Businesses are increasingly facing the need to validate their engagement in ethical sourcing of products due to mounting regulatory pressure, transitioning from the previous moral obligation to adhere to Fair Trade standards. This shift has been prompted by the introduction of the Corporate Sustainability Reporting Directive (CSRD). This regulatory framework mandates all European companies, kicking-off with large enterprises in 2024 down to SMEs by 2026, to map, comprehend, disclose, and address crucial sustainability challenges faced by their entities and supply chains.
Prof Donna Marshall, an expert in sustainable supply chain management and the executive director of the UCD Earth Institute, stresses the importance of such regulations for the transformation towards a genuinely sustainable economy. Marshall suggests that the heightened regulatory pressure will create a more balanced environment for businesses obligated to unveil their policies, tactics, goals, and performances on multiple fronts like climate, resource usage, biodiversity, circularity, human rights, community matters, and working rights and conditions down their supply chains.
However, she concedes that the CSRD may have adverse effects, especially on suppliers needing help and guidance in mapping and managing sustainability within their operations and supply chains. Marshall emphasises the need to offer protection to these typically small and micro-businesses, which might be at risk of closure due to the strain of compliance.
Neil Willoughby, who heads EU policy at Ibec Europe, welcomes the CSRD, viewing reporting as an essential method to achieve sufficient transparency and straightforward communication about the assimilation of sustainability into business impacts and operations, fostering corporate-stakeholder trust. The CSRD and associated laws, such as the EU Corporate Sustainability Due Diligence Directive, afford legal clarity and certainty for businesses regarding understanding and managing their activities’ social and environmental impacts.
However, Willoughby admits that this level of reporting might impose challenges on businesses unfamiliar with this detailed disclosure, representing a shift in terms of the degree of information needed for reporting and the risen dedication of resources to non-financial reporting.
Clear decision-making and certainty for businesses in supply chain management can be achieved through a harmonised approach across the European Union, involving member states’ transposition process and subsequent enforcement, according to Smiley. Marshall claims that the reporting directive will substantially impact the supply chain choices of companies based in Ireland.
The CSRD, or Corporate Sustainability Reporting Directive, will affect every business in Ireland irrespective of their size, considering they are all part of a supply chain. Marshall warns that larger companies are required to comply this year, and they will be imposing demands for data on their suppliers to facilitate reporting. Thus, it is essential for companies to prepare to comply with the data requests for prime ESG issues, such as climate, pollution, water, biodiversity, circular economy, workforce, supply chain labour, affected communities, consumers, end users, and business conduct.
Irish businesses are well-equipped to fulfil these requirements, according to Willoughby. He garners support for international sustainability and encourages increased investment in sustainable business practices within the Irish business community.
Worldwide, the CSRD is set to have a profound effect on industries notorious for severe labour conditions, such as fast fashion and consumer electronics. Annually, 100 billion pieces of clothing are produced, causing substantial environmental effects and poor working conditions, says Marshall. Further, she acknowledges that despite the fashion industry employing one in six people, there’s a failure to provide a living wage for 98 per cent of workers in fashion supply chains. Therefore, having to report on workforce conditions, human rights, and wages across supply chains could drive considerable change in the sector’s decisions and behaviours.
Similarly, a change is anticipated in the electronics industry, which is marginally ahead of the fashion industry in certain sustainability aspects. However, Marshall argues that improvements are still needed. The CSRD may incentivise better practices across electronic supply chains. Additionally, concerns are growing about the raw materials for electronics, especially the extraction of essential metals and minerals, and the associated environmental effects and labour exploitation.