EU corporate disclosure law will enhance supply chain efficiency

In September 2014, the Council of the European Union adopted the directive on disclosure of non-financial and diversity information by certain large companies.

This means by 2017, environmental, social and employee-related reporting will be mandatory for all companies based in the EU with more than 500 employees.

Even though there are already CSR laws in some EU countries, and most large enterprises report on their environmental impact, community involvement or employee related matters, the new directive will demand more effort as it not only affects the company’s own business matters but also requires disclosure on the supply chain where applicable and relevant.

Supply chain disclosure can be the most challenging part of non-financial reporting for companies. While detailed regulations will be the responsibility of member states it is clear it will be the organisations’ responsibility to identify risks and deficiencies in their supply chain and to prevent potential violations against the companies own sustainability goals.

Meeting the new directive provides an opportunity not only to safeguard a company’s reputation for sustainability but also to increase efficiency to unwrap benefits for the entire business – in terms of cost savings, regulatory compliance, and engagement opportunities.

With modern integrated software solutions supply chain management will be simpler and more efficient in both ways. The main challenge is to increase the visibility of suppliers and bring them in line with your sustainability targets, code of conduct and actual framework requirements. Tracking sustainability performance is not a one-way street, but enables communication and interaction across all levels of the supply chain. Software can help to track and manage key environmental and social indicators and also keep a sharp eye on suppliers’ plans for improvement. By using regular questionnaires suppliers can give feedback on their policies and how they meet overall business and sustainability goals. This will help organisations to better understand issues and risks within their supply chain and shifts the focus onto specific issues such as safety incidents or labour conditions.

But what about proving this through certification? The EU directive encourages organisations to report against well-established and recognised frameworks such as the Global Reporting Initiative, the UN Global Compact, ISO 26000 or ILO Tripartite Declaration. Even though this is not a necessity, it gives companies an opportunity to professionalise their non-financial reporting and simplify their data management. Certification of your sustainability is not required by the directive but is left for member states to regulate in their own interest. This gives companies time to prepare and to pick the most sensible framework for their industry and business practices.

The new EU directive will be challenging but also a big opportunity for businesses. With the ever-increasing length and complexity of global supply chains it will drive them to rethink common practices and consequently increase efficiency and security – benefiting everyone involved.

Matt Scott is director of business development at cr360

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