ESG regulations are redefining supply chain, sourcing, and post-sales models, impacting production processes and the ways companies collaborate with and evaluate suppliers. These regulations also significantly influence consumer communication, which is increasingly geared towards transparency and environmental impact measurement.
In a context where some regulations have already been introduced and others are pending approval at the European level, companies are adopting proactive strategies to adapt to ongoing changes and market needs. The recent approval of the Corporate Sustainability Due Diligence Directive (CSDDD) requires companies to manage risks related to human rights and environmental impacts, both in their direct activities and in their supply chains. This extended responsibility necessitates complete visibility over the supply chain, which is often limited. This has significant impacts on the logistical-production network, the structure of the supply chain, and the selection, evaluation, and qualification of suppliers. In production, it becomes necessary to manage a direct link between batches of raw materials, semi-finished products, and finished goods, ensuring traceability and transparency (knowing where and when various production steps occurred for each finished product, the origin of raw materials, the carbon footprint, and certifications). Regulations also aim to extend product life cycles and manage waste sustainably, promoting a circular economy approach.
Sustainability Reporting: Regulatory References
Sustainability reporting involves the process through which organizations communicate their environmental, social, and economic performance. This process goes beyond traditional financial reporting, providing a more holistic view of the business activity and its impact on the surrounding world. The goal is to inform stakeholders about corporate policies and practices related to environmental resource management, social responsibility, and corporate governance. The European regulatory framework has undergone significant developments in recent years, starting with Directive 2014/95/EU. Known as the Non-Financial Reporting Directive, it required large public-interest entities with more than 500 employees to disclose information on environmental, social, human rights, anti-corruption, and anti-money laundering matters. More recently, the European Union introduced the Corporate Sustainability Reporting Directive (CSRD), which expands and strengthens the requirements of Directive 2014/95/EU. The CSRD, which will be gradually implemented starting in 2024, extends reporting obligations to all large companies, regardless of whether they are listed on the stock exchange, and will introduce these obligations for medium-sized companies as well. This new directive aims to ensure that companies provide more detailed information on how their activities affect the environment and society, and vice versa.
Obligations and Timelines
The application of reporting obligations under the CSRD will be gradually implemented as follows:
- From January 1, 2024: It came into effect for large companies already subject to the Non-Financial Reporting Directive (NFRD). It applies to the financial reports for the year 2024, to be published in 2025.
- From January 1, 2025: Large companies that exceed at least two of the following criteria: 250 employees, €50 million turnover, €25 million in total assets. It applies to the financial reports for 2025, to be published in 2026.
- From January 1, 2026: Listed SMEs, small credit institutions, and captive insurance and reinsurance companies. This will apply to the financial reports for 2026, to be published in 2027.
Companies subject to reporting obligations must include data related to the value chain. This approach aims to provide a comprehensive view of the environmental and social impact of business activities.
The Future of the Supply Chain
The challenge for companies will be to collect and manage a large amount of data needed for traceability, supply chain transparency, sustainability, and the Digital Product Passport, a sort of "digital twin" that will accompany the product throughout its entire lifecycle. Companies must adopt a proactive approach, investing in digital technologies and collaborating with the entire ecosystem to ensure a transparent and responsible supply chain. The introduction of Traceability and the Digital Product Passport (DPP) goes beyond mere regulatory compliance: it represents a multifaceted path with benefits in terms of reducing business risks, protecting brand value, generating additional revenue linked to post-sales and second-hand services, and managing targeted storytelling for customers. Companies that adopt sustainable practices can also enjoy a competitive advantage, attract environmentally conscious consumers, and create long-term value for stakeholders.
The Value Chain
Including data on the value chain represents a challenge for many companies as it requires greater transparency and collaboration from suppliers and business partners. TESISQUARE's ESG and traceability solutions involve the discovery of the supply chain, the structured collection of sustainability and traceability data from n-tier suppliers in a collaborative and digital manner during supplier and product qualification phases and the executive phase of raw materials and finished goods delivery. Solutions also include direct calculation of transport CO2 equivalent, integrated management of all traceability and sustainability data collected from various sources on a single platform, supplier evaluation and scoring based on certified ESG questionnaires, aggregation of collected data for PEF/PCF calculation, anti-counterfeiting management, and support for IoT/RFID/Blockchain technologies.
