Navigating Supply Chain Due Diligence and Traceability
Supply chain transparency and upstream product and raw material traceability are increasingly governed by stringent due diligence regulations.
Whether it’s the EU Sustainable Batteries Regulation, the Corporate Sustainability Reporting Directive (CSRD), or the recently approved Corporate Sustainability Due Diligence Directive (CSDDD), companies are legally obligated to understand their upstream supply chains and the origins of the raw materials, products, and services they procure.
Additionally, they must assess, mitigate, and remediate negative social and environmental impacts.
As pressures for supply chain transparency increase, businesses face several challenges and can explore various digital solutions to address these issues.
Traceability, but for What Purpose?
Supply chain mapping and traceability are not end goals in themselves. Before embarking on a data-gathering exercise, companies must consider how they intend to use the collected data. It’s crucial to think through the actions and decisions needed based on that data, as well as the underlying processes and resources required to support it. For supply chain due diligence, this often means assessing the level of ESG risk associated with specific suppliers and making informed sourcing or remediation decisions.
Supply Chain Data: Here, There and Everywhere
Many companies struggle with fragmented and non-digitised data. The first step is to digitise and improve procurement systems and processes. More commonly, businesses collect some form of data on their upstream supply chains, but this data is often gathered for other purposes and not in a form that meets due diligence requirements. Companies should mine existing data sources first and, where possible, augment this data and introduce new compliance systems or processes around it. In some cases, investing in a new digital platform may be necessary.
How Far Back in the Supply Chain Do I Need to Map?
The extent of supply chain mapping required depends on specific due diligence regulations:
- The EU Deforestation Directive (EUDR) requires tracing agricultural commodities in high-risk areas back to the production unit.
- The EU Sustainable Battery Directive mandates a system of controls and transparency in the supply chain, including a traceability system identifying upstream actors.
- The CSDDD refers to a ‘chain of activities’ approach, including the upstream (Tier N) supply chain based on a risk-based approach.
- The German Supply Chain Act focuses on Tier 1 suppliers but extends to sub-tier suppliers if there is evidence of violations.
Where interpretation is needed, companies should map as far back as necessary to identify and manage sustainability risks and comply with regulatory principles.
What Mapping Solution Do I Need?
As supply chain due diligence obligations increase, so has the number of SaaS providers offering supply chain mapping, ESG compliance, and traceability solutions. The vendor market is broad and diverse, making it challenging for companies to identify the right solution for their needs, maturity level, and budget.
Here are a few options to consider:
Automated Supplier ESG Information Cascading: These platforms connect to existing ERP systems and automatically cascade supplier ESG information requests down through the different tiers of the supply chain. While not a traceability solution per se, they help build a picture of the multi-tier supply chain and associated ESG risks as suppliers declare their sub-tiers and provide relevant data.
Supply Chain Data and Mapping Providers: There are numerous data platforms specialising in supply chain entity mapping. These platforms use publicly available trade records to build a picture of supply chain linkages and product flows. Some are integrating sustainability risk assessment data as well.
Digital Product Passports (DPP): Mandated by the EU by 2026 for all electric vehicle batteries placed on the EU market, DPPs collect supply chain and product sustainability data to share with multiple stakeholders, including consumers, customers, and regulators. DPPs are seen as crucial for building circular supply chains.
While it’s impossible to account for every platform on the market today, each solution offers unique value and focus, whether it’s sectoral (e.g., textiles, agricultural commodities), product-specific (batteries, conflict minerals), or based on the business need it addresses.
By understanding and implementing effective supply chain mapping and traceability solutions, businesses can better comply with regulations, enhance sustainability, and mitigate risks in their supply chains.
At New World Norm (NWN), we understand the complexities and challenges posed by emerging threats in the supply chain. Our team of highly experienced risk management consultants in London, Birmingham, Manchester, and across the UK are here to help you navigate these risks with confidence. From operational risk management consulting to loss prevention and business continuity solutions, we offer comprehensive services tailored to your needs.
Contact us today to learn how we can help protect your business and personal security from the evolving threat landscape. Let’s work together to ensure a secure and resilient future.
