Earlier this year, the European Commission made the critical decision to introduce a proposal for a directive on corporate sustainability due diligence. The proposal lays out new rules for large companies to identify ongoing issues in the supply chain, such as the use of unethical labour or poor environmental practices.
Soon, businesses operating in any EU country will have to play a role in building a sustainable society and economy, identifying and preventing ethical issues and meeting ESG standards. Companies which fail to follow due diligence could face serious consequences; from sanctions including fines and compliance orders, to compensation payments towards victims for damages.
The Commission’s corporate sustainability due diligence proposal is necessary to help end harmful supply chain practices and provide greater standardisation of requirements across countries. Ahead of its implementation, we can also expect to see this act as a catalyst for organisations to do more, increasing accountability for supply chain standards. But, for many still stuck in their old ways, the notion of reinvigorating operations to ensure necessary levels of transparency will seem like a daunting prospect.
Reshaping and reorganising operations, to help foster sustainable and corporate behaviour, will require a holistic approach. By achieving the level of transparency necessary to make better decisions and gain control of operations, organisations will set themselves up for a greener, cleaner and leaner future. And the best way to do this is by casting an eye to and investing in the procurement function.
Transforming supply chain operations
On the face of it, many companies will need to make a concerted effort to improve their supply chain operations ahead of the Commission’s proposal. But, Ivalua research has shown only 47% of European suppliers are frequently asked by large companies to provide proof they aren’t employing child labour, and just 24% are measured on carbon emissions. So, it's evident that more can still be done regarding ESG standards.
Moreover, there is a clear lack of action at the supplier negotiation stage. More than half (58%) of suppliers interviewed said buyers rarely or never include responsible labour practices in contracts or agreements. For many companies, the future is not looking any different, with most suppliers having not implemented plans to identify and eliminate modern slavery (78%), unreasonable hours (78%), or below minimum wage pay (77%). So now is the time for businesses to take executive action to clean up ESG measures.
It’s time for a holistic approach in sustainability
Organisations must take an all-encompassing approach to supplier management to ensure transparency and prevent or end unethical practices. To achieve this, they must find clear ways to work with their suppliers, to identify any potential problems and address them efficiently. As such, the most impactful way for businesses to drive real change will be facilitating collaboration across multiple tiers of the supply chain.
This means investing in supplier communication and assessment tools that can help boost transparency and gauge where suppliers are with respect to targets. This doesn’t just help organisations stay ahead of the curve on incoming ESG measures. Facilitating collaboration in this area also brings additional benefits, including the ability to innovate on new products and services or minimise supply chain disruptions. To maximise these results, organisations need to scale collaboration with all suppliers across all categories of spend.
Picking the right technology tools of the trade
To achieve full transparency on ESG measures, businesses need to take the next step and equip themselves from a compliance, process, and technology perspective. Access to accurate, actionable data insights from suppliers is vital to measure and track progress effectively. That must extend to sub tier suppliers as well, since most ESG issues exist below immediate suppliers.
To tackle this, opting for a cloud-based procurement solution can enable improved access to data, plus the mechanisms needed to communicate effectively and track progress. Such solutions can consolidate necessary information from internal users, 3rd parties and suppliers for a complete view of ESG performance, as well as risk and other factors. They can also enable scalable, efficient sharing of information, setting of targets and improvement plans and tracking progress. Suppliers can share details on sub-tier dependencies to include in planning and monitoring efforts. Incidents of human rights abuses and environmentally damaging processes will be more evident, allowing businesses to rest assured they are complying with EU law. By gaining visibility into and collaborating with the entire supply chain, instead of just the first tier, businesses will be part of the new era of organisations turning over a new page on ESG measures.
Moving forwards together
While the EU’s corporate sustainability due diligence proposal lays out the foundations for change in poor supply chain practices, businesses still need to take extra steps. That includes being proactive when it comes to environmental and ethical impact and working to achieve visibility on supply chains now. The organisations who act first to improve their practices will see the benefits far into the future, including getting a leg up on less forward-thinking competitors.
So, let’s use this opportunity to turn over a new leaf on ESG. By taking a smarter approach to procurement, organisations can gain access to a solid data foundation and the tools required to collaborate with stakeholders across different tiers of the supply chain on initiatives and drive continuous improvements ahead of incoming regulations. A cloud-based procurement solution is the best way to provide the visibility needed to springboard companies into a brighter future on ESG measures.