Supply Chain Traceability is Urgent Now!

Make it Part of Your CSRD Implementation!

The pressure is on. Consumers, investors, and regulators are demanding greater transparency from businesses regarding their environmental and social impact. Greenwashing lawsuits are rising, and stricter regulations like the EU's Corporate Sustainability Reporting Directive (CSRD) and Corporate Sustainability Due Diligence Directive are a fact.

This article dives into the urgency of supply chain traceability. We'll explore real-world examples of greenwashing, unpack the tightening regulatory landscape, and provide practical steps for building compliance, transparency, and accountability throughout your supply chain.

Learn with this article how to integrate robust traceability practices into your existing CSRD implementation plan, build trust with stakeholders, minimize legal risks, and secure a leading position in the evolving landscape of sustainability.

1. CSRD (and CSDDD) and Supply Chains

While CSRD is not dictating specific supply chain practices, it creates a regulatory environment that pushes companies to become more accountable for the sustainability performance of their entire value chain. Here's how the CSRD indirectly impacts supply chains and sets the?stage for increased scrutiny and transparency throughout a company's value chain.

• Broader Scope of Reporting:?The CSRD expands reporting requirements beyond financial data to encompass environmental, social, and governance (ESG) factors. This means companies will need to consider the environmental and social impact of their entire supply chain, not just their own operations.
• Increased Due Diligence:?The proposed Corporate Sustainability Due Diligence Directive (CSDDD), which is expected to work alongside the CSRD, will require companies to conduct due diligence on their suppliers' sustainability practices. This will necessitate a deeper understanding of supplier activities and potential risks associated with their operations.
• Enhanced Transparency:?The CSRD emphasizes the importance of clear and comprehensive reporting. Companies will need to disclose their sustainability goals, progress made, and any challenges encountered. This transparency extends to supply chain management, potentially requiring disclosure of supplier selection criteria, sustainability practices within the supply chain, and any identified risks.

This translates to a need for increased traceability, collaboration with suppliers, and proactive management of ESG risks within the supply chain.

2. The Urgency of Supply Chain Transparency

Several high-profile cases highlight the importance of supply chain transparency:

• A Canadian regulator's investigation into Lululemon's environmental claims underscores the need for solid control over one's supply chain before making sustainability claims.
• Deutsche Bank's greenwashing investigation in finance demonstrates the consequences of misleading investors about sustainability efforts.
• Samsung Electronics' greenwashing in the electronics sector exposes the disconnect between sustainability pledges and actual practices.
• Volkswagen's "Clean Diesel" scandal in the automotive industry serves as a reminder of the legal and reputational risks associated with greenwashing.
• The Dutch court ruling against KLM's misleading "Fly Responsibly" campaign emphasizes the need of embedding sustainability in own operations and supply chain before making any sustainability claim.

These cases illustrate the increasing pressure from stakeholders (investors, NGO's and regulators) for businesses to demonstrate genuine commitment to and control over their sustainability throughout their operations and entire supply chains.

3. Embedding Supply Chain traceability into your CSRD implementation

Avoiding greenwashing accusations requires a holistic approach that extends beyond internal practices. Here's how to integrate supply chain traceability into your CSRD implementation:

1. Supply Chain Mapping: Begin by mapping your supply chain to identify key suppliers, raw material sources, and manufacturing processes. This step provides a comprehensive understanding of where sustainability efforts should be focused.
2. Materiality Assessment: Conduct a materiality assessment to identify the most significant environmental and social (ESG) risks and issues within your supply chain. Engage stakeholders to determine which issues are most impactful.
3. Risk Management: Identify and address potential risks related to supplier non-compliance within your supply chain. Develop risk mitigation strategies and contingency plans to respond effectively to non-compliance, minimizing impact on operations, reputation, and stakeholders.
4. Supplier Code of Conduct: Establish a clear and comprehensive supplier code of conduct that outlines expectations regarding environmental stewardship, labor rights, and ethical business practices. Communicate these expectations upfront to ensure accountability. This step sets the baseline for responsible sourcing.
5. Supplier Selection:?Aligned with your established code of conduct, choose suppliers who align with your sustainability goals and values. Conduct thorough assessments of their environmental practices, labor standards, and ethical conduct before engaging in partnerships.
6. Supplier Collaboration: Foster collaboration with suppliers to promote transparency and accountability throughout your supply chain. By working closely with suppliers, you can proactively address non-compliance issues and minimize legal and reputational risks.
7. Supplier Capacity Building: Invest in initiatives to help suppliers enhance their sustainability capabilities. By providing training and resources, you can support them in improving compliance and reducing their risk of legal penalties.
8. Supply Chain Audits: Implement regular audits to verify compliance with sustainability standards and regulations across your supply chain. Through audits, you can identify non-compliance early and work with suppliers to implement corrective actions.
9. Traceability and Transparency: Implement robust traceability systems to track the origin and journey of raw materials and components throughout your supply chain. This allows you to identify non-compliance hotspots and take corrective actions to mitigate risks.
10. Continuous Improvement: Foster a culture of continuous improvement by setting ambitious sustainability targets and regularly monitoring progress. Regularly evaluate and improve supplier performance to reduce risks and drive positive environmental and social outcomes.

By integrating these steps into your CSRD implementation plan, you can build a robust and verifiable system for sustainability. This, in turn, helps you better comply with CSRD, build trust with stakeholders, minimize legal risks, and achieve a leading position in the evolving landscape of sustainability.

Conclusion:

Supply chain traceability is no longer a nicety; it's a necessity. Proactive companies can leverage it to gain a competitive advantage and demonstrate genuine commitment to sustainability.

PS: Reach out if you need support on this, or on your CSRD Compliance!

Cheers,

Madiha