Adopting sustainability is the key to business survival
Sustainability, more than a word, has become a business culture, and achieving sustainable business goals can help companies grab the attention of customers, politicians, and stakeholders. Moreover, businesses that resist embracing sustainability practices are unlikely to survive in this era, where compliance with environmental standards is becoming inevitable.
In today’s rapidly evolving global landscape, the Corporate Sustainability Due Diligence Directive (CS3D) is a significant milestone in the European Union’s (EU) efforts to foster corporate responsibility and environmental stewardship.
Understanding CS3D
The CS3D, provisionally agreed upon in December 2023, represents a fundamental shift in corporate governance, particularly concerning environmental, social, and governance (ESG) matters. Unlike other laws, CS3D is not just sector-specific; it’s more comprehensive and will bring an enormous change in corporate behaviour by enabling businesses to keep their actions from harming the environment and respecting human rights.
Which companies will fall under the scope of the CS3D?
The due diligence requirements outlined in the proposal encompass all EU-based companies, irrespective of industry, with over 250 employees and achieving a global turnover of at least EUR 40 million. Moreover, parent companies with more than 500 employees and a global turnover exceeding EUR 150 million also fall under its purview. Additionally, non-EU companies with a turnover surpassing EUR 150 million, of which at least EUR 40 million originate from the EU, are obliged to adhere to the due diligence obligations set forth by CS3D.
Will SMEs be affected by CS3D?
The current draft of the proposal does not directly target small and medium-sized enterprises (SMEs) and micro-enterprises. However, the proposal recognises that SMEs and micro-enterprises may still bear some of the costs and burdens imposed by CS3D, as large in-scope companies are anticipated to transfer requirements to their suppliers.
Larger companies accountable for CS3D compliance may impose stricter sustainability and due diligence requirements on their suppliers, including SMEs. To meet the larger companies’ requirements, which can help them maintain and nurture business relationships with larger partners, SMEs must provide detailed information about environmental and social practices, adherence to human rights standards, and evidence of responsible sourcing throughout the supply chain.
Moreover, sustainability has captured the attention of consumers, investors, and other stakeholders, prompting companies, including SMEs, to pursue sustainable goals to remain competitive.
Challenges and issues facing SMEs
- Resource Constraints: SMEs will have to struggle to meet larger companies’ stricter sustainability and due diligence requirements as they lack financial, human, and technological resources.
- Compliance Costs: Complying with detailed information requirements on environmental practices, human rights, and responsible sourcing can impose significant costs on SMEs, including audit expenses, system upgrades, and hiring.
- Competitive Disadvantage: Non-compliance can result in lost business opportunities and reduced market competitiveness. SMEs failing to comply with CS3D are at risk of losing contracts or partnerships with larger companies.
- Supply Chain Transparency: Ensuring transparency throughout the entire supply chain can be challenging for SMEs, mainly if they rely on multiple sources for materials or components.
Consequences of non-compliance
Non-compliant organisations may face various consequences, including financial penalties, market restrictions, reputational damage, and potential legal actions. Additionally, SMEs, while not directly impacted by CS3D, could experience the loss of business opportunities, reduced market competitiveness, exclusion from supply chains, and reputation damage.
How can RightOrigins help businesses comply with CS3D ?
Monitoring the supply chain is essential for regulatory compliance. With a robust traceability system, businesses can monitor their entire supply chain, reduce risks, and improve regulatory compliance. RightOrigins, our AI-powered Supply Chain Traceability and ESG Intelligence suite, assists in centralising data management and digital profile creation. It also automates ESG reporting and customer/buyer compliance questionnaire responses.
Conclusion
By offering a unified platform, RightOrigins, our AI-powered Supply Chain Traceability and ESG Intelligence suite, centralises compliance management efforts, allowing businesses to oversee sustainability initiatives, environmental and human rights impact assessments, and regulatory compliance tracking from a single interface.
RightOrigin enhances data management by streamlining compliance and product data, facilitating accurate and accessible information crucial for meeting CS3D requirements. Through advanced supplier management tools, Our platform provides insights into supplier ecosystems, promotes data-driven decision-making, and fosters supply chain transparency, aligning with CS3D’s emphasis on responsible sourcing practices.