Responsible Sourcing in Value Chains

Companies can no longer ignore the impact of their operations across all tiers of their supply chain. It is common for companies, regardless of their location or industry, to have limited knowledge about the deeper tiers of their supply chain, which is where the primary risks of modern slavery and environmental issues often reside.

Reputational risks are particularly high for organisations that are traditionally associated with modern slavery, such as Fast-Moving Consumer Goods (FMCG) companies. For instance, many fast fashion brands and retailers worldwide source cotton and yarn through forced labour camps in the Uyghur Region in China. Additionally, electronics and solar panel manufacture have been linked to indications of forced labour2. Modern Slavery laws are in place in many countries now, and with the impending EU Corporate Sustainability Due Diligence Directive (CS3D or CSDDD) and Green Claims Directive, it is crucial for companies to take action now. Organisations should map their suppliers across all tiers using a risk-based approach, conduct comprehensive risk assessments, implement due diligence measures, establish traceability and report on progress. While many companies have made strides by implementing responsible sourcing systems considering social and environmental risks and opportunities, the available data indicates that there is still work to be done.

Key Takeaways

• Corporations have growing legal and stakeholder demands to manage sustainability risks and opportunities not just in their operations, but in their value chain. Over 90% of a company’s carbon footprint is typically in the value chain and where exploitative labour practices can occur.
• An effective Responsible Sourcing System integrates environmental and social responsibility into supply chains, safeguarding against risk, reputation damage and meeting legal requirements on modern slavery, human rights and environmental protection.
• The incoming Corporate Sustainability Due Diligence Directive (CSDDD) expected from 2025 is a game changer and will mandate sustainability due diligence for companies. Requirements include responsible sourcing in the value chain, supplier engagement, traceability and 1.5°C aligned Climate Transition Plans with progress linked to directors renumeration.
• The demand for using third party verified benchmarking schemes like EcoVadis, ISO 26000 (social responsibility) and ISO 26400 (sustainable procurement) is growing as they provide supplier due diligence and traceability.
• Companies across multiple sectors and geographies are leading the way on responsible sourcing. Case studies in this insight highlight different sectors and their approaches to managing sustainability risks and opportunities in their value chains.
• A growing range of tools are supporting automated data collection, traceability and can save time and resources for organisations.

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