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Supply Chain Due Diligence: Adjusting to New Table Stakes

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From logistics to worker wellbeing to everything in between, our environmental and social impacts are interconnected. Every player in a given business’s value chain contributes to the sustainability of the others. Yet businesses have most commonly mapped certain upstream data (like carbon emissions and fair wages), while the downstream impacts (such as retail footprints or product end-of-use) haven’t been widely tracked. But a new norm of due diligence has arrived, and IT professionals will be central to supporting the shift.

Recently, the European Commission released a draft of the Directive on Corporate Sustainability Due Diligence (CSDD). By 2024, mid to large-sized EU companies will be required to establish mandatory due diligence on human rights and environmental risks across their full value chain. Businesses will be required to gain a deep understanding of their own value chain as well as their subsidiaries. While CSDD applies to a limited set of businesses dealing in the EU for now, the legislation is slated to impact SMEs by 2026, and many additional US companies that generate revenue in the EU will also be required to comply. Building IT systems that share and collect impact data from each point in your value chain is now a mission-critical business function, whether to meet today's legislation or to prepare for what's to come.

As is, consumer goods businesses use various tools to manage data for only certain parts of their value chain. Some may operate enterprise software; others may still rely on spreadsheets. But in anticipation of new regulations, a large ecosystem of due diligence technologies is soon to emerge, moving the industry to more sophisticated management tools. As businesses strengthen relationships with their supply chain partners and the data exchange starts to scale, the industry will turn to end-to-end transparency solutions to measure and manage this information. As an IT professional, you can help your business build scalable technology solutions that can both ingest and share interconnected data streams.

Building the Right Due Diligence Program for Your Business

When it comes to selecting the right platform, your business’s required outputs will help narrow down the options. Does your business need to report to regulatory bodies, better communicate with stakeholders, or comprehensively manage greenhouse gasses or water? If you’re required to report on these performance indicators and more, it will be paramount to choose a platform that unifies multiple sources of data to then achieve a complete view of the value chain. While your business may clearly understand the data it needs to track carbon emissions, for example, you can't expect a 1:1 correlation with how your value chain partners track their energy sources. A successful platform will be able to work across the value chain to assemble the existing data like utility bills, shipping methods, and even material impacts to help calculate scope 1, 2, and even scope 3 emissions.

While collecting data is a critical first step, the real work happens after identifying opportunities to improve impact. Your software platform should support this process, providing intelligence to highlight opportunities in both environmental and social categories. Your business can use these insights as a launching point for developing impact initiatives such as aligning worker safety with sourcing or investment opportunities like installing solar panels. By collecting data year over year within the same framework, you’re better equipped to track progress and prove investments are working.

Regardless of your business's focus, from CSSD to environmental, social, and governance (ESG) or complying with another sustainability regulation, they all require better collaboration across the value chain. The regulatory landscape will continue to evolve, and new assessments or measurement standards will become a priority, but proving your company is committed to reducing its impact will always be a necessary part of doing business. The sooner we embrace our interconnectedness and set up systems to collaboratively share data and improve impacts, the faster the consumer goods industry can pivot to new norms and scale the environmental and social progress our planet demands.

John Armstrong is the CTO of Higg.

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