Supply Chains: The hidden ‘S’ in ESG – is your company ready for what’s coming? Part 2 of 2
Over the last few years, corporate supply chains have become an increasing focus within the environmental, social, and governance (ESG) landscape. Regulators, investors and others recognise that ESG practices of suppliers and partners can significantly impact sustainability performance and pose potential business risks if not properly identified and managed.
The recent passage of the EU's Corporate Sustainability Due Diligence Directive (CSDDD) will impact companies in two ways: as purchasers (a company’s own supply chain) and as suppliers (the company’s customers). The CSDDD is still evolving, particularly in light of the European Omnibus Regulation, which may influence its final scope and implementation timeline.
Alongside the CSDDD, companies falling under the Corporate Sustainability Reporting Directive (CSRD) will also need to assess value chains as part of the double materiality process, and national-specific supply chain laws are starting to take shape, such as the Canadian ‘Forced Labour in Canadian Supply Chains’ Act. Based on these developments, even if the final scope is modified, companies will find increasing pressure from stakeholders to bolster supply chain due diligence and transparency, particularly in relation to ESG factors.
In Part 1 of this blog series, we explored the ESG-related challenges that purchasers face in managing their supply chains, particularly how they ensure ESG is embedded at every level of the organization. Now, we shift focus to the suppliers. As the demand for greater transparency and accountability grows, suppliers are under increasing pressure to meet purchasers’ requests and expectations.
As a Supplier: Meeting ESG Requirements of Large Buyers
Major purchasers are setting the tone for ESG compliance, and suppliers must keep up to remain competitive. Many large corporations are integrating ESG into their overall procurement strategies and may require detailed reporting on topics such as working conditions, fair wages, or emissions reductions from their suppliers. Those who can provide this information transparently and actively improve their ESG performance will find themselves well positioned to build stronger, long-term relationships with large buyers. On the other hand, those who are slow to adapt may face not only exclusion from preferred vendor lists but also reputational damage.
Navigating Regulations and Stakeholder Pressures
Global regulations on social and environmental practices in supply chains are becoming increasingly stringent, creating new compliance challenges for suppliers worldwide. In particular, the Corporate Sustainability Due Diligence Directive (CSDDD) and national laws like the German Supply Chain Due Diligence Act (detailed further in Part 1) are set to transform the regulatory landscape for suppliers. These laws require that companies, including those in their supply chains, not only meet local legal standards but also comply with the more stringent rules of their foreign buyers, especially in Europe.
Navigating this regulatory complexity will require suppliers to stay informed, invest in compliance infrastructure, and actively engage with customers to align their ESG practices across the value chain.
Mapping ESG's Role in Supply Chain Management
Practical Steps For Suppliers
Conduct an Internal ESG Audit: Start by evaluating your own ESG practices. Identify gaps in labor standards, safety protocols, or material sourcing that could pose risks. Consider obtaining relevant third-party certifications, such as those offered by EcoVadis, to evaluate and improve your performance. Work with other teams that may already be reporting on ESG such as Investor Relations and Corporate Communications.
Stay Up to Date on Regulatory Changes: Develop a system for monitoring evolving regulations in key markets in which you sell. This could involve designating an internal compliance team or partnering with external experts to stay on top of local and global ESG laws.
Update Policies to Align with Best Practices: Ensure that all company policies - such as your Code of Conduct, Health & Safety guidelines, and Human Rights commitments - are regularly reviewed and updated to reflect current market best practices and regulatory expectations.
Invest in Traceability Technology: Consider implementing digital tools that enhance transparency by tracking the journey of your materials and/ or services and databases to collect and manage data from across internal teams.
Collaborate with Customers on ESG Initiatives: Proactively engage your key customers to understand their ESG goals; working together can lead to shared solutions and long-term partnerships that benefit both parties.
Adopt a Phased Approach to ESG Improvements: Instead of tackling all ESG issues at once, prioritize areas where you can make meaningful progress while managing costs. Gradually roll out improvements, starting with the most critical issues based on your buyers’ needs.
Getting Started on Your ESG Journey
Navigating the evolving expectations around ESG requires suppliers to adopt a proactive and strategic approach. This includes staying informed about global regulatory changes, building transparency into your operations, and collaborating closely with customers to align on ESG goals. Suppliers must assess their value chains, improve data management, and prioritize ethical practices to remain competitive and meet the growing demand for sustainability.
Partnering with Leaders Arena means getting expert guidance and hands-on support, simplifying complex ESG requirements, and helping suppliers take meaningful steps toward compliance and sustainability. We provide tailored support in implementing strategies and aligning with buyer expectations, which also includes managing databases and completing questionnaires. Get in touch with us at heather@leadersarena.global to learn more.
