Note: ESG keeps (suppliers) in the crosshairs

Blogs ESG
ESG is a hot topic. The new European sustainability directives are the topic of the day. On January 15, 2024, the FD headlined: " From MRI scanner to beer can: for CSRD, companies vet everything". Your company is not there yet if you have only provided sustainability information on your own company. The reporting requirement under the Corporate Sustainability Directive (" CSRD") extends far beyond that. You are required to report on the entire value chain as well, such as (supply) suppliers, both inside and outside the European Union. Your company's entire (supply) chain will be scrutinized. This is not an easy task.

Why is ESG important with respect to (supply) suppliers?

The CSRD aims to make the reporting of non-financial information as important as traditional financial reporting. Indeed, the CSRD even requires companies to disclose their impact on people and the environment. For a complete picture of your company's impact on the environment, people and society, you should also report on the sustainability efforts of your (suppliers). Your company's products have their own story. Where do the raw materials come from? How were the raw materials processed? What portion of the packaging is recycled? Under what working conditions were your products manufactured? What was the journey from your products to your company? These are examples of questions that need to be answered. The topics vary greatly from company to company. One thing is certain: it is a monster task for companies. Sustainability information about your (suppliers) should be included in your annual report. Although it is a hefty task, ESG obligations can positively differentiate your company. Fully transparent sustainability reporting will lead to a company taking a strong position in the market. Trust among customers, investors and other stakeholders will be strengthened as a result.

What are the obligations for your company?

Information about your suppliers must be reported on the basis of the European Sustainability Reporting Standards ("ESRS"), providing insight into the impacts, risks and opportunities generated by these supply chain activities. The specific reporting requirements may vary depending on the nature of the company and (suppliers). The CSRD requires (also) for these information from suppliers requires auditor assurance. The double materiality test (the impact of your company on the environment but also the impact of the environment on your company) not only clarifies which sustainability issues apply to your company, but also what information you need to collect from your (suppliers). This covers a wide range of aspects: from CO2 emissions (scope 3 emissions) to the working conditions at your suppliers and subcontractors. This is a challenge for companies, as also follows from a recent report by the AFM. The Corporate Sustainability Due Diligence Directive (" CSDD") also requires companies to conduct ongoing research into the negative effects on people and the environment of partners throughout the value chain.

How do you obtain the right information?

Obtaining the sustainability information from your (suppliers) and including it in your annual report is complex and challenging. The detailed information depends on the activities of your (supplier) companies. You depend on information from various parties in the chain to get a complete picture of the ESG impact of your (supply) suppliers. Close monitoring of the (supply) chain is very important for mapping this information. Good communication with your supply chain partners is essential. It is necessary to implement specific processes. Think of initiating supplier audits to assess their ESG performance or including ESG criteria in your procurement policy. Also, using specialized supply chain management software help increase transparency and provide access to up-to-date data on sustainability performance within your supply chain.

To get started!

It is advisable to be well prepared for the delivery of legally required information about your suppliers. If you are unsure about which information to report and how best to go about it, it is advisable to seek advice.