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How the CSDDD Will Impact Supply Chains and How to Prepare

May 7, 2024

The European Union’s Parliament adopted the Corporate Sustainability Due Diligence Directive (CSDDD) on April 24th, 2024, aimed at protecting the environment and human rights worldwide. This Directive introduces a transformative approach to corporate governance with profound implications for global supply chains producing goods sold in Europe. As companies brace for its implementation, understanding the nuances of the CSDDD becomes crucial to avoid penalties (which could add up to 5% of the company at fault’s annual revenue) and capitalize on opportunities for enhanced sustainability practices.

Overview of the CSDDD: What is it and who does it affect?

The CSDDD is designed to enforce sustainable practices among large corporations, compelling them to address human rights and environmental concerns throughout their operations and supply chains. The Directive mandates companies operating in the EU with 1000+ employees and turnover higher than €450 million to perform comprehensive due diligence, aimed at identifying, preventing, mitigating, and accounting for potential adverse impacts resulting from their, or their subsidiaries’, activities. At its core, the CSDDD aims to revolutionize corporate sustainability strategies for businesses and their supply chains, ensuring compliance with key environmental, social, and governance (ESG) indicators through system and process changes.

The CSDDD’s key impacts on supply chains

Mandatory supply chain transparency: The CSDDD requires companies to thoroughly examine and address adversities in their supply chains. This means businesses can no longer operate with surface-level insights into their suppliers’ practices. Companies must dig deep into every tier of their supply chain, from raw material sourcing to finished goods, ensuring complete due diligence and compliance. This shift not only helps identify risks and inefficiencies but also promotes ethical practices throughout the supply chain.

Institutionalized due diligence: With the CSDDD, due diligence becomes a standard, obligatory process across all company levels—not just an isolated task within sustainability departments. This institutional change transforms due diligence from a voluntary initiative to a legal requirement. Companies must integrate sustainable practices into their core business strategies, making them accountable for their entire supply chain’s environmental and human rights impacts. This approach secures all supply chain departments’ compliance and contribution to sustainability goals, reinforcing the directive’s importance from the top down.

Integrated social and environmental compliance: The Directive treats social and human rights issues on par with environmental challenges, requiring a unified management approach. Companies must develop mechanisms to oversee both aspects with equal rigor, ensuring comprehensive visibility and control over compliance. By using systems enabling data centralization, real-time monitoring, and management, companies can secure adherence to CSDDD requirements while maintaining efficient operations.

How to prepare

Companies should take the following steps to gear up for the CSDDD:

  • Increase supply chain visibility: Gain a comprehensive understanding of who your supply chain partners are, where, and how they operate. Knowing only your tier 1 and 2 suppliers is no longer enough; organizations must map their supply chain to the forest / farm / field level to identify, mitigate, and account for any risks – which for most businesses, are found upstream.
  • Centralize compliance management: Implement a centralized system to manage both environmental and social compliance. Having separate processes for these two areas will result in inefficient, costly operations, and supplier audit fatigue. Instead, invest in a streamlined, unified assessment process to optimize resources and minimize risks.
  • Drive supplier empowerment: Empower suppliers by equipping them with the tools and knowledge they need to comply with the new standards. Businesses can’t do it alone; they need their supply chain partners’ collaboration to successfully meet the new CSDDD’s requirements.
  • Institutionalize due diligence: Embed due diligence processes throughout your organization. Making due diligence a fundamental part of operations across all departments is key to maintaining continuous compliance and managing risks effectively.

Navigating the CSDDD requires significant adjustments in supply chain management, but with strategic planning and the right tools, companies can turn these challenges into opportunities for enhanced sustainability and market competitiveness. Employing integrated solutions enabling companies to trace their supply chain and perform comprehensive due diligence in collaboration with their suppliers can help businesses not only meet the new directives but also lead in sustainable supply chain management. In this context, leveraging a platform like Inspectorio can provide the crucial support needed to streamline these processes effectively.

Learn more at Inspectorio.com

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