Why does sustainability regulation matter?
Sustainability regulation is fast evolving and has become a constant watching brief for businesses around the globe. The EU and California are two regions taking the lead, driving a ‘regulatory rising floor’ and bringing in new compliance expectations and potential penalties. At a holistic level, regulation is aimed at driving change in corporate behaviour. Many regulations have goals to bring sustainability reporting on par with financial reporting (something that took hundreds of years to evolve!), improving the quality and consistency of available sustainability information to enable better investor and consumer decisions. By doing so, it aims to transform business models and behaviours for a more sustainable economy. Procurement teams can position themselves as both an expert on regulatory requirements and the main link to the supplier base, which will support the wider business with their compliance.
One regulation making headlines currently is the Corporate Sustainability Reporting Directive (CSRD), mandating new sustainability reporting and assurance requirements for companies based or operating within the EU. These requirements are bigger, bolder, and more transparent than any previous sustainability reporting standards and really raise the bar for regulatory bodies across the globe. Approximately 50,000 companies are affected by the CSRD, which requires reporting for the first wave of entities to start from the fiscal year 2024.
What should Procurement teams do to support?
Procurement teams play a vital role in supporting regulatory compliance, as often a gatekeeper and conduit between the business and supplier base. Some of the critical ways they must contribute, include:
- Alignment of sourcing processes and ways of working with business sustainability objectives. This should be seen in sourcing strategies, procurement policies, tenders and supplier selection, ensuring sustainable sourcing throughout the business. Collaboration here with internal stakeholders is also important, to understand sustainability goals and regulatory requirements. To learn more about how to include sustainability in procurement tenders: Link to article 1 in the series
- Have an active supplier mapping to ensure transparency and knowledge of the full value chain. This can also be used an input into supplier segmentation and category management activities to highlight any risk areas
- Data collection, governance and reporting is a key input, and procurement teams should be the leaders in collecting the relevant data. Important steps to ensure success are as follows:
- Start with knowing which data points are material, streamlining the number of data points and aligning with your double materiality assessment
- Define the mechanism for data collection, e.g. spreadsheet, surveys, online tool etc.
- Review the data submitted and assumptions made; is the data complete? Is it robust? Are the method and assumptions repeatable?
- Maintain and update the data periodically, so it becomes routine
Don’t underestimate the scale of the task when it comes to data collection and reporting. For example, requesting suppliers overall carbon footprint can be seen as a singular data point, but understanding the calculation assumptions, how robust the data behind the overarching figure is and opportunities for reduction; needs a much deeper level of understanding and analysis
- Tool selection can be a solution to data collection, governance and reporting. There are many data capture and display tools on the market, which can simplify the production of reports at the click of a button. Procurement teams need to understand that the tender analysis of these contracts is a critical point in time. Selecting the best system for your requirements ensures setting the right precedents, to allow the whole organisation to report more easily. These tools are designed to do the heavy lifting when it comes to reporting requirements but the set up and integration of them is imperative; beware, it remains that bad data in equals bad data out!
- Collaborate with suppliers to be able to work closely in understanding sustainability requirements. Communication is key to share material topics, data requests and to encourage transparency and responsible practices throughout the supply chain tiers
- Independent assurance is a requirement of some reporting frameworks, including the CSRD, from the first year of reporting. Procurement team should select and collaborate with assurance providers to ensure accurate and reliable reporting
Procurement teams become one of the foundations of a successful due diligence
Regulation gives companies an opportunity to reframe their business model narratives in the context of sustainability. Sustainability regulation is here to stay, so if you aren’t on the readiness journey now, it’s time to act. By leveraging procurement’s expertise, businesses can effectively navigate the complexities of compliance regarding their supply base and more. Procurement teams are a foundation of its success, not only for compliance but to drive positive change throughout the value chain.
This article is part of a series diving into sustainable procurement, explore more here.
Authors: Vicki Solly, Laurie Franquesa, Grace Maturi
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