The topic of sustainability impacts in supply chains is becoming increasingly important in the context of CSRD. The question of how to evaluate the entire supply chain from an ESG perspective and, above all, which mandatory ESG data to start collecting is increasingly arising.
The new Corporate Sustainability Due Diligence Directive (CSDDD) aims to ensure that companies identify and seek to prevent serious human rights and environmental impacts, not only within themselves but also in their value chains in Europe and beyond. Companies have already understood that due diligence is essential, especially for those companies where production takes place outside the EU (e.g. textile production in Asia, mineral extraction in Africa).
What to expect?
If your company is a supplier, needs insurance, or seeks financial support from a financial institution, it's clear that you will increasingly encounter requirements for collecting and providing ESG data. Enquiries into the CSRD key data area are now typically done through various ESG questionnaires, which should cover the core areas under the ESG standards that the company you have a business relationship with must report on based on a materiality analysis of the topics. Materiality analysis is the reason why you need to report data for value chains as well. Themes related to these will usually emerge as material ESG areas.
Moreover, if you are a significant partner for the company and you are in a sector that can influence any part of ESG (especially negatively), expect a comprehensive approach and an extensive assessment of your own activities, including the need to provide specific data (e.g. carbon footprint of your company, results of stakeholder dialogue, overview of policies within the company or existence and compliance with a code of ethics).
Below, we provide an overview of several basic questions from such an ESG questionnaire. It's good to prepare for these questions, especially if you're not yet engaged in ESG reporting. The questions assume long-term reporting and trend monitoring, and some will require you to attach specific documents/policies/certificates related to the area in question to substantiate or explain your answers.
General and social and governance issues:
- Do you have your own ESG strategy?
- Do you publish an ESG/Sustainability Report?
- What ESG certifications do you have?
- How do you communicate with stakeholders (stakeholder dialogue)?
- Have you undergone any ESG rating?
- Does your company have a sustainability manager/department?
- Do you have an established code of ethics?
- What principles regarding working conditions and human rights does your company follow?
(The following topics should be covered: child labour, forced labour, wages and benefits, working hours, freedom of association, collective bargaining, workplace harassment and anti-discrimination measures.)
- Do you have a health and safety management system?
- Does your company have a set of ESG/sustainability requirements for your suppliers (working conditions and human rights, OHS management system, business ethics, environmental care, screening of sustainability of own suppliers)?
Environmental issues:
- Do you have an environmental management system in place? Is it certified by an external company?
- Do you measure your total annual CO2 emissions? (provide the total volume in tonnes for the last year, including the publicly available CO2 reduction target)
- Do you have a procedure for handling and processing waste, including hazardous and non-hazardous waste? (state the total volume and add the certificate, also add publicly available waste reduction targets)
- What is your total energy consumption? (indicate total volume in metric tonnes and publicly available energy reduction targets)
- What is your organization's total water consumption? (provide the total volume in m3 and publicly available water reduction targets)
Financial institutions are already collecting data
The process of collecting ESG data from business clients is already having a significant impact on financial institutions in particular, who have to deal with companies they provide their funds to, and therefore how they influence the whole ESG landscape through them. It is primarily the banks that are under pressure not to finance polluters and therefore need to keep a close eye on who they lend to.
Several Czech banks already use a common ESG questionnaire prepared by the Czech Banking Association. At the end of 2023, a new questionnaire reflecting ESRS standards was prepared by six Czech banks, intended to replace the older questionnaire from 2021. The new questionnaire operates through the digital platform Synesgy, which provides solutions for data collection from supply chains not only to banks but also to various types of organizations. In addition to filling out the ESG questionnaire, the platform also works with ESG ratings and supplier certifications.
The Purpose of ESG certifications and ratings
Some companies also use international ratings and certifications to evaluate their suppliers. While these often do not reveal all the details, such as specific numbers from carbon footprint measurements, they serve very well to ensure a certain level of control over their supply chain. They can be both sector-specific and general, suitable for a wide range of companies. Our article on this topic can help you better navigate among them. One of the most widely used for rating small and medium-sized companies is the Ecovadis rating. You can read how to prepare for this particular assessment tool here.
We are happy to help you prepare your ESG documents needed for your clients. Please email us at info@flagshipimpact.com.