Introducing and integrating environmental, Social and Governance (ESG) in supply chains is constantly evolving and will continue to do so. On Thursday 21 October, 25 key global organizations joined us for a focused session exploring the impact of emerging law governing human rights issues and environmental risks on global supply chains. As the need to establish more transparent and sustainable supply chain models grows, we outlined the key existing and foreseeable legislation shaping the international ESG supply chain landscape, including the recent German Supply Chain Act.

Ipshita Chaturvedi, Dentons Global Supply Chain Lead and Partner at Dentons hosted an insightful follow up discussion on how organizations are practically planning for and responding to these changes. Ipshita was joined by an impressive panel of speakers including Craig Woodburn, Head of ESG at Britishvolt who are focused on creating the planet's most responsibly manufactured battery cells and Stephen Carter, Director at US multinational retail giant Walmart, who are ambitious to use their size and scale for good. Dr Christian Schefold, Partner at Dentons and formerly of DaimlerCrysler, also joined the panel. 

This session was part of our ESG virtual roundtable series. This series provides a platform for General Counsel, Heads of Legal and other senior decision-makers with ESG responsibilities, to make connections and gain insights that help them to take a lead role in creating and implementing their organization's ESG strategy. 

Here are our top takeaways:

1. The business need for supply chain sustainability

Ipshita kicked off this session by outlining a proliferation of laws* on ethical sourcing and supply chain due diligence, which have shaped the international legislative landscape over the last 18 months. Investor and consumer demand for responsible procurement are also driving the need for change. In line with this, sustainable supply chains are becoming a critical part of business models, and ultimately how some businesses differentiate themselves in the marketplace. Finally, an increase in litigation arising from allegedly false claims around responsible procurement is also driving a sharp focus on this area. Overall, the dynamics continue to evolve at pace and shift towards the need to really own and manage supply chain risk.

2. The future of ESG supply chain legislation

We next took a deep dive into the most robust supply chain law currently in place: the German Supply Chain Act. Christian took us through some of the key supply chain changes this act will introduce. German companies and subsidiaries of foreign companies* will be directly responsible for their supply chains. These organizations can delegate this responsibility to direct suppliers who can pass on and monitor these responsibilities through their sub-suppliers. Specific requirements will include the need for; supply chain purchasing policies, implementation of these policies through suppliers and sub-suppliers, risk management assessments, compliant management, remediation of violations and documentation/reporting. Proposed EU law expected to follow the German Supply Chain Act is likely to be even more robust in its requirements, charting the overall direction for the continued evolution of this area. 

3. Starting where you can deliver the most impact

With this backdrop in mind, Stephen advised that when thinking about where to start when it comes to supply chain sustainability, organizations need to move beyond a conceptual idea of 'doing good' to consider where they can make the most impact on people and planet in their supply chain. He cited a very tangible example of engaging with suppliers and the Alliance for Bangladesh Worker Safety. Craig added that the need to fully understand your supply chain, to identify key processes and procedures is critical to address customer expectations and concerns. While certification is useful, ultimately the organization needs to really own their supply chain risk. Capturing and gathering data to meet specified standards all the way through your supply chain is key for success.

4. Partnership is the new leadership

Both Stephen and Craig felt that starting with the cultural change required and partnering both internally and externally was crucial to really embedding sustainability standards in your supply chain. This should be based on a clear understanding of what your organization stands for when it comes to ESG. From business units and procurement to legal and marketing/PR, there is a need for training, awareness raising and the communication of your standards and expectations to all stakeholders who work with you. ESG needs to be part of the organization's business decision-making criteria. Partnering is equally applicable for external stakeholders. Here it is important to focus on identifying the shared value, for example when working through supplier contractual terms, embedding pitch promises and improving reporting requirements. Stephen shared a very insightful example of partnering with NGOs, local Government and suppliers in South East Asia to work towards eliminating the risk of forced labour. Ultimately, this approach shaped behavioural change across a large number of suppliers.

5. It's a dynamic journey with no end

We asked our panellists whether they had one piece of advice for companies just beginning their sustainable supply chain journey. The need to be patient with the journey, humility and the ability to listen are key elements. It will take time to drive change both from a business perspective and from an external stakeholder perspective. Things will not be perfect. The focus needs to be on continuous improvement. You need to set your strategy and standards from the outset and work along the full value chain from raw materials to the final product. You also need to be very mindful that these standards will continue to evolve. The availability of data and reporting is integral for success and increasingly a non-negotiable both from an investor and consumer perspective. Thinking less about producing a static annual document and more about the need for rolling data on your supply chain is an example of this change. In short, it will continue to be a dynamic journey with no end.

Your ESG supply chain journey

During the session, we also asked attendees, what their key ESG global supply chain focus was right now…

Attendees have a clear focus on supplier compliance from a regulatory, audit and contracting perspective with just under 70% citing this as their key priority. Reflective of the global regulatory move towards more transparent supply chains, we can see that taking real ownership of the risk around supplier compliance is top of mind for attendees. However bearing in mind the advice of our panellists, a broader business approach is required to move towards the cultural change required to truly embed more sustainable supply chain models.

Irrespective of the stage of maturity of your ESG supply chain journey, Dentons is available, globally, to discuss the specific risks and opportunities that ESG presents for your business. You can view the full recording of this session here, or email niamh.oconnor@dentons.com to sign-up for future ESG insights. 

* Some key examples include Germany (German Supply Chain Act), France (Loi de Vigilance) and a proposed EU law stated to impose human rights, environmental, good governance and due diligence provisions for companies operating in the EU. Earlier this year, President Biden gave an executive order on regulating US supply chains. This is in addition to existing Modern Slavery Laws in the UK and Australia. Similar laws are planned for the Netherlands and Canada.

** Effective for any entities based in Germany from 2023 for >3,000 group employees (worldwide) and from 2024 for 1,000 group employees (worldwide). There are no size restrictions for direct suppliers to German entities.