For some years now, sustainability regulation has been at risk of becoming a compliance exercise that fails to create long-term value for companies, their stakeholders or the environment.
The Corporate Sustainability Due Diligence Directive (CSDDD) brings us something different. It stands out among other recent European sustainability regulations because it doesn’t focus on disclosure – which all too often means reporting on what’s already been done.
Instead, it creates a forward-looking framework for substantially transforming activities within organisations’ operations, subsidiaries and supply chains. Businesses within scope must now integrate due diligence into forward-looking business strategies. They must consider the human rights, climate change and environmental consequences of their decisions.
This requirement means companies now need to map their supply chains to identify and prioritise areas that need ongoing attention. This is a good thing. It will help them set strategic priorities to improve their resilience, root out systemic challenges and secure their long-term future in a way that previous compliance processes often failed to.
Be on the front foot
While the approval of the CSDDD legislation this year was far from certain, some businesses we work with have already made it a priority to get ahead of the challenges proactively. For instance, Sancroft has partnered with businesses to identify potential environmental risks for their top commodities purchased through supply chains globally – helping them to assess risk for each commodity and country by considering climate, human rights and nature.
By clarifying current and future supply chain risks, these businesses can now identify areas where transformation is needed, whether in sourcing, in supplier capability, or product formulation. Prioritising risks has also helped our clients to focus on areas with the highest impact on the business, environment and people. Ultimately this ensures greater resilience and better preparation for future risks. This insight can then be turned into actionable strategies across supply chains.
Companies that work in this way stand a far better chance of achieving the practical advancement of sustainable practices that the CSDDD seeks to embed. Companies that delay, on the other hand, will find themselves scrambling to meet requirements. Or worse, they will be unable to access diminishing, at-risk resources secured by competitors that have acted more quickly.
Recognise the need for internal and external engagement
For organisations within scope, the focus must now be on designing similar systems that will enable them to conduct due diligence effectively and confidently stand behind their sustainability practices. This involves ensuring that the people within the organisation who can affect change are engaged and committed to reformulating resources and strategies.
Organisations must also actively engage with their supply chains to understand and implement necessary changes. This might include working with suppliers to help them access finance to make improvements, for example, which in turn will also address one of the main barriers for suppliers in developing countries.
This engagement is crucial for building a system that not only meets CSDDD requirements, but also enhances overall business sustainability. Companies that take these steps will find themselves better prepared and more resilient in the face of future challenges. By identifying and addressing potential risks in the supply chain early, they can prevent crises that could disrupt operations, damage reputations and incur financial losses.
Several other key benefits typically accrue, including enhanced customer trust and employee commitment; not to mention better access to finance. Proactive, front-footed engagement with CSDDD will make companies more attractive to ESG-focused investors that increasingly look beyond simple transparency – they look for firms that aim to foster real, substantive changes in their operations and throughout their supply chains.
See this as your catalyst for change
The bottom line is that organisations should not view CSDDD solely as a regulatory obligation. They should see it as an opportunity for substantive positive change.
Nor should they see compliance with the regulation as a snapshot in time. The regulation recognises that many global supply chains are incredibly complex and comprised of many moving parts, some of which can be difficult to get visibility of. Yes, the regulation states that organisations must take appropriate measures to prevent or to mitigate potential adverse impacts. But it also acknowledges that this might not happen all at once or completely.
This ‘work in progress’ element means organisations can focus on investigating what’s really happening, resetting and proactively developing plans. Moving towards complying with the directive in this way presents several opportunities to improve resilience in relation to human rights, climate change and environmental impacts. It will help secure the long-term viability of supply chains and improve risk management. These opportunities should be the real incentive for companies to be proactive and take action well before forthcoming CSDDD deadlines – far more than the simple act of compliance.