%) respondents see financial performance as the main task of procurement, compared to only 31% who give top priority to improving the environmental and social impact of supply chains. 

Either way, procurement departments are set to play a crucial role in the implementation of the CSDDD. 

“Procurement teams need to take the initiative and ensure greater transparency in the supply chain,” adds Katharina. “Companies should request missing data from their suppliers and adapt processes accordingly.

“To successfully adapt to the new CSDDD rules, companies have to proactively develop a performance plan that effectively combines cost control, ESG engagement and increased resilience.

“In order to respond to supply chain risks, companies will need to review their current strategies to ensure they are properly considering the need to have a framework and the pros and cons of having it in place. This includes diversifying supplier bases, rightshoring and introducing rigorous risk-assessment processes.

“This directive represents a great opportunity for procurement teams to be seen as providing value within the business by showing leadership when it comes to sustainability.”

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