Identifying hidden risks: why companies must prioritise raw material traceability
Businesses often hear the term ‘know your supplier,’ but true traceability requires understanding your sourcing risks down to the raw materials. This is where violations frequently go undetected due to supply chain complexities and visibility challenges, potentially exposing companies to critical issues.?
Take cocoa, for example.??
Chocolate companies will generate billions in revenue this holiday season, yet consumers are likely unaware of the significant social and environmental risks associated with its production.? Our latest 2025 Supply Chain ESG Risk Outlook report highlights the key social and environmental risk exposures associated with cocoa production.??
These insights are derived from our supply chain intelligence software? EiQ, which generates risk ratings for more than 500 products and commodities. The platform shows cocoa is at critical risk levels for both human rights and environmental impacts, most notably for ESG violations related to biodiversity loss, child labour, forced labour, and deforestation. EiQ integrates data from the United States Department of Labor’s Bureau of International Affairs (ILAB), which flags cocoa sourced from countries like Ghana and C?te d’Ivoire as regions where cocoa was likely produced using forced labour or child labour.? The risk of child labour within the entire cocoa supply chain is high, impacting global companies who import large quantities of cocoa and cocoa products from these countries. This risk is most prominent in West African countries, where around 60 percent of cocoa is sourced from.?
New regulations, such as the EU Deforestation Regulation (EUDR) or the EU Battery Regulation (EUBR), mandate that manufacturers evaluate the environmental and social impacts associated with raw materials and production and businesses must improve their risk management strategy for compliance. This recognition of risks associated with cocoa serves as a crucial reminder for businesses to prioritise improved visibility over suppliers beyond Tier 1 – this is imperative to avoid reputational damage and improve consumer and stakeholder trust. ?
EU regulations: where do we stand??
There have been a lot of updates and headlines surrounding supply chain regulations in the EU, it can be hard to keep up with! We are here to make it easier and give you the key highlights:?
EU Deforestation Regulation: EU officials have agreed to delay the application date of the EU Deforestation Regulation (EUDR) by one year. This delay means that the rules of the EUDR start to apply as of December 30, 2025, for large and medium-size operators and traders, and as of June 30, 2026, for small and micro-size enterprises. Recently proposed amendments to include a new ‘no risk’ category in the EUDR benchmarking system, in addition to the ‘low’, ‘medium’, and ‘high’ risk categorisation for countries, have been dropped. The substance of the existing rules remains unchanged. ?
On the proposed ‘Omnibus legislation’: The EU Commission has announced that it wants to put forward in 2025 an Omnibus legislation that consolidates reporting obligations under the Coporate Sustainability Reporting Directive (CSRD), Corporate Sustainability Due Diligence Directive (CSDDD) and EU Taxonomy. This omnibus proposal aims to reduce reporting burdens for businesses by streamlining the overlapping reporting requirements between the three laws. ?
It remains to be seen whether this proposed re-opening of the laws results in further amendments, but for now, the Commission says the intention is simply to streamline reporting requirements.?
EU Forced Labour Regulation: The EU Council has formally adopted the EU Forced Labour Regulation (EUFLR) on 19 November. The ban prohibits all products suspected of being made with forced labour on the EU market, irrespective of source and industry. If products are found to be produced with forced labour, including within the products' supply chain, authorities will order the withdrawal of the products already placed on the market and prohibit placing the products on the market. Companies will be required to dispose of the goods and financial penalties may apply. ?
Next steps: Once this regulation has been published in the Official Journal of the EU (exact date TBD), the law enters into force and will apply three years after this date.?
Stay up to date on supply chain due diligence regulations with our guide to legislation: 2024 Supply Chain ESG Due Diligence Requirements | LRQA?
We're excited to bring you this newsletter here on LinkedIn. Please subscribe to make sure you don't miss the next edition of EiQ Insights. For queries about our newsletter, contact us at [email protected].