Non-financial reporting directive a start, but there’s a long way to go on supply chain transparency

25 April 2014 | Mark Plant

Mark Plant, CEO, EcodeskLast week’s EU vote on non-financial reporting was, according to Richard Howitt MEP and European Parliament rapporteur on corporate social responsibility “a historic date in the transition to business sustainability for all”.

Despite pressure from lobbyists, the proposal has entered a final stage and is expected to be fully adopted in the coming weeks but what will it mean to supply chains?

In announcing the result of the vote, EU internal market and services commissioner Michel Barnier said: “Companies, investors and society at large will benefit from this increased transparency.” It’s a naturally optimistic statement but the reality is different. The directive will only apply to around 6,000 large European businesses. Will this really increase business transparency?

What the directive will do is formalise non-financial reporting across Europe and establish a basic level of supply chain transparency within those reports. It’s a start but a long way from where business reporting needs to be if it is to help put an end to factory disasters, such as the one in Bangladesh a year ago.

What is clear though is supply chains have a significant role to play in making non-financial reporting work. Numerous references to suppliers in the directive make it clear to reporting businesses that they need to include supply chain due diligence as part of their overall report.

There are around 23 million SMEs in Europe and 91 million micro, small and medium businesses in emerging markets. If even a small fraction of these companies starts openly reporting information, the EU’s transparency goals may be achievable but the challenge is how to get them to report if the regulation does not apply to them directly?

Compelling suppliers to open up on non-financial information will be demanding unless businesses make it mandatory for their vendors to do so. Convincing suppliers there are efficiency and risk management benefits too may go some way to injecting urgency into the process.

Yet despite this and the increased environmental pressure on business brought by last month’s IPCC report, suppliers may remain sceptical. On the surface this directive is not for them but it needs them. What possible business value can be derived from reporting? Does it mean an administrative burden? It is up to the 6,000 and companies such as ours to answer these questions and help suppliers of all shapes and sizes become part of Howitt’s “sustainability for all” vision.

Mark Plant is CEO at cloud-based sustainable supply chain management platform Ecodesk

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