The future of the EU’s Corporate Sustainability Due Diligence Directive (CS3D) looks uncertain following the failure of the European Council to reach a majority vote.
Control Risks offers five reasons why companies should not delay action to strengthen their supply chain sustainability due diligence controls:
Reason 1: Supply chain due diligence is the direction of travel
The failure of the Council to reach a majority vote has largely been driven by a mix of internal political dynamics and intra-EU horse-trading. It is not indicative of overwhelming investor, company, and civil society support for enhanced supply chain due diligence measures.
Germany in fact enacted its own supply chain due diligence law (the German Supply Chain Act) in 2023, and many EU member states already have their own supply chain due diligence legislations. Globally, some 10 national legislations have come into force over the last three years alone, not to mention the new EU Sustainability Reporting obligations (which impact supply chain) as well as a growing patchwork of national sustainability regulations impacting everything from batteries to plastics.
Any delay or adaptation to the CS3D is an exception to the inevitable tide of sustainability regulation that is hitting businesses and supply chains. Deferred investment now will only increase the cost of compliance in the future.
Reason 2: The Corporate Sector supports the CS3D
There has been overwhelming support from businesses and trade associations in the runup to and after the EU Council vote this week. Except for those that lobbied against the CS3D, the regulation would level the playing field for companies by holding EU competitors to the same standard.
Companies cited other arguments for the regulation as well. According to a survey1 commissioned by the European Council, companies argued that CS3D would provide legal certainty. They also emphasised that the regulation would enhance leverage with third parties by setting a non-negotiable standard.
Reason 3: Customer pressure
Buyers are increasingly exerting pressure down through their supply chains with stringent sustainability policy demands and supplier expectations. Many of these policy requirements are themselves being shaped by the growing body of due diligence and sustainability regulation mentioned above.
Whether the CS3D is enacted or not, businesses and suppliers must proactively start building out their own supply chain due diligence programmes. Without these initiatives, they will increasingly find themselves firefighting multiple buyer demands.
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Reason 4: Visibility
Greater supply chain control and upstream visibility improves supply chain resilience and risk management. Leading companies view sustainability as a logical extension – both in terms of risk and data – of their existing supply chain planning and procurement process. Prioritising sustainability enables them to better plan for and manage disruptions, volatility, impacts and constraints.
This data can also feed into product design and decision-making, driving circularity as well as progress against organisational sustainability goals and metrics. It makes business sense.
Reason 5: The moral case – regulation for a reason
We often overlook the real point of supply chain due diligence regulation, which is to drive better social and environmental outcomes in the supply chain.
Supply chain policy and procurement spend has huge potential to drive positive impact upstream, whether that is improved farmer livelihoods in food supply chains or reduced environmental impacts in raw material manufacturing supply chains.
We shouldn’t lose sight of this – it’s about creating the world we want to live in