Assessing Your Company’s Supply Chain Risks in Response to Global Regulations and Reporting Pressures
On July 19, the FiscalNote Executive Institute hosted an invitation-only virtual discussion, “The Buck Stops Here? Assessing Your Company’s Supply Chain Risks in Response to Global Regulations and Reporting Pressures.” Isabella Bunn, Senior Advisor at Oxford Analytica, moderated the discussion which featured the following speakers:
- Bob Grohowski, Vice President, Legislative & Regulatory Affairs, T. Rowe Price
- Sophia Gluck, ESG & Sustainability Lead, Okta
- Kevin Rejent, Associate General Counsel, Regulatory & Government Affairs, Energizer Holdings
- Chris Genteel, Principal, Glidelane
- Tara Giunta, Partner, Litigation Department, and Co-Chair of its ESG Risk, Strategy and Compliance Group, Paul Hastings
- Sonay Aykan, Director, Global Sustainability, Colgate-Palmolive
Below are some key insights from their discussion and the follow-up audience Q&A.
The road ahead
- Change is unavoidable. Business leaders will need stamina to navigate the flurry of new and imminent changes to sustainability and supply-chain disclosure rules.
- Change in Europe has begun… The EU Corporate Sustainability Reporting Directive (CSRD) — enacted this year, with company reporting requirements beginning in fiscal year 2024 — seeks to increase transparency on a broad range of environmental and social matters, including treatment of employees, respect for human rights, ethical business practices, bribery and corruption, and diversity at the board level. The CSRD will also require companies that meet relevant criteria to undergo independent audits of their sustainability disclosures.
- …and will continue. The Corporate Sustainability Due Diligence Directive (CSDDD) — proposed by the European Commission in 2022 and which many expect to enter law within the next year — will require companies to conduct human rights and environmental due diligence on their operations, as well as those of their upstream and downstream supply chains.
- But the direction of change in America is less clear. On sustainability and supply-chain disclosure issues, companies in the U.S. face a more uncertain regulatory outlook. For example, even as the SEC has proposed various new ESG-related disclosure rules for public companies, some Republican lawmakers at the federal and state levels have led an anti-ESG countermovement.
Build capacity now
- The old mindset: “We do business with vendors who share our values and agree to abide by our supplier code of conduct. However, we neither audit them rigorously nor require them to certify compliance with standards embedded in laws that they’re not subject to.”
- The new mindset: “To meet our obligations under, say, the CSDDD, we must conduct due diligence and assess the compliance of our supply chain partners — and potentially terminate relationships with companies that don’t meet standards that they’re not legally required to meet.”
- Good before great. Begin building capacity now and continuously improve as you go: focus on understanding suppliers’ progress on emissions’ accounting or start using third-party services that can help raise potential red flags in your supply chain.
- Communicate expectations clearly. When dealing with your supply chain, embed your expectations — whether on climate or other ESG issues — into your code of conduct and seek to do the same for the codes of your partners. When dealing with customers, communicate your ESG goals frequently and consistently.
- Align with legal. Consult your legal department to determine which contractual language around different regulations will pass muster.
- Strengthen data and IT systems. Leverage software to gather ESG data, embed such data into your sales team’s RFP processes, and support one-to-one surveys with customers.
- Build robust engagement programs for vendors. To decarbonize your supply chain, educate and provide resources to help your partners set science-based emissions-reduction targets and conduct greenhouse gas inventories, for example.
- Do you see what they see? How do shareholders, ratings agencies, activists, and others view changes to sustainability and supply-chain disclosure requirements? To avoid surprises, keep your finger closely on the pulse of your stakeholders’ evolving positions.
Don’t forget the “G” in ESG
- Create robust governance systems. Consider creating an internal ESG committee to discuss priorities, review trends, and provide frequent updates to the board. And ensure all internal stakeholders are at the table to address the comprehensive ESG and human-rights-related risks that may be present in your business and across your supply chain.
- Corporate boards care about ESG more than ever. Whether the pressure to meet ESG performance targets comes from activists and customers or lawmakers and regulators, boards increasingly have their feet held to the fire.
- Boards are taking action. To meet their ESG targets and be better positioned for a changing legal landscape, board directors are developing new relationships, systems, and engagement processes with management, investors, and others.
- One step at a time. Limited resources may mean you can’t always comply with every new and looming regulatory change at once. Prioritize your actions to get the most bang for each initiative you do take.