A recent survey by the World Benchmarking Alliance found that many companies are not ready for CSDDD, identifying and assessing human rights and environmental risks were seen as being the biggest challenges to implementation. How can businesses overcome these challenges and to ensure effective sustainability due diligence?
Approximately 7,000 businesses are currently preparing for the Corporate Sustainability Due Diligence Directive (CSDDD). CSDDD entered the Official Journal of the European Union in July 2024, and forms part of a package of sustainability-focused measures introduced by the European Union. CSDDD requires organisations to assess their value chains to identify adverse human rights and environmental impacts. Aligning with the Organisation for Economic Co-operation and Development (OECD) Guidelines for Multinational Enterprises and UN Guiding Principles for Business & Human Rights, businesses must ensure robust due diligence, grievance and remediation mechanisms are in place to comply with the legislation.
As part of the preparation process, some of the world’s largest businesses now need to begin assessing their business relationships and value chains to identify adverse human rights and environmental impacts.
Published in July, the World Benchmarking Alliance Social Benchmark 2024 found that 80% of the world’s 2,000 most influential companies were potentially failing to ensure basic human rights and environmental due diligence processes were in place. Surprisingly, the report identified that whilst 20% of the assessed companies had introduced some due diligence measures, only 6% had fully introduced them.
As experts in the collection, verification and analysis of value chain data Achilles recognises the challenges that many businesses face when attempting to introduce effective human rights and environmental supply chain due diligence.
If your organisation, like many, is struggling with value chain data availability and quality to support your risk assessment process, here are three recommendations to help you collect the information you need:
1. Value Chain Visibility and Complexity
The challenge: CSDDD requires companies to consider both their upstream and downstream business relationships when identifying and assessing adverse human rights and environmental impacts defined within the legislation. Identifying business relationships within global value chains is complex and time consuming. Business relationships are increasingly global in their nature. Building a clear picture of the supply chain across multiple tiers requires supplier communication and engagement across many different time zones and language barriers.
Recommended approach: Businesses should attempt to build common networks within their supplier base, utilising, where possible, local experts to engage with value chain partners to build an accurate picture.
2. Data Accuracy
The challenge: The hard work isn’t over when companies have collected information from the value chain. Verifying the veracity of the information is critical to ensuring that risks can be appropriately identified and effectively assessed. The quality of value chain data can be extremely varied. It’s not uncommon for information to be completely inaccurate or incomplete.
Recommended approach: Defined data requirements should be agreed with value chain partners to ensure appropriate information is correct. Companies should also consider deploying harmonised technology and human-led solutions to interrogate value chain information prior to assessment.
3. Value Chain Cooperation
The challenge: Requiring business partners around the world to support your regulatory reporting requirements isn’t easy. For many value chain partners there will not currently be a direct requirement to report under sustainability-related regulations. Business partners are likely to feel strain under the increased burden associated with responding to information requests and, in turn, may be reluctant to cooperate.
Recommended approach: Using tools to increase value chain transparency and data collection efficiency enables many companies to dedicate additional time to engaging with suppliers to explain the benefits of cooperation. By actively collaborating with business partners, reporting entities can improve business performance and, at the same time, prepare for other sustainability-related legislative requirements such as the Corporate Sustainability Reporting Directive (CSRD).
In summary, whilst many businesses may believe that they are well placed to respond to the requirements of CSDDD, the analysis by the World Benchmarking Alliance suggests that this is not the case.
The collection and verification of accurate value chain information to support risk identification and assessment can often prove to be the biggest challenge for businesses introducing due diligence processes. Ongoing value chain collaboration and education will be critical to support the efficient due diligence activities in advance of reporting deadlines.
Next steps?
Achilles has worked with multinational organisations and their value chains for over 30 years. As experts in the collection and assessment of accurate value chain data, our international team of experts engage directly with value chain partners on your behalf, supporting them in providing the information that you need for reporting purposes. To learn more about how Achilles can support your value chain data collection, validation and reporting to meet the requirements of CSDDD, arrange a call with one of our ESG experts.
