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Forthcoming ESG reporting legislation and a new supply chain law may cause business leaders a few headaches. And it’s not just large corporations who need to prepare. SMEs will be expected to step up if they want to supply those corporates.

Let’s take a step back at what is already in force. The Taskforce on Climate-related Financial Disclosures (TCFD) has completed its work and its work integrated into the IFRS.

Secondly, the Taskforce for Nature Related Financial Disclosures (TNFD) framework is out for consultation – biodiversity may be the next big target for the UN.

Meanwhile, businesses trading in the EU will have a different focus.

Much of the focus of ESG over the past few years has been on the E. The two taskforces highlighted above target the G. But new EU regulations very much centre on the S.


And, in particular, human rights. How are workers treated across the whole supply chain?

Human rights and supply chain law

The EU Parliament adopted its position on a new supply chain law on June 1st, with the final text likely to be made public towards the end of this year.

It’s called the Corporate Sustainability Due Diligence Directive (CSDDD).

You can find out more detail here but its goal is clear. “Only companies that do not harm the environment and fully respect human rights should operate in the EU,” says EU Justice Commissioner Didier Reynders.

Its demand that firms undertake due diligence about human rights and working conditions does not just apply to upstream supply chain but also to users and disposers of the product. For instance, does the company that your packaging is exported to use slave labour to recycle it?

There is, of course, a danger in telling people in repressive regimes, “Sorry, you don’t have any human rights; as a result, we won’t be trading with your employer, so now you won’t have any income either.”

Cynicism and connectivity

The cynic says this is social protectionism – limit exports from countries like China and drive EU firms to buy from more transparent and regulated EU manufacturers.

As such, the CSDDD is similar to the way US regulators use green protectionism. For environmental reasons, they have created especially hard diesel criteria. The fact that the big US car companies do not make diesels is a mere coincidence.

And yet, there is something about doing the right deed for the wrong reason. Was TS Eliot correct in saying this was the greatest treason? Perhaps in terms of martyrdom and sainthood, but the Bible is full of examples of rulers doing things for dodgy reasons that God used for good outcomes.

There is a degree of connectivity we must acknowledge. No more fossil fuel means no more ecological degradation, which in turn leads to better fishing, better agriculture, less hold over peoples by undemocratic regimes and, one can hope, better human rights.

At a recent renewable energy meeting, someone complained about solar panels on good agricultural land with a plea for food security. Another guest countered that there is no food security without energy security.

Connectivity, you see.

Will there be counter lobbying? You bet there will. The US government has already expressed its concern about the new EU supply chain law.

Other concerns are that the ‘easy’ option pushed by compliance firms and corporate counsel may be to simply dump developing world suppliers and opt for local suppliers to save hassle. This may have the effect of cutting off growing and people-positive businesses in developing countries.

Initially the law will affect EU firms with over 250 employees and more than €40 million in turnover worldwide. It will also affect companies based outside the EU if they have a turnover of more than €150 million and at least €40 million of that in the EU.

The left-leaning think tank and publisher Social Europe says all three proposals (from the EU Parliament, Commission and Council) foresee civil liability for damages resulting from inaction on due diligence, as well as non-judicial remediation and compensation –

Why does the CSDDD matter to SMEs?

Those SMEs who supply affected companies (or who are involved in their distribution and end of life processing) will face growing demands to supply robust data about their own operations to meet their customers’ due diligence.

Every challenge is an opportunity. The folks at EQS Group say CSDDD provides “an opportunity for SMEs because the organisations clearly positioning and preparing themselves at an early stage will benefit from competitive advantages over their rivals. Nevertheless, this requires not only resources but also extensive know-how.”

That know-how doesn’t simply relate to due diligence and risk management. It also includes the contextual intelligence that a good PR consultant provides. Directives like the supply chain law affect a company’s Licence to Operate and its ability to secure investment from an increasingly ESG-sensitive finance community.

It will become even more important than ever to clarify, collaborate and communicate what you are doing for all aspects of ESG. That’s what we do. For a no-commitment discussion of the issues and opportunities facing your business, get in touch with 360 Integrated PR.