ESG regulations are becoming increasingly important around the world, as they focus on making sure companies act sustainably and ethically. The aim of these regulations is to reduce carbon emissions, protect human rights, and promote ethical business practices in companies’ supply chains.
Since these regulations are designed to ensure that companies operate sustainably and ethically, it also affects supply chain management as an integral part of it.
In this article, we will explore the different ESG regulations for supply chains around the world, their impact on businesses, and how important it is for companies to comply with them in order to sustain and expand their operations.
What are ESG Regulations?
ESG regulations are a set of guidelines that companies must follow to ensure that their operations are environmentally sustainable, socially responsible, and adhere to good governance practices.
These guidelines are designed to help companies reduce their impact on the environment, protect human rights, and promote ethical business practices.
Typically, ESG regulations for supply chains cover a range of issues, such as climate change, human rights, labor practices, and anti-corruption measures. Also, they are designed to promote transparency and accountability in corporate operations and to encourage companies to adopt sustainable business practices throughout their supply chains. ESG Regulations for Supply Chains around the World Different countries have their own set of ESG regulations for supply chains. These are just a few examples of the supply chain ESG regulations that aim to ensure that companies are conducting due diligence on their supply chains to identify and prevent risks of human rights violations, environmental damage, and other issues targeted by ESG.
ESG Regulations for Supply Chains around the World
Different countries have their own set of ESG regulations for supply chains. These are just a few examples of the supply chain ESG regulations that aim to ensure that companies are conducting due diligence on their supply chains to identify and prevent risks of human rights violations, environmental damage, and other issues targeted by ESG.
The European Union (EU) has been a leader in ESG regulations for supply chains.
In 2021, the EU introduced the Sustainable Corporate Governance initiative. This initiative aims to require companies to identify and manage their environmental and social risks, including those in their supply chains. The EU has also introduced legislation on conflict minerals, which requires companies to ensure that their minerals do not come from conflict-affected areas.
Also, many member countries incorporated these guidelines in their national legislation.
For example, Germany’s The Act on Corporate Due Diligence Obligations in Supply Chains also requires companies to report on their measures to prevent forced labor and human rights violations in their supply chains.
France is another country that followed this practice. It has introduced the Corporate Duty of Vigilance Law, requiring companies with more than 5,000 employees in France and 10,000 employees worldwide to identify and mitigate environmental and human rights risks in their supply chains.
Many other European countries have also introduced similar ESG regulations on supply chains, such as the Netherlands and Denmark.
The United States has several ESG regulations for supply chains. One of them is the California Transparency in Supply Chains Act, which requires companies to disclose their efforts to eliminate slavery and human trafficking from their supply chains.
The US government has also introduced the National Action Plan on Responsible Business Conduct. This policy provides guidance for US companies on responsible business practices, including those related to supply chain management.
In 2015, the UK has introduced the Modern Slavery Act, which requires companies to disclose what they are doing to prevent modern slavery practices in their supply chains.
The UK government has also developed the Ethical Trading Initiative Base Code, which outlines the minimum standards for ethical trading.
China has introduced several ESG regulations for supply chains. One of those is the Social Responsibility Management System, which requires companies to establish a social responsibility management system that covers their supply chains.
China also adopted regulations that deal with conflict minerals requiring companies to ensure that their minerals do not come from conflict-affected areas.
Japan has introduced regulations that aim to promote sustainable procurement. The Act on Promotion of Green Procurement requires government agencies to consider the environmental impact of products and services when making procurement decisions.
This regulation aims to promote the use of environmentally friendly products and services.
The modern Slavery Act was adopted in Australia in 2019, obeying companies to report on the risks of modern slavery in their supply chains and what they are doing to address them.
The Australian government has also developed the Commonwealth Procurement Guidelines, which provides guidance for government agencies to consider ethical sourcing practices when making procurement decisions.
Why are ESG Regulations Important for Supply Chain Management?
Supply chains have a crucial role to play in promoting sustainable development, protecting human rights, and mitigating climate change.
As supply chains can have a significant impact on the environment, human rights, and social welfare, it is important for companies to be aware of this impact and be prepared to take steps to minimize the negative impact of their activities.
This is where ESG regulations come into play. By ensuring that suppliers are operating ethically and sustainably, reducing waste, and managing their carbon footprint, companies can ensure that their supply chains are responsible and aligned with ESG principles.
On the other side, by knowing how to implement ESG regulations on supply chains in their businesses, companies can have some crucial benefits, such as:
improving their reputation
increasing customer loyalty
reducing their environmental impact
identifying and managing risks, which can lead to more efficient operations and cost savings attracting ESG investments.
How to Comply with ESG regulations on Supply Chains?
Here are some practical tips on how to comply with ESG regulations:
Conduct a supply chain audit
Conducting a supply chain audit is the first step in identifying potential risks and areas for improvement in your supply chain. This audit should include a review of your suppliers’ environmental and social practices, as well as an assessment of your own company’s practices. Susternal provides companies with comprehensive ESG data and analytics to help them make informed decisions about their suppliers’ ESG performance. With susternal’s advanced ESG data tools, companies can gain a deeper understanding of their suppliers’ ESG practices, allowing them to build more sustainable and responsible supply chains.
Develop a sustainability policy
By developing a sustainability policy that outlines the company’s commitment to sustainability and ethical practices, you can define more specific targets and initiatives to reduce your environmental impact and protect human rights in your supply chain.
Engage with suppliers
Engaging with suppliers can encourage them to adopt sustainable and ethical practices as well. This could include providing training on sustainability and social responsibility and working together to identify and address potential risks in the supply chain.
Monitor and report on progress
Regularly monitoring and reporting on progress in implementing sustainable and ethical practices in your supply chain will help the company to demonstrate its commitment to ESG regulations and provide transparency to stakeholders.
What Are Upcoming Regulations on Supply Chain?
Although ESG regulations vary from one country to another, they are generally focused on reducing carbon emissions, protecting human rights, and promoting ethical business practices.
Complying with ESG regulations certainly can be challenging, but as companies become more aware of the impact of their supply chains on the environment and society, we can expect that it is likely that more regulations will be introduced to promote sustainable business practices.
Moreover, governments, investors, and customers are calling for greater transparency and accountability in supply chains, with a focus on reducing carbon emissions, protecting human rights, and promoting ethical business practices.
There are several upcoming regulations on supply chains around the world:
As mentioned earlier, the Sustainable Corporate Governance initiative aims to promote sustainability and social responsibility in companies in the European Union, but it also includes proposals for mandatory due diligence requirements for companies to identify and mitigate environmental, social, and governance risks in their operations and supply chains.
This initiative is expected to become law in the near future. Also, the EU Green Deal encompasses a set of new sustainability reporting regulations in order to increase transparency in this area.
France is currently considering a new law that would introduce mandatory human rights and environmental due diligence for companies operating in France. The new regulation would require companies to identify and prevent environmental and human rights abuses in their supply chains.
Germany is also considering new regulations that would require companies to report on their sustainability efforts and risks in their supply chains.
Other European countries will also have to shape their national legislations, and the biggest impact in this process will have the new Corporate Sustainability Reporting Directive (CSRD) that came into force in January 2023.
The US Securities and Exchange Commission (SEC) is expected to introduce new regulations requiring public companies in the United States to disclose information on climate-related risks and opportunities. The SEC is also expected to adopt rules on ESG disclosure, which would require companies to report on their environmental, social, and governance practices.
Canada is currently developing new laws that would require companies to conduct human rights due diligence in their supply chains. The proposed regulations would require companies to identify and prevent human rights abuses in their supply chains and to report on their efforts to address these issues.
China has introduced new regulations that require companies to report on their environmental, social, and governance practices. The regulations, Regulations on the Disclosure of Environmental Information of Listed Companies and Environmental, Social, and Governance Information Disclosure Guidelines for Publicly Traded Companies, apply to listed companies and large state-owned enterprises and require them to report on their supply chain management, labor conditions, and environmental impacts.
Japan is also currently considering new regulations that would require companies to report on their sustainability practices, including their efforts to reduce carbon emissions and promote social responsibility in their supply chains. It introduced new revisions of Stewardship Code and Corporate Governance Code, which include recommendations for ESG reporting and disclosure.
Compliance with ESG regulations is crucial for businesses to avoid reputational damage and increased costs due to fines and legal fees. Companies should stay up-to-date on these upcoming regulations and take steps to ensure that their operations and supply chains are in compliance with these evolving requirements.
Businesses that prepare for these upcoming regulations by conducting supply chain audits, developing sustainability policies, and engaging with suppliers, will be well-positioned to comply with the new regulations and benefit from the advantages of sustainable and ethical practices.