4 ways that make sustainable supply chain due diligence an opportunity, not a threat

As you might have read in our earlier posts, due diligence as an expected approach is quite clearly described in the OECD Due Diligence Guidance. Coming from the Directive on Corporate Sustainability Due Diligence Proposal, much focus over the course of 2022 has been on the importance of due diligence to ‘avoid risk’ and ‘take responsibility’. But don’t forget, it creates positive business opportunities too. The supply chain is a key impact area if you want to be a sustainable business as your supply chain is where much of your environmental and social impact lies. The so called ‘scope 3 impact’.

Here’s 4 ways in which due diligence offers a lever of positive change for your business – from information to collaboration:

 

1. Due diligence gets you focused

Due diligence offers an opportunity to learn about all material and production processes that are connected to your business. In short: it helps you to better understand the business you are in and how you can improve your business model. You can’t focus on all supply chains and raw materials in the same capacity. And you don’t have to. It’s important to think about the level of connection you have with a supply chain and the level of sustainability risks. The European Due Diligence Directive proposal underlines high risks sectors such as textile, agriculture, and minerals. To identify how you are linked to risks in the supply chain you can make use of the OECD Due Diligence Guidance for Responsible Business Conduct (The Terrace has created a simplified version) emphasizes the importance to understand ways in which you can “cause” or “contribute to” sustainability impacts by you as a business or if you they are “directly linked” to your operations, products, or services by a business relationship. At The Terrace we develop sustainability ‘Risk scans’, based on key social and environmental topics, commodities, and sourcing regions, to keep into account.

For example, Volkswagen AG gathers first-tier supplier data, prioritizes human rights and 16 high-risk raw materials in their due diligence process.

 

2. Due diligence creates data

Due diligence offers an opportunity to gather – and make use of – supply chain and supplier-level data. As there is a high chance your business is already involved in international production chains, it can be empowering to better understand it and use it to improve your products and/or processes. A relatively easy step to take is to use supplier questionnaires. Many examples and templates out there for you to use, for instance by B Lab or Ecovadis. Questionnaires most easily reach your 1st tier suppliers, further down the chain it might be more complex and often communication stays one-sided. Additionally, technology (providers) can make supply chain communication and collaboration more two-sided, where upstream suppliers are active participants and gain insight too. Farmforce is an example of a farmer engagement app, to gather data right from the first mile of food production. Sourcemap offers a network that connects you to suppliers and sub suppliers. Provenance offers blockchain technology to track commodities from its source.

For example, the Thank My Farmer app is used by different retailers and makes use of blockchain to show consumers where coffee beans come from and lets them make direct contributions to farmers.

 

3. Due diligence builds supplier partnership

A lot of due diligence data comes from your suppliers. Instead of making it a one-directional and ‘top down’ effort, see due diligence as a collaborative effort where you set up engagement around different sustainability topics based on mutual needs. You might have a lot of suppliers overall, which is why companies such as Marsdecided to work with less. We see companies such as Walmart specifically focusing on leveraging these partnerships to improve sustainability, such as Project Gigaton to reduce scope 3 carbon emissions. Next to sending a supplier questionnaire, think of setting up a shared workshop about diversity in the workplace. In this line we see businesses learn from their suppliers, and vice versa.

For example, Girls who Grind build long-term working relationships with the women who supply them with beans. By working closely together, the women on both ends learned about the unfair distribution of wealth along the coffee chain. And they decided to tackle it, together.

 

4. Due diligence builds industry collaboration

Collaborate with others in your industry on key due diligence topics. Building more radically connected supply chains and gathering insights makes little sense when every company keeps it to their own. As in reality, no supply chain functions in isolation. Due diligence is an opportunity to collaborate pre-competitively and build better supply chains. Independent multistakeholder platforms have a huge role to play in harmonizing due diligence by companies and defining synergies. The Global Coffee Platform, The Organic Cotton Accelerator, and Sustainable Natural Rubber Platform, are examples of efforts that try to unite due diligence data.

For example, a coalition of cocoa companies specifically welcomed due diligence for their industry and provided direction for key criteria and focus areas in the context of cocoa in this position paper. This offers a great route forward for all companies involved in cocoa, and similar smallholder commodities.

 

By sharing our take on how due diligence offers a lever of positive change for your business, we hope to have given you some positive ways to start or improve your supply chain due diligence. Do you want to get more insight in how this could work for you and your supply chain? Feel free to drop us a line.