Sustainability due diligence starts now

This is partly because taking a compliance-only approach to sustainability regulation misses the opportunity to harness insight to generate long-term value for companies, their stakeholders or the environment. It is also because CSDDD is a significant departure from other recent European sustainability regulations: instead of retrospective disclosure and reports on what has already been done, firms will now be asked to follow a forward-looking framework whose goal is to transform activities within organisations’ operations, subsidiaries and supply chains.

So how should organisations respond to CSDDD?

Everyone’s involved

If there is one thing we can all take away from today’s global commodity shortages, it’s that any business built on the assumption that resources are plentiful and easily accessible is increasingly vulnerable. CSDDD provides a framework for businesses to prepare for a shift away from an era of plenty to an environment where scarcity is the norm, prices volatile and resources contested.

By integrating due diligence into forward-looking business strategies and considering the human rights, climate change and environmental consequences of their decisions, organisations can make themselves operationally and commercially more resilient. So, whether you fall in or out of the scope of CSDDD, it’s a tool that can deliver immense value to your organisation. This is how it should be positioned and understood within every business.

More time to act

While new, mandatory ESG disclosure rules and regulations mean that big businesses must pinpoint, prioritise and manage sustainability-related risks, the reality is that the pace of reporting cycles and deadlines don’t match the urgency with which businesses need to act.

CSDDD’s requirement to map supply chains and prioritise areas that need ongoing attention – and to be transparent about how they are working towards this – helps businesses to set strategic priorities to improve resilience, root out systemic challenges and secure their long-term future in a way that can be missed entirely by teams focused only on reporting.

With time to act being one of the greatest assets for a business, this proactivity can provide the opportunity to make changes before competitors or markets are compelled to do so.

It’s about transformation

Any organisation approaching CSDDD needs to grasp that although it is rooted in understanding the ‘triple threat’ presented by climate, nature and human rights, the outcome will be a roadmap for transforming its future operations and strategy.

While a sustainability lead may sponsor, lead or support this work, it cannot be done without the input of teams across the business. By bringing together buyers, product managers, finance teams and other stakeholders, organisations can inform and build a future programme of change. This is because typically an organisation will have to remodel costs, buy into sourcing commodities in new ways, reformulate products to work without scarce inputs and even cooperate with peers or competitors or suppliers to reduce risk.

Business resilience comes hand in hand with business change.

Delivering wins faster

Many organisations still face internal obstacles to bringing sustainability considerations into business decision-making. This may be down to key decision-makers being ‘sustainability shy’, sceptical about making changes or preferring to wait and see what others do before committing to change. It may be due to an approach to sustainability that, as it is siloed or reactive, is not yielding any significant benefits.

For businesses like these, the focus on business and supply chain resilience inherent in CSDDD and the joined-up thinking it provides around future commercial risk, competitive opportunity and business resilience are the best way of connecting with the issues that keep leaders awake at night, commanding their attention and attracting support for future change.

In all organisations, the triple threat posed by climate change, nature degradation and human rights will represent some of the most significant risks to the business. Examining these threats together, in the context of an organisation’s operations and supply chain, provides the best way of developing a joined-up response that acts on the biggest risks, recognises the biggest priorities moving forwards and can deliver commercial results.

Resourcing needs

Every organisation responding to CSDDD or the underlying financial and sustainability threats it seeks to transform needs to prepare to actively engage with their supply chains to understand and implement necessary changes.

This may demand different ways of working with suppliers, additional scrutiny of middlemen, co-operatives or traders, or even the provision of finance to make improvements to business practices and operations.

In every instance, it will require a more granular and detailed understanding of the context of supply chain partners. Given the complexity and number of moving parts, it will also require time and resources to make and then monitor changes made.

Seeing into the future

For every organisation, the best way to think about CSDDD is as a tool that helps organisations see into the future, reveals risks in the supply chain early on, and helps prevent crises that could disrupt operations, damage reputations and incur financial losses. Looking at your operations and supply chains will help secure their long-term viability and mitigate the impact of sustainability-related challenges that are already commonplace.

These opportunities are the real incentive for companies to be proactive and take action well before forthcoming CSDDD deadlines, far more than the simple act of compliance.