In today's interconnected world, the spotlight on corporate responsibility has never been brighter. With regulators, investors, and consumers demanding higher standards, the journey towards a sustainable supply chain is no longer just a choice—it's a necessity.

Companies are now required to meet stringent environmental regulations and uphold social and human rights, navigating a complex landscape of expectations. This brings us to a crucial question: can companies turn supply chain compliance into competitive edge and secure investments?

Here are our 4 major pillars of a sustainable supply chain—regulatory compliance, investment attraction, competitiveness, and risk management—highlight why robust supplier engagement and due diligence are essential. As businesses strive to meet these demands, they must develop strong programs that ensure their supply chains are sustainable from start to finish.

In this article, we will cover:

• Regulatory Landscape: A detailed look at supply chain regulations, especially in the EU.

• Investment Attraction: Exploring how sustainable supply chain actions are interpreted by rating agencies.

• Competitiveness: Examining how sustainability affects a company’s competitive edge.

• Risk Management: Discussing the importance of mitigating risks and enhancing supply chain resilience.

Understanding these major pillars will help build a resilient action plan, ensuring your supply chain is not only sustainable but also strategically advantageous.

Regulatory Landscape: Navigating Complexity with Precision

This is the biggest argument for buying into sustainable supply chain action. We will delve into details on how it is becoming mandatory to report and engage your value chain stakeholders, at least in Europe. But what if you are located elsewhere? This means you might be affected while doing business with European companies, and it is possible that regulations might shift where you are conducting business currently.

The regulatory landscape surrounding supply chain sustainability is intricate and ever-evolving, demanding careful attention from businesses worldwide. Compliance with these regulations is not just about avoiding penalties; it’s about building a resilient and responsible supply chain that meets the expectations of various stakeholders.

Different regulations in the EU require companies, directly or indirectly, to engage their suppliers. These include, but are not limited to:

• CSRD (Corporate Sustainability Reporting Directive): Mandates comprehensive sustainability reporting.

• EUDR (European Union Deforestation Regulation): Focuses on preventing deforestation caused by specific products entering the EU market.

• REACH (Registration, Evaluation, Authorisation, and Restriction of Chemicals): Regulates chemicals and their safe use.

• CSDDD (Corporate Sustainability Due Diligence Directive): Requires companies to identify, prevent, and mitigate adverse human rights and environmental impacts in their operations and supply chains.

• CBAM (Carbon Border Adjustment Mechanism): Imposes carbon tariffs on imports to prevent carbon leakage and promote cleaner production practices.

At the heart of this regulatory framework are the Corporate Sustainability Reporting Directive (CSRD) and the European Sustainability Reporting Standards (ESRS). These standards set the specific disclosure requirements that companies must follow to comply with the CSRD, ensuring consistency and comparability across different sectors and countries.

Corporate Sustainability Reporting Directive (CSRD)

The CSRD is a critical piece of legislation introduced by the European Union to enhance and standardize corporate sustainability reporting across member states. This directive replaces the Non-Financial Reporting Directive (NFRD) and significantly expands the scope of reporting requirements. The CSRD aims to ensure that companies provide comprehensive and comparable information on their sustainability practices, thereby increasing transparency for investors, consumers, and other stakeholders. Reporting under the CSRD is expected to begin by 2025, covering the reporting year 2024, and will be conducted using the ESRS.

If you're interested in reading more, check out the article below:

European Sustainability Reporting Standards (ESRS)

To operationalize the CSRD, the European Sustainability Reporting Standards (ESRS) were developed. These standards set the specific disclosure requirements that companies must follow to comply with the CSRD. The ESRS provides detailed guidelines on how companies should report on various sustainability metrics, ensuring consistency and comparability across different sectors and countries.

Tropical Standards Requiring Supply Chain Action

Within the ESRS framework, there are six key tropical standards where supply chain action is essential:

1. Climate Change Mitigation and Adaptation: Reporting on efforts to reduce greenhouse gas emissions and adapt to the impacts of climate change.

2. Pollution: Addressing actions taken to prevent, mitigate, and remediate environmental pollution.

3. Water and Marine Resources: Ensuring sustainable management and conservation of water and marine resources.

4. Biodiversity and Ecosystems: Protecting and restoring biodiversity and ecosystems affected by business operations.

5. Circular Economy and Resource Use: Promoting sustainable resource use and circular economy practices.

6. Social and Human Rights: Upholding human rights and social standards within the supply chain, including labor practices and community impacts.

Understanding and fulfilling these expectations not only helps businesses avoid future legal pitfalls but also positions them as leaders in sustainability. This comprehensive approach is crucial for building a resilient and sustainable supply chain that can withstand the challenges of the modern world.

Understanding the "why?" behind any requirement is crucial. In the case of various disclosure requirements under the ESRS, they all originate from the EU Green Deal. The EU has set very ambitious targets, requiring companies to actively participate in achieving them.

Each of these standards directly connects to one of the EU Green Deal strategies, goals, targets, or initiatives. Moreover, there are numerous interconnected aspects between these reporting standards and other EU regulations mentioned earlier in this article. We will now explain the interconnection between the Green Deal and the ESRS.

The ESRS is a disclosure standard designed to meet the requirements of the CSRD, which in turn aims to support the objectives of the EU Green Deal. But how are these connected?

Climate Change Mitigation and Adaptation: Reporting on efforts to reduce greenhouse gas emissions and adapt to the impacts of climate change.

Pollution: Addressing actions taken to prevent, mitigate, and remediate environmental pollution.

Biodiversity and Ecosystems: Protecting and restoring biodiversity and ecosystems affected by business operations.

Circular Economy and Resource Use: Promoting sustainable resource use and circular economy practices.

Social and Human Rights: Upholding human rights and social standards within the supply chain, including labor practices and community impacts.

If you're interested in reading more, check out the article below:

Competitiveness: Leveraging Sustainability in Supply Chain