CSRD: Implications for Your Supply Chain
The CSRD: A New Era of Supply Chain Transparency
The new EU Corporate Sustainability Reporting Directive (CSRD) marks a major shift in international norms around sustainability reporting. The sustainability reporting that used to be voluntary and ad-hoc is now mandatory, structured, and subject to external assurance. While the CSRD encompasses a broad range of requirements, this blog will focus specifically on the supply chain requirements and how to best prepare your company for compliance to CSRD.
The CSRD and Supply Chain Responsibility
At a high level, CSRD puts pressure on companies to account for their supply chain impacts and transparently disclose material information. Although the CSRD does not exclusively focus on supply chain due diligence (as the Corporate Sustainability Due Diligence Directive or CS3D does), it still requires reporting in this important area.
CSRD mandates that companies take full responsibility for their upstream and downstream activities (both environmental and social sustainability topics) in order to fully understand and report on Impacts, Risks, and Opportunities (IROs). This requirement means that even companies that are not directly 'in-scope' (e.g., required to comply with CSRD) may find themselves prepping for CSRD reporting in order to maintain strategic business relationships with its customers.
Key CSRD Requirements for Supply Chains
Specifically, CSRD requires companies to disclose the following:
Statement on Due Diligence: Companies must provide a statement outlining their due diligence processes, particularly in relation to their supply chains. Companies may include information related to due diligence processes such as regular risk assessments, supplier engagement, or frequency of due diligence activities.
Description of the Process to Identify and Assess Material IROs: This involves a detailed explanation of how the company identifies and evaluates IROs using the principles of double materiality.
Strategy, Business Model, and Value Chain: Companies must describe how their sustainability strategy is integrated into their overall business model and value chain.
Material IROs and their Integration with Strategy and Business Models: A critical analysis of the identified IROs and how they influence and are incorporated into the company’s broader strategy.
Policies Related to Material Topics: Detailed information on the company's policies related to material sustainability topics as determined by the double materiality assessment.
Actions and Resources: An outline of the specific actions the company is taking and the resources it is allocating to address the identified IROs.
Metrics: Clear and measurable indicators that track the company’s performance in relation to its sustainability goals.
Effectiveness Tracking Mechanisms: Tools and processes used to monitor and assess the effectiveness of the company’s sustainability initiatives, including those in the supply chain.
Preparing for CSRD Compliance: A Step-by-Step Approach
Gaining visibility and increasing understanding of your company’s unique supply chain reach are essential steps for grasping the broader context of your business activities and their potential impacts on people and the planet. With these requirements in mind, here are some essential steps to prepare for compliance to the CSRD’s supply chain-specific disclosure requirements:
Identify and Assess Gaps: Begin by conducting an objective assessment of your company’s readiness to meet CSRD requirements. Consider the following questions:
Do you have a supply chain due diligence program in place?
Are the findings from due diligence being effectively utilized in the company’s materiality assessment? Identifying gaps early in the process will allow effective prioritization of key areas.
Establish a Supply Chain Baseline: Understand where your suppliers are located, what products and services they provide, and what their current practices are related to sustainability matters.
Assess risk: Based on findings from the baseline, track risks in your supply chain based on geographic indicators or low sustainability performance markers. Focus on areas of high risk, including those characteristics that are likely to pose elevated social or environmental risks, such as environmental degradation, excessive water usage, poor working conditions, or adverse impacts on local communities.
Engage your suppliers: Successful compliance with the CSRD depends on robust supplier engagement. Establish a collaborative relationship with your suppliers, involving them in the data collection process. This engagement not only informs suppliers of their role in compliance but also allows you to gain insights into their self-identified areas of high risk.
Identify IROs: Using the data gathered, clearly identify the supply chain IROs. It’s essential to incorporate supplier data into company policies and procedures to ensure that all material IROs are addressed comprehensively.
Strategize and Optimize: Create an action plan to address gaps in compliance. This may involve enhancing company policies, refining procedures, and implementing capacity-building initiatives to ensure your company meets CSRD requirements effectively.
Navigating the CSRD with Uplift
Navigating the complexities of the CSRD can be daunting, but you don’t have to do it alone. Uplift’s team of experts is here to guide you through the process. We offer tailored solutions to help your company meet CSRD requirements and ensure your supply chain is both compliant and resilient. Schedule a free consultation with Uplift today, and take the first step toward seamless CSRD compliance.
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