What impact does the EU Supply Chain Due Diligence act have on Supply Chain management
Organisations rely on global supply chains, this often results in difficulty in identification of authenticity of sustainability claims, due diligence transparency and the opportunity to mitigate risk. The introduction of the Corporate Sustainability Due Diligence Directive (2022) impacts behaviours of companies across all sectors and obligates them to succeed in the transition to climate neutral, a green economy and delivery of key ESG goals.
The directive requires comprehensive mitigation processes, Currently 16,000 companies are in scope, 2% of global revenue is suggested as being the fine for non-compliance and seeks to ensure that Supply Chain Due Diligence process for all organisations is a level playing field.
Recent issues have included human rights issues further down the Value Chain specific to forced labour, child labour, inadequate workplace health and safety, exploitation of workers and environmental impacts such as green house gases, pollution, biodiversity loss and ecosystem degradation.
So how does the Supply Chain due Diligence Directive improve behaviour?
It ensures Corporate governance policies are strong and that the obligations are agreed on a cross functional basis
Avoids fragmentation of due Diligence requirements
Increases corporate accountability
Improves access to remedies
Focuses on business process improvements
Although at draft phase the directive is comprehensive and underpins the "Sustainable Finance Disclosure Regulation (SFDR) this therefore means Investment Funds, Portfolio Managers and other related parties have an obligation to publish statements on due diligence policies that impacts decisions on factors related to sustainability.
So what acts do organisations take and how do they fulfil the requirements of the directive?
Clear and structured sourcing principles to ensure no confusion or grey areas exist
Build enhanced transparency throughout the complete Supply Chain
Enable bottom up feedback and communication
To achieve the obligations of the directive organisations must look to adopt technology to ensure accuracy, enhances transparency, security and authenticity of claims and documentation. Here combining Blockchain with the automation Smart Contracting provides ensures all participating parties are member of a closed ledger that only approved nominated parties are in. Becoming a member obligates all parties to sign up to a consensus of truth and in doing so certification, paper work and process can be digitalised. All communication and process is also time stamped therefore enhanced audit trails exist. Blockchain technology provides multiple benefits but in summary:
Strengthen corporate reputation through providing transparency of materials used in products
1. Improve credibility and trust of data
2. Reduce public relations risks from Supply Chain malpractice
3. Enhances engagement with multiple stakeholders within the Supply Chain
Its clear that the obligations of the Supply Chain Due Diligence Directive cannot be achieved without the adoption of value enhancing technology such as Blockchain. The focus now must be how quickly those organisations obligated under this directive act.