Julia Swales, Advisory Board Manager at the Foundation for Future Supply Chain, interviewed Nick Wildgoose, CEO of Supplien Consulting and Foundation advisory board member, about the need to use better data from deeper in the supply chain to enable more robust risk management and build more resilient supply chains.
There are an increasing number of new regulations that require organisations to monitor and report on their end-to-end supply chains, where greater transparency is needed. The Corporate Sustainability Reporting Directive in Europe, which entered into force in January 2023, is one example. It requires all large companies and listed companies to disclose information on what they see as risks and opportunities arising from social and environmental issues. The new rules seek to ensure that investors and other stakeholders have access to the information they need. It aims to drive multi-tiered transparency by making companies responsible for their whole value chain. As part of this approach, it brings in the concept of double materiality assessment, a mandatory exercise for companies to identify which sustainability matters are most material to the organisation and its stakeholders by evaluating their impact on environmental and social factors (inside-out perspective), while also considering how these factors influence the organisation (outside-in perspective).
The critical aspect for an organisation in carrying out this double materiality assessment (DMA) is getting access to the appropriate data; this DMA then not only determines the scope of the organisation sustainability reporting but also enables an inefficient allocation of the resources needed to achieve CSRD compliance and provides insights for shaping a company strategy.
Without this data and associated technology, the exercise can’t be scaled and monitored as required under the regulation. Even if an organisation only has 10 suppliers at tier one, there will be many more in a sub tier. You also need to consider the multi-tier supply chain from a large variety of different data points in respect of carbon footprints, cyber and many other risk data points. Teams of hundreds of people are needed to monitor these if technology isn’t used. The technology and data isn’t perfect yet, as of course it’s a journey of improvement, but the introduction of AI and machine learning is starting to help, for example, in automating the removal of false positive risk results.
Penetration of solutions is growing quite rapidly, but it’s nowhere near where it needs to be. Gartner say this is a multi-billion market, but they don’t really know the potential scale of the software market. At the end of 2023, the authorities behind the German Supply Chain Due Diligence Act, currently the strictest supply chain law globally, published a list of the sources of data that they had available to them. It was a push to companies through saying, we have this data available and we’re watching you. If we can use it, why can’t you? This is the way they have approached it, instead of demanding that companies buy a set of data. Some of this data is free, as NGOs share it with commercial organisations, but the hard, time-consuming part is bringing it into a system and displaying it. However, companies will need to do this to comply with the increasing range of global ESG regulations as part of a journey driving multi-tier supply chain transparency, with the resilience and competitive advantage that this offers.
Author: Julia Swales
Source: Foundation for Future Supply Chain
