Join The Multi Asset Lab for less than £2 pcm per asset class and receive:

  • Monthly updates on 15+ separate asset classes from best-in-class commentators
  • Free Subscription to the Property Chronicle Magazine - Digital Edition (normal price £50pa)
  • 30 days free trial!

Supply chains are complicated. And for many companies they account for the greatest proportion of environmental and social impacts. Proactive engagement is critical on issues touching on Environmental, Social, and Governance (ESG) considerations. But there’s a lot of confusion and things are moving quickly.

The sector does need to engage – buildings and construction account for almost 40 per cent of all greenhouse gas emissions, and human rights issues pose a real threat. In part, this is driven by a need to deliver on carbon reduction targets. It’s also driven by a greater awareness of labour exploitation and the costs of this to business and communities.

Across business more generally, a recent survey of 2,000 CEOs from across the UK and US showed that 7 in 10 were concerned about human rights abuses and exploitation in their supply chains. And it’s an emerging priority for many CEOs given the increased awareness of how costly it can be to get this wrong. While this is particularly the case with fashion, particularly fast fashion, it points to just how far up the agenda this issue is.

And there’s a lot happening in terms of regulations and reporting requirements with Europe leading the way.

Earlier this year the European Commission adopted the European Sustainability Reporting Standards (ESRS).  The Standards provide more detail on the Corporate Sustainability Reporting Directive (CSRD) and updates them to align with new climate reporting standards. CSRD will impact an estimated 50,000 companies across the European Economic Area (EEA). It will also have a wider impact including in the US and UK.

Building on this, the recent Corporate Sustainability Due Diligence Directive (CSDDD) focuses on mandatory and environmental supply chain due diligence. It requires reporting companies to set up processes to identify any adverse impacts. This signals a shift from passive engagement with supply chains where C-Suite execs might have gotten away with ‘I couldn’t have known’. The core purpose of this Directive is to ‘anchor’ human rights and environmental considerations in operations and governance.

In my view, this is all moving in the right direction. My concern however is that across the sector we need to ensure that we bring supply chains along with us. In terms of due diligence, this should be relatively straightforward for larger companies across the value chain. But what about micro businesses and SMEs?

There’s a case to be made for having appropriate, robust, and ‘reasonable’ due diligence arrangements in place. By reasonable I mean that the process for onboarding suppliers and ongoing monitoring is fit for purpose and isn’t so complex and longwinded that micro, small, and medium business are excluded by default. Some of this might involve certification to get onto frameworks done at industry level, light touch due diligence arrangements with annual reviews, being clear about what types of questions will be asked for specific types of suppliers.

We’ve got some way to go. What I’m hearing from a lot of smaller companies is that because the process of getting to be part of some supply chains is so complicated and time consuming, particularly where buyers create their own unique frameworks, that they don’t engage. They simply don’t have the time and resource. There is so much more that needs to be done.  
In addition, there’s a real need for conversations about what’s needed going forward. I suspect that the requirements under the CSDDD will set an expectation. What do suppliers need to do to get the systems and processes in place to address these issues? What does good evidence and data look like? What support is needed particularly for micros and SMEs?

There are some exciting opportunities here if done well to engage proactively with supply chains, get the data and reporting right, and to affect positive change across the sector.  And it’s critical that micros and SMEs are part of these conversations. 

Join The Multi Asset Lab

Only £1 per month per asset class | 30 Days Free Trial!