Here we go – Back to The Future again. Supply chain due diligence may be the next “big thing” in ESG. Where ESG reporting merely requires disclosure of material ESG issues, supply chain due diligence laws typically require companies to take concrete action. A recent memo from Watson Farley & Williams identifies five emerging ESG trends in the EU and UK, chief among them is an increased focus on value chain due diligence. The memo states:
“2024 will see a continued and heightened emphasis on global value chain due diligence, spearheaded by the EU Corporate Sustainability Due Diligence Directive (‘CSDDD’) recently agreed by EU institutions. With legislative proposals in some other jurisdictions stalled, due diligence complaints before the OECD National Contact Points are also set to continue, especially against financial institutions which currently fall outside of the scope of CSDDD.”
In addition to the CSDD, the memo identifies several other drivers of supply chain due diligence including the UK’s forest risk commodities legislation and modern slavery act. While the biggest supply chain due diligence legislation is emerging in the EU, the cross-border effects of supply chain management mean that this legislation will impact much of the global economy.
Supply chain due diligence in the garment sector in the 1990s/2000s and conflict minerals supply chain due diligence in the 2010s are precursors to today’s ESG. Even with decades of program and tool development, the memo warns that many companies will find the process to be a “long and complex endeavor.” Some capacity currently being built for new reporting frameworks, such as supply chain tracing for scope 3 emissions, will prove valuable. Existing mechanisms like social audits and blockchain solutions (to the extent those actually exist) need fixing before they should be relied on for regulatory compliance purposes. However, other skills and solutions need to be developed in order to comply with new regulatory frameworks and public demand.
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