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CSDDD

How to Prepare for the CSDDD: A Step-by-Step Guide

The Corporate Sustainability Due Diligence Directive (CSDDD) just entered into force. Therefore, we wanted to provide companies with a Step-by-Step Guide to help them comply with the CSDDD. The directive was signed on June 13, 2024, and was published in the Official Journal of the European Union on July 5, 2024. Today is the first day it is in force and EU member states have until July 26, 2026, to transpose the directive into their national laws. The CSDDD mandates that companies integrate due diligence processes to identify, prevent, and mitigate adverse impacts on human rights and the environment throughout their supply chains. This comprehensive directive covers issues such as child labor, environmental degradation, and corruption. Companies are expected to establish and enforce policies that ensure ethical behavior throughout their supply chains, thus promoting long-term sustainability and high ethical standards. In comparison, the German Supply Chain Due Diligence Act (LkSG) already imposes rigorous due diligence requirements on companies within Germany. However, the introduction of the CSDDD means that the German government will replace the LkSG with the CSDDD, aligning national regulations with the broader EU framework. For companies operating in Germany, this transition will require them to adjust their compliance strategies to meet the specific provisions of the CSDDD. 1. Understanding the CSDDD The CSDDD aims to fundamentally transform how companies approach their impact on human rights and the environment. At its core, the CSDDD requires companies to embed comprehensive due diligence processes into their business operations and supply chains. The directive focuses on identifying, preventing, and mitigating adverse impacts, ensuring that companies take proactive steps to address issues such as human rights abuses, child labor, environmental degradation, and corruption. The CSDDD outlines specific obligations for companies, including conducting thorough risk assessments to identify potential and actual adverse impacts, implementing preventive measures, and establishing grievance mechanisms. Companies are also required to monitor the effectiveness of their due diligence strategies and regularly report on their efforts and outcomes. This transparency and accountability framework not only ensures compliance but also promotes a culture of ethical business practices and long-term sustainability. Moreover, the directive places a strong emphasis on stakeholder engagement, urging companies to consult with affected communities, workers, and other relevant parties. This inclusive approach ensures that the voices of those directly impacted by corporate activities are heard and addressed. By adhering to the CSDDD, companies will align with the EU's commitment to fostering responsible corporate behavior and contribute to the broader goal of sustainable development. After understanding the regulatory context and core requirements, companies can then conduct a baseline assessment, identify risks, and engage stakeholders. Developing a compliance strategy involves setting objectives, allocating resources, and creating an implementation roadmap. The article further details how to implement necessary measures, monitor progress, and ensure continuous improvement to meet CSDDD standards effectively. 2. Initial Preparation Steps Proper preparation is crucial for compliance. These initial steps help companies lay the groundwork for an effective due diligence process. Conducting a Baseline Assessment: Begin by evaluating your current practices. Identify existing policies, procedures, and any gaps related to the CSDDD. For instance, a manufacturing company should audit its sourcing practices to ensure alignment with environmental standards. This assessment will provide a clear picture of where improvements are needed. Risk Identification: Assess potential environmental, social, and governance (ESG) risks within your supply chain. For example, a textile company should check labor practices and environmental impacts at each stage of its supply chain. Understanding these risks allows for the development of targeted mitigation strategies. Stakeholder Mapping: Engage key stakeholders, including suppliers, customers, employees, and regulatory bodies. Early engagement provides valuable insights and fosters collaboration. For example, a food processing company can gain critical feedback on its sourcing practices from stakeholders, enhancing transparency and trust. By following these initial steps, companies can establish a robust foundation for their due diligence processes, ensuring compliance with the CSDDD and promoting sustainable and ethical business practices. 3. Developing a Compliance Strategy With a clear understanding of current practices and risks, the next step is to develop a comprehensive strategy for compliance. Setting Objectives and KPIs: Establish clear goals and key performance indicators (KPIs) for compliance. For example, aim to ensure that 100% of suppliers meet environmental standards within two years. KPIs might include the number of supplier audits conducted and the corrective actions taken. Resource Allocation: Determine the necessary budget, personnel, and resources for compliance. A large corporation might allocate funds for compliance software and extensive training programs, while smaller firms might focus on hiring dedicated sustainability experts to drive their compliance efforts. Implementation Roadmap: Create a detailed timeline for implementing the required measures. This roadmap should include key milestones, responsible parties, and deadlines. For instance, a retail company might set quarterly targets for auditing suppliers and implementing corrective actions, ensuring steady progress towards full compliance. By setting clear objectives, allocating appropriate resources, and establishing a structured implementation plan, companies can effectively navigate the path to compliance with the CSDDD, fostering sustainable and responsible business practices. 4. Implementing Necessary Measures Implementing your strategy involves integrating new processes and ensuring everyone in your organization understands their role. Establishing Due Diligence Processes: Develop and embed due diligence procedures into your operations. For example, a technology company might implement regular audits of its supply chain to ensure compliance with labor and environmental standards. These procedures should be thorough and consistently applied to maintain high standards across the board. Supply Chain Management: Integrate ESG criteria into your supplier selection and management processes. For instance, an electronics manufacturer might require all suppliers to adhere to stringent environmental and labor standards and provide regular compliance reports. This ensures that ESG considerations are embedded throughout the supply chain, promoting overall sustainability. Training and Awareness: Implement extensive training programs for employees and suppliers on CSDDD requirements. A logistics company, for example, could conduct workshops to educate staff and suppliers on identifying and mitigating ESG risks. Ensuring that everyone is informed and engaged is crucial for successful compliance. By establishing robust due diligence processes, incorporating ESG criteria into supply chain management, and promoting training and awareness, companies can effectively integrate their compliance strategies and foster a culture of sustainability and responsibility. 5. Monitoring and Reporting Ongoing monitoring and reporting ensure your company remains compliant and can address issues as they arise. Setting Up Monitoring Systems: Implement continuous monitoring systems to track compliance. For instance, a pharmaceutical company might use compliance management software to monitor supplier practices and ensure adherence to ESG standards. These systems enable real-time oversight and quick responses to any compliance issues. Conducting Internal Audits: Regularly review and audit your compliance processes. Internal audits help identify gaps and areas for improvement. For example, a construction firm might conduct annual audits of its suppliers to ensure they meet labor and environmental standards. This systematic review supports ongoing improvement and adherence to the CSDDD. Reporting Compliance: Prepare and submit compliance reports as required by the CSDDD. These reports should detail the steps taken to comply with the directive, risks identified, and mitigation actions implemented. A financial services firm, for instance, might submit an annual sustainability report outlining its due diligence efforts and compliance status. Clear and thorough reporting demonstrates accountability and transparency. By setting up robust monitoring systems, conducting regular internal audits, and diligently reporting compliance, companies can maintain adherence to the CSDDD and address any issues proactively. 6. Continuous Improvement Compliance with the CSDDD is not a one-time effort but an ongoing process that requires regular updates and enhancements. Establishing robust feedback mechanisms is important for continuous improvement. Companies should actively gather feedback from stakeholders, including suppliers, employees, and customers, to identify areas for improvement. Additionally, it's important to regularly review and update compliance strategies based on new insights and regulatory changes. This proactive approach ensures that the company remains compliant and can adapt to evolving standards, ultimately fostering long-term sustainability and operational efficiency. Conclusion Preparing for the CSDDD involves a comprehensive approach, from understanding the regulatory context to implementing robust due diligence processes and continuous improvement strategies. By following these steps, companies can ensure compliance, mitigate risks, and enhance their sustainability practices. Proactive preparation and adherence to best practices will position businesses for long-term success in the evolving regulatory landscape.

ESG

Status and Development of Carbon Pricing Worldwide in 2024

Carbon pricing is becoming an increasingly powerful tool in the fight against climate change. Assigning a cost to greenhouse gas emissions, incentivizes businesses and individuals to reduce their carbon footprint. Additionally, with the introduction of the European Union’s Carbon Border Adjustment Mechanism (CBAM), carbon pricing becomes even more relevant for companies. CBAM imposes a carbon price on imports into the EU, leveling the playing field between EU producers subject to the EU Emissions Trading System (ETS) and foreign producers. Notably, carbon prices paid in third countries by the producers will be deducted from the CBAM liability, influencing import costs for CBAM goods. This can also encouraging countries outside of the EU to adopt carbon pricing measures to collect the carbon taxes themself. Overview of Carbon Pricing Carbon pricing can take various forms, the most common being carbon taxes and emissions trading systems (ETS). Carbon Taxes: These directly set a price on carbon by defining a tax rate on greenhouse gas emissions or the carbon content of fossil fuels. For example, Sweden has one of the highest carbon taxes globally, reaching up to USD 137 per ton of CO2. Emissions Trading Systems (ETS): An ETS sets a cap on the total level of greenhouse gas emissions and allows industries with low emissions to sell their extra allowances to larger emitters. The EU ETS is one of the most prominent examples, where prices have exceeded USD 60 per ton of CO2, driving significant emission reductions. Currently, around 24% of global emissions are covered by these carbon pricing mechanisms, marking significant progress over the past decade. Global Trends in Carbon Pricing Over the past ten years, carbon pricing has grown substantially, expanding from covering just 7% of global emissions to nearly a quarter today. This growth reflects the increasing recognition of it as an effective tool for reducing emissions. In the past year, there have been key developments, including the introduction of new carbon pricing instruments in countries like Australia, Hungary, and Mexico, as well as significant reforms in existing systems. High and Low Carbon Prices The price of carbon varies significantly across different regions. The European Union's ETS, Switzerland, and Canada are among the regions with the highest carbon prices. In these areas, the carbon price has reached levels that provide strong incentives for reducing emissions. For instance, the EU ETS has seen prices well above USD 60 per ton of CO2, reflecting stringent policies and high ambition levels. On the other end of the spectrum, some regions have lower carbon prices. These include countries that are still in the early stages of implementing carbon pricing or those with less ambitious targets. For example, Indonesia and Ukraine have relatively lower carbon prices but are planning to increase them in the coming years to align with global targets and the Paris Agreement. Revenue from Carbon Pricing In 2023, global revenue from carbon pricing instruments exceeded USD 100 billion for the first time. This revenue is important for funding climate-related programs, supporting general budgets, and redistributing to households and businesses affected. The majority of this revenue comes from ETSs, primarily due to the large volume of emissions they cover and the relatively high price levels in systems like the EU ETS. Sectoral Coverage and Flexibility Carbon pricing is most commonly applied in the power and industrial sectors, but there is a growing trend of extending these mechanisms to other sectors, such as maritime transport and waste management. Additionally, governments are increasingly using multiple carbon pricing instruments in parallel to expand coverage and increase price levels. For example, some jurisdictions have both an ETS and a carbon tax, targeting different sectors or complementing each other to enhance overall effectiveness. This flexibility allows for more comprehensive and ambitious carbon pricing strategies, tailored to the specific economic and social contexts of different regions. The increasing use of carbon credits to offset liabilities also provides flexibility, enabling entities to meet their obligations in a cost-effective manner while supporting global emission reduction efforts. Challenges and Future Outlook Despite significant progress, there remains a substantial gap between commitments and actual implemented policies. Achieving the Paris Agreement's goals will require stronger political commitment and broader implementation of carbon pricing. This includes expanding coverage to new sectors and increasing carbon prices to levels that drive substantial emission reductions. The future of carbon pricing looks promising, with middle-income countries like Brazil, India, and Türkiye making notable progress towards implementing carbon pricing instruments. Additionally, sector-specific initiatives, such as those for international aviation and shipping, are gaining traction and contributing to the overall expansion of these climate-related financial mechanisms. Conclusion Carbon pricing has made significant progresses over the past decade, but more ambitious and comprehensive policies are needed to meet global climate targets. By understanding the current state and trends of carbon pricing worldwide, stakeholders can better support and advocate for policies that drive effective emission reductions. Staying informed and engaged in these developments is crucial for ensuring a sustainable and livable planet for future generations.

CBAM

The 5 Biggest Mistakes in CBAM Reporting and How to Avoid Them

The Carbon Border Adjustment Mechanism (CBAM) is a crucial part of the European Union's strategy to fight climate change and limit carbon leakage. Introduced under the European Green Deal, CBAM aims to level the playing field between EU producers and foreign competitors by imposing a carbon price on imports from countries with less stringent environmental regulations. This mechanism addresses the risk of carbon leakage, where businesses might relocate production to countries with laxer emission rules, thus undermining global climate efforts. The timeline for CBAM implementation is structured to allow businesses to adapt gradually. The mechanism entered its transitional phase on October 1, 2023, during which companies must report the embedded emissions of their imported goods without incurring financial liabilities. This period will last until December 31, 2025, after which CBAM will fully come into effect. From January 1, 2026, importers will be required to purchase CBAM certificates corresponding to the total embedded emissions of their imports. A significant shift will occur in July 2024, when companies must switch from using default emissions values to primary data, requiring more precise and accurate reporting. Non-compliance with CBAM regulations can result in severe sanctions. Companies failing to meet reporting obligations or accurately declare emissions could face fines of up to €50 per tonne of CO2e not reported or inaccurately reported, along with additional scrutiny and potential trade restrictions. Therefore, understanding and adhering to CBAM requirements is crucial for businesses engaged in international trade. In this article, we will explore the five most common mistakes in CBAM reporting and provide insights on how to avoid them. By understanding these difficulties and implementing best practices, businesses can ensure compliance, avoid sanctions, and contribute to global efforts to mitigate climate change. 1. Misunderstanding Reporting Scope and Obligations A frequent mistake in CBAM reporting is misinterpreting the scope and specific obligations. Many companies are unaware of the detailed requirements, such as which goods are covered, the exact data needed, and the responsibility for ensuring accurate submissions. This lack of understanding can lead to incomplete or incorrect reports, resulting in non-compliance and potential penalties. How to Avoid It: Conduct Comprehensive Training: Ensure all departments involved in CBAM reporting, including procurement, legal, tax, and sustainability understand their roles and responsibilities. Training sessions should cover the entire scope of CBAM obligations, and the specific data required for compliance. Consult CBAM Guidelines and Experts: Regularly review official CBAM guidelines provided by the EU, such as the official CBAM website, and seek advice from compliance experts. This helps clarify uncertainties and ensures your company is up-to-date with the latest requirements and best practices. 2. Errors in Emissions Calculation Calculating the correct embedded emissions for imported goods is a complex task. Mistakes often occur from using default values or incorrect emissions factors, especially when suppliers do not provide precise data. Moreover, starting from July 2024, companies must switch from using default emissions values to primary data, adding to the complexity of the reporting process. How to Avoid It: Use Accurate Methodologies: Follow the EU’s prescribed methodologies for calculating emissions. Ensure that all emissions data sources are reliable and up-to-date. Cross-check calculations to avoid discrepancies. On the Customs & Tax EU Learning Portal there are a lot of training videos on CBAM. You can find them here. Engage with Suppliers: Develop strong relationships with your suppliers and communicate the specific emissions data requirements for CBAM compliance. Provide them with guidance and tools to help them report accurate emissions data. Verify Emissions Data: Regularly audit the emissions data provided by suppliers to ensure accuracy. Use third-party verification services if necessary to validate the data and avoid potential compliance issues. For example, SupplyOn offers a “Plausibility” check for the emissions data supplier send in their tool. 3. Late Submission of Reports Many businesses fail to submit their CBAM reports on time, often due to poor planning or lack of awareness of reporting deadlines. In the transitional period CBAM reports must be submitted quarterly, no later than one month after the end of each quarter. After the transitional period the report must be submitted yearly. How to Avoid It: Set Internal Deadlines: Establish internal timelines for report preparation well in advance of the official deadlines. For example, if the CBAM report is due by January 31st, set an internal deadline for January 15th to ensure everything is in order. Maintain an Updated Calendar: Keep an updated calendar of all CBAM reporting deadlines and conduct periodic reviews to ensure readiness. Assign specific team members to monitor and manage these deadlines. Understand Late Submission Procedures: If a technical error prevents you from submitting on time, you can request a delayed submission via the CBAM Transitional Registry. After the request, you will have 30 days to submit your report. Additionally, the first two CBAM reports (due by January 31 and April 30) can be corrected until July 31, 2024. Here is an overview with the submission deadlines and possible modifications: A guide on how to request delayed submission can be found here. 4. Neglecting Indirect Emissions Focusing solely on direct emissions and overlooking indirect emissions from electricity or other inputs is a common oversight. This can result in incomplete reporting and non-compliance with CBAM regulations. How to Avoid It: Comprehensive Data Tracking: Ensure your data collection encompasses both direct and indirect emissions, including emissions from electricity consumed during the production process and other indirect sources. Apply Correct Emission Factors: Use the appropriate emission factors for indirect emissions as outlined in CBAM regulations. Verify these factors regularly to ensure they are up-to-date and accurate. Train Your Suppliers: Educate your suppliers on the importance of providing accurate data on both direct and indirect emissions. Provide them with guidelines and tools to help them comply with CBAM requirements. Engage Cross-Functional Teams: Involve various departments such as procurement, sustainability, and logistics in the emissions tracking process. This collaborative approach ensures that all relevant emissions data is captured and reported accurately. 5. Lack of Integration and Automation Relying on manual processes for data collection and integration instead of using automated systems increases workload, error rates, and inefficiencies in data management. Manual methods are not only time-consuming but also prone to inaccuracies, leading to inefficient reporting processes and potential compliance failures. How to Avoid It: Adopt Automated Systems: Implement automated systems for data capture and integration to reduce errors and improve efficiency. Automation streamlines the reporting process, minimizes manual work, and ensures accurate data capture. Integrate Data Management: Use integrated data management solutions that can seamlessly collect, store, and report CBAM-relevant data. This helps in maintaining consistent and accurate records. Regular System Audits: Conduct regular audits of your automated systems to ensure they are functioning correctly and capturing all necessary data accurately. By incorporating automated systems and ensuring seamless data integration, businesses can significantly reduce the risk of errors, improve efficiency, and facilitate easier compliance with CBAM requirements. SupplyOn's CBAM Reporting Manager is one such automated system that helps companies deal with complex CBAM requirements and addresses all five of the most common mistakes. Get in touch with us to get a first look at our software.

CBAM

CBAM Reporting: How to prepare with primary data requirements from July

The Carbon Border Adjustment Mechanism (CBAM) is a key element of the European Union's climate strategy. Its goal is to stop carbon leakage and make sure EU industries stay competitive. CBAM, which is based on Regulation (EU) 2023/956, levies a carbon price on imported goods that corresponds to the price applicable in the EU under the Emissions Trading Scheme (ETS) to ensure a “level playing field” for goods produced inside and outside the EU. To comply with regulations and assess financial impact, companies need accurate carbon reporting. It's essential for businesses to understand the difference between using default values and primary data for this reporting. Urgency to Collect Accurate Primary Data As the sole use of default values is only permitted until June 30, 2024, it is crucial for companies to start collecting accurate primary data now to ensure compliance for the July-September reporting period. The transition to primary data reporting is not only a regulatory requirement but also a strategic necessity to maintain competitive advantage and avoid potential financial and operational setbacks. Consequences of Failing to Collect Accurate Data: Regulatory Penalties: Non-compliance with CBAM reporting requirements can result in substantial fines and penalties. Reporting declarants may face penalties ranging between €10 and €50 per ton of unreported incorrect emissions. Higher penalties can be applied when more than two incomplete or incorrect reports have been submitted or the duration of the failure to report exceeds 6 months. Increased Costs: Inaccurate reporting due to reliance on default values can lead to overestimation of emissions. An overestimation in the full implementation period will require the purchase of more CBAM certificates than necessary, significantly increasing compliance costs. Reputational Damage: Failing to comply with CBAM regulations can harm a company’s reputation, affecting stakeholder trust and market positioning. Operational Disruptions: Last-minute efforts to gather primary data can cause significant operational disruptions, diverting resources from core business activities. Understanding CBAM Reporting CBAM aims to make sure EU-produced goods and imports are on an even playing field by equalizing carbon costs. This prevents companies from moving their production to countries with less stringent emissions regulations. Initially, CBAM targets the emission-intensive sectors iron and steel, cement, fertilizers, aluminum, hydrogen and electricity. The rollout started with a transitional period from October 2023 to the end of 2025 and then shifts to a definitive phase in January 2026. Accurate carbon reporting is crucial for both compliance and efficiency under CBAM. It impacts the purchasing of CBAM certificates, which in turn affects a company's financial liability and competitive position. Precise reporting helps avoid penalties and strengthens a company's sustainability credentials. Differences Between Default Values and Primary Data in CBAM Reporting Challenges with EU's Communication Template Many companies initially attempt to use the EU's communication template to collect primary data for CBAM reporting. While this template is intended to standardize data collection, it often leads to significant challenges and failures: Complex to Understand and Difficult to Use: The EU's template can be complex and not user-friendly, making it difficult for users to navigate and input data correctly. Lack of Indication of Data Plausibility: There is no plausibility check for the supplier-provided data and whether the emissions values are too high or too low, which can lead to inaccurate reporting. Unstructured Data Collection: The template does not facilitate structured data collection from all relevant installation sites, leading to fragmented and inconsistent data. Limited Bulk Operations: The template is not designed to send to multiple suppliers at once, nor does it easily allow for tracking of responses or sending reminders for corrections, which complicates the data collection process. Time-Consuming Manual Data Entry: The template requires extensive manual data entry, which can be time-consuming and prone to errors, increasing the risk of inaccurate data submission. SupplyOn's CBAM Reporting Manager SupplyOn's CBAM Reporting Manager is designed to overcome these challenges and simplify the standardized data collection process to support your journey to CBAM compliance, ensuring companies can efficiently transition from default values to primary data reporting with minimal effort. Key Features that You need for October Reporting: - Automated Data Collection: CBAM Reporting Manager automates the collection of emissions data across various stages of the supply chain including operators and installation sites, reducing manual efforts and ensuring data accuracy. - Collection of Mandatory Data Possibility: The software offers the option to collect and report only mandatory CBAM data to reduce the effort on both sides, importers and their suppliers. - Bulk Data Collection: With just few clicks you can now collect data from all relevant operators and their installation sites at once. - Plausibility Indicator: The software has plausibility database integrated to immediately check the collected supplier CBAM data where they are too high or too low. - One click CBAM Report: The reporting panel makes it incredibly easy to check and create quarterly “XML” CBAM report just with a single click which are ready to submit to EU Transitional Registry. What you should consider for July-September Reporting Period: Transitioning from default values to primary data for CBAM reporting presents significant challenges for companies, but it is necessary for accurate compliance and financial efficiency in long term. SupplyOn’s CBAM Reporting Manager provides a robust solution, simplifying the data collection process and supporting your reporting journey with minimal effort.

ESG

Achieving ESG Excellence: How SupplyOn Supports Supply Chain Sustainability

As the number of increasingly stringent ESG regulations from the EU continues to grow, companies are faced with the challenge of rethinking and adapting their business models, production processes, and strategies. Digital tools and platforms play a crucial role in helping businesses meet their ecological responsibilities while maintaining economic competitiveness. One such solution is the ESG Suite from SupplyOn. SupplyOn is a global provider of web-based Supply Chain Management (SCM) solutions, connecting over 140,000 companies worldwide. In response to current challenges, SupplyOn has extended its solution offering with multiple ESG software modules under ESG Suite. SupplyOn’s shareholders include Bosch, Continental, ZF and Schäffler. The ESG Suite: A Comprehensive Toolbox The ESG Suite from SupplyOn offers companies a robust set of tools to address these challenges. It enables centralized management of sustainability data and the integration of ESG-related processes across the entire value chain. This allows companies to meet the required ESG standards, create transparency in the supply chain, and achieve their corporate ESG goals. Designed for companies of all sizes, the ESG Suite ensures a compliant, transparent, and focused transition towards sustainability. Building on SupplyOn's existing network, the suite comprises three pillars: Human Rights Due Diligence (LkSG Risk Manager, CSDDD) and Carbon Management (CCF Calculator, CBAM Manager). Human Rights Due Diligence: LkSG Risk Manager The German Supply Chain Due Diligence Act (LkSG) aims to ensure that human rights and environmental standards are upheld in international supply chains. Implementing these requirements is complex, involving comprehensive risk analysis to identify specific requirements and the company's individual exposure. Risk mitigation measures must be developed and implemented, and their effectiveness must be monitored. The LkSG Risk Manager from SupplyOn addresses these challenges by providing a tool tailored to the LkSG requirements. It helps companies achieve the necessary transparency and documentation, supports risk identification both internally and throughout the supply chain, and enables monitoring and reporting in accordance to legal requirements. Key functionalities include supplier mapping, abstract risk analysis by country and product, concrete risk analysis for high-risk suppliers, implementation of preventative measures for prioritized high risks, remediation actions for identified risks, and the creation of BAFA reports within the tool. Carbon Management: CCF Calculator Understanding and managing a company's carbon footprint (CCF) is crucial for environmental impact assessment. The CCF includes both direct and indirect greenhouse gas emissions. Accurate calculation of the CCF helps organizations identify critical areas, set realistic reduction targets, and develop strategies to reduce their carbon footprint, in alignment with international standards like the Greenhouse Gas Protocol (GHG Protocol) and ISO 14064. SupplyOn’s CCF Calculator enables companies to calculate, manage, and report their greenhouse gas emissions according to recognized standards. This tool simplifies the detailed CO2 analysis process, allowing companies to quantify and assess both direct and indirect emissions across all operational areas. Automated reporting features facilitate compliance with disclosure requirements such as ESRS. The tool’s dashboard provide an overview of current and past carbon footprints and track progress toward achieving set targets. Collaborative functionalities support coherent and coordinated climate management efforts within the company. Carbon Border Adjustment Mechanism: CBAM Manager The Carbon Border Adjustment Mechanism (CBAM) is an EU regulation aimed at preventing carbon leakage by imposing a CO2 price on the import of certain emissions-intensive goods into the EU. Effective since October 1, 2023, CBAM initially mandates reporting obligations, with full implementation requiring companies to purchase CBAM certificates from 2026 onwards. The CBAM Manager from SupplyOn automates data collection and consolidation from suppliers and production sites outside the EU, tracks CO2 prices paid abroad, and calculates remaining emissions to be priced. For reporting, the CBAM Manager generates an XML document that can be directly uploaded to the CBAM transitional registry. SupplyOn's Holistic ESG Solution SupplyOn's ESG Suite provides a holistic solution covering all relevant ESG application areas, ensuring compliance with dynamic regulatory and economic requirements. Future developments will further expand the suite to include additional regulations like the EU Forced Labor Ban, making ESG criteria an essential part of supply chain management. SupplyOn offers webinarsand user training for its ESG tools, ensuring that both customers and their suppliers understand what data needs to be exchanged. Future plans include building extensive educational content and an ESG knowledge hub. By preventing greenwashing through user-friendly tools, comprehensive educational materials, and rigorous validation processes, SupplyOn ensures that its solutions support genuine sustainability efforts. The suite’s integrability with various corporate systems and its capacity to centralize ESG data aim to eliminate fragmentation and provide a single source of ESG data for compliance and transparency. Conclusion SupplyOn's ESG Suite is designed to help companies navigate the complex landscape of ESG compliance. By leveraging digital tools for human rights due diligence, carbon management, and sustainability reporting, businesses can enhance their sustainability efforts, ensure regulatory compliance, and achieve their ESG goals with confidence and clarity. But don't just take our word for it! Hear Dr. Thomas Schulte from Bosch, one of our esteemed customers speaking at the Automotive Decarbonization And Sustainability Summit about their journey towards sustainability with our solutions. Your browser does not support the video tag.

Lieferkettengesetz

How to streamline your LkSG & CSRD work with SupplyOn

Today many companies in Germany face increasing pressure to comply with multiple environmental, social, and governance (ESG) reporting standards. Among these, the German Supply Chain Due Diligence Act (LkSG) and the EU Corporate Sustainability Reporting Directive (CSRD) stand out for their comprehensive requirements. Companies subject to both laws can streamline their compliance efforts by adopting a unified approach to due diligence and reporting. Here’s how companies can prepare to meet the obligations of both LkSG and CSRD without duplicating work: 1. Human Rights Risk Assessment Both LkSG and CSRD require robust human rights risk assessments. For example, a manufacturing company can use our LkSG risk management software to identify and assess risks of child labor in its supply chain. By integrating this process with the CSRD’s requirements, the company can document the preventive measures taken and the positive outcomes achieved. 2. Environmental Risk Management Environmental due diligence is a critical component of both laws. For instance, a textile company might face risks related to water pollution from dyeing processes. Our software can help monitor these risks and implement corrective actions, which can then be reported under CSRD. 3. Preventive and Corrective Actions To avoid redundancy, companies should establish a unified process for implementing preventive and corrective actions. For example, a food processing company might discover forced labor in its supply chain. Using our software, they can implement corrective measures and track their effectiveness, fulfilling both LkSG and CSRD requirements. 4. Transparency and Public Reporting Transparency is a cornerstone of both LkSG and CSRD. A technology company can use our software to consolidate its due diligence activities into a single, comprehensive sustainability report. This report can include data on carbon emissions, labor practices, and corrective actions taken, ensuring compliance with both laws. 5. Training and Capacity Building Training is essential for effective compliance. For instance, a logistics company can provide training on human rights and environmental standards to its employees and suppliers and create a record on our software as evidence. This ensures you are appropriately providing necessary training, documenting including acceptance of your supplier code of conduct by the suppliers. 6. Integration into Business Processes Integrating ESG considerations into core business processes is vital for streamlined compliance. For example, an Automotive company can consider the outcome of the due diligence process in its procurement system such as sourcing, ensuring that human rights and environmental impacts are considered when selecting suppliers. 7. Reporting Effective reporting to regulators is required by both laws. The user of our ESG Suite can prepare their draft report using our software. This helps a company to standardize their ESG reporting practices in a centralized software solution. To discover more about our ESG Suite and LkSG Risk Management Software, contact us here.

ESG

Is supplier ESG rating sufficient for ESG compliance?

In today's corporate world, Environmental, Social, and Governance (ESG) compliance has become not just a benchmark for operational integrity but a cornerstone of modern business practices. As companies increasingly align themselves with the principles of sustainability and ethical governance, ESG compliance serves as a critical measure of their commitment to societal and environmental responsibilities. This alignment not only enhances their reputation but also drives long-term profitability by managing risks and identifying opportunities for innovation. Within the spectrum of ESG practices, supplier ESG ratings emerge as a pivotal tool, providing businesses with essential insights into their suppliers' adherence to ESG standards. These ratings evaluate suppliers on a variety of parameters, including environmental impact, social responsibility, and ethical governance, offering a snapshot of their ESG performance. By utilizing supplier ESG ratings, companies can ensure that their supply chains reflect their own ESG values and commitments, thus fostering a more sustainable and ethical business ecosystem. Understanding ESG Ratings and Compliance What are ESG Ratings? Environmental, Social, and Governance (ESG) ratings evaluate how well a company manages its responsibilities in these three areas. These ratings, provided by various rating agencies, consider factors such as a company's carbon footprint, labor practices, anti-corruption policies, and board diversity. By quantifying a company’s adherence to ESG principles, these ratings help investors and consumers make informed decisions. Significance of ESG Compliance ESG compliance involves aligning company operations with globally recognized ESG standards and practices. This alignment is critical for corporate sustainability, as it helps businesses mitigate risks, foster innovation, and enhance their market reputation. Compliance is not just about adhering to regulations; it's about integrating sustainable practices that lead to long-term benefits for the company and its stakeholders. The Limitations of Supplier ESG Ratings Scope and Depth of Assessment While ESG ratings provide valuable insights, they often miss nuances specific to industries or regions. For example, a supplier may have a high rating overall but still engage in poor water management practices in arid regions, posing risks that aren't immediately apparent from the rating alone. This limitation highlights the need for a deeper assessment to uncover and address such ESG risks and opportunities comprehensively. Standardization Issues Different ESG rating agencies use various criteria and weightings, leading to inconsistencies that can impact the reliability of these ratings. For instance, two agencies might score the same company differently based on their internal methodologies or the emphasis they place on certain ESG aspects. This lack of standardization can confuse stakeholders and complicate the comparison of ESG performance across companies. Beyond Ratings: The Need for Comprehensive Due Diligence Integrating ESG Into Business Decisions Effective ESG compliance requires integrating ESG considerations into all levels of business decision-making. This integration helps companies anticipate risks and opportunities, and align their strategic objectives with sustainable practices. For example, a company might decide to invest in renewable energy solutions not just to improve its ESG rating but to stabilize long-term energy costs and reduce environmental impact. Dynamic Monitoring and Continuous Improvement ESG factors are dynamic, influenced by evolving regulations, market conditions, and societal expectations. Continuous monitoring and updating of ESG assessments are essential to address these changes. A company might adjust its supply chain practices in response to new labor laws or environmental regulations, ensuring compliance and maintaining a strong ESG standing. Regulatory and Stakeholder Expectations In today's global marketplace, ESG-related regulations are becoming increasingly stringent and complex. To maintain compliance, companies must extend their efforts beyond simple supplier ESG ratings. Understanding and implementing comprehensive frameworks that address specific ESG aspects is crucial. For example, adhering to the EU's Green Deal or the SEC's guidelines on climate disclosures requires a deep integration of these frameworks into corporate strategy, going well beyond initial assessments. Moreover, stakeholders are demanding greater transparency and accountability in ESG practices. Companies can meet these demands by engaging with stakeholders through clear communication, regular ESG reports, and a responsive approach to feedback. Publishing detailed sustainability reports and hosting stakeholder forums are practical ways to enhance transparency and foster an ongoing dialogue around ESG performance. These efforts help build trust and reinforce a company’s commitment to upholding strong ESG principles. Implementing Effective ESG Practices Integrating comprehensive ESG practices into the business model is crucial. This integration involves training employees on ESG issues, updating internal policies to reflect the latest ESG standards, and engaging actively with all stakeholders. For example, a company could implement a rigorous training program on environmental efficiency for its operations team and establish a cross-departmental ESG committee to oversee its sustainability strategies. Conclusion Throughout this exploration, it has become evident that while supplier ESG ratings are invaluable for assessing the environmental, social, and governance practices of suppliers, they are not sufficient on their own to guarantee comprehensive ESG compliance. These ratings provide a useful starting point but often fall short of capturing the full scope of ESG risks and the dynamic nature of compliance needs. They offer a snapshot, yet lack the depth and breadth required to fully address the evolving challenges and opportunities within the wider context of corporate sustainability. For businesses genuinely committed to sustainability and ethical practices, adopting a holistic approach to ESG is imperative. This means not only utilizing supplier ESG ratings but also integrating ESG considerations deeply into all business decisions and operations. Companies need to engage in ongoing due diligence, regular updates to their ESG assessments, and active participation in regulatory and stakeholder dialogues. Only through such comprehensive measures can businesses ensure they meet the stringent demands of modern ESG compliance and contribute positively to a sustainable future.

Lieferkettengesetz

Deciphering Supply Chain Laws: LkSG vs CSDDD

On March 15, 2024, the European Council reached an agreement on the Corporate Sustainability Due Diligence Directive (CSDDD). The Belgian Presidency of the European Council circulated an adapted proposal for the CSDDD as a final attempt to reach an agreement among the Member States and with success: the required (qualified) majority was achieved within the European Council. The formal adoption of the CSDDD by the Members of the European Parliament is expected in April 2024. But how does this directive differ from the German Supply Chain Due Diligence Act (LkSG)? And how do they relate to each other? In this blog post, we will highlight the similarities and differences between the CSDDD and the LkSG. Exploring Similarities Between LkSG and CSDDD: Seeking Common Ground Both laws aim to hold companies accountable and oblige them to organize their supply chains responsibly. Both the Supply Chain Due Diligence Act (LkSG) and the Corporate Sustainability Due Diligence Directive (CSDDD) set out comprehensive due diligence obligations for human rights and environmental protection along the supply chain. This means that companies are obliged to identify and report on the potential negative impacts of their business activities and to take measures to minimize or prevent negative impacts. Both laws also provide for sanctions that companies face if they violate the stipulated regulations. This can include fines and exclusion from public contracts. Highlighting Contrasts: Key Differences Between LkSG and CSDDD The main difference between the German Supply Chain Due Diligence Act (LkSG) and the EU Corporate Sustainability Due Diligence Directive (CSDDD) lies in their scope of application and legal structure. The LkSG applies to companies of any legal form in Germany and is staggered according to company size, whereby it has applied to companies with more than 3,000 employees since 2023 and to companies with more than 1,000 employees since January 2024. In contrast, the CSDDD applies gradually to corporations in the EU and to non-EU companies that exceed a specified number of employees and a turnover threshold in the EU single market. Large companies with more than 5,000 employees and a minimum turnover of 1.5 billion euros are obliged to comply with the directive three years after its enactment, likely in 2027. Companies with more than 3,000 employees and a minimum turnover of 900 million euros have four years (potentially until 2028), and companies with more than 1,000 employees and a minimum turnover of 450 million euros have five years (potentially until 2029 2029) until they are subject to the law. Another difference involves the specific requirements and concerns covered by the laws. While the LkSG focuses primarily on human rights and direct environmental risks, the CSDDD expands its scope to include additional environmental concerns such as climate targets, the protection of flora and fauna and the minimization of environmental impacts along the “chain of activity”. The "chain of activity" includes all upstream activities that are related to the production of goods, the company’s own operations and downstream activities for distribution, transport and storage for direct business relationships. Usage and disposal of the product are not in scope. Furthermore, there are distinctions regarding liability within the two laws. While the LkSG does not provide for civil liability, the CSDDD does, but only within its own sphere of influence and in accordance with the provisions of the German Civil Code (BGB). There are also differences in the sanctions: While the LkSG provides for fines of up to 2% of annual turnover and exclusion from public sector contracts, the CSDDD provides for fines of up to 5% of annual turnover, in addition to publication of the infringement and a ban on the marketing or export of products and services. Wrapping Up: Key Takeaways from the Comparison of LkSG and CSDDD In conclusion, the comparison between the German Lieferkettensorgfaltspflichtengesetz and the EU Corporate Sustainability Due Diligence Directive reveals significant similarities and differences. While both aim to hold companies accountable for their supply chains, the LkSG applies to German companies based on employee count, whereas the CSDDD applies to specific company forms across the EU, based on employee count and turnover. Additionally, the CSDDD extends its scope to address a broader range of human and environmental concerns along the upstream and partially downstream supply chain. Understanding these distinctions is crucial for businesses navigating compliance and sustainability efforts in the evolving regulatory landscape.

CBAM

How to collect better CBAM data from suppliers

Creating effective strategies for collecting better data from suppliers for CBAM (Carbon Border Adjustment Mechanism) reporting is crucial for companies to ensure compliance and facilitate smooth operations under the new EU regulation. This article outlines practical steps and methodologies that can be integrated into your data collection processes for enhanced efficiency and accuracy. Understanding the Challenges The first step in improving data collection from suppliers is to recognize the challenges both you and your suppliers might face. These can range from a lack of understanding of CBAM requirements to technical challenges in data collection and reporting. Identifying these challenges early on helps in tailoring your approach to supplier engagement and data collection. Educating Your Suppliers Education is key to overcoming initial hurdles. A well-informed supplier is more likely to provide accurate and timely data. Consider organizing training sessions, webinars, or creating informational content that breaks down CBAM requirements and explains the importance of accurate data reporting. Highlight how this not only ensures compliance but can also benefit the supplier through insights into their own carbon footprint and areas for improvement. Streamlining Communication Establish a clear, open line of communication with your suppliers specifically for CBAM-related inquiries. Designate points of contact within your organization who can address questions and provide support. This helps in minimizing confusion and delays in data submission. Utilizing Digital Platforms as Standardized Approach Digital platforms like SupplyOn’s CBAM software play a crucial role in simplifying the data collection process. SupplyOn’s CBAM software offers features such as: Automated Data Collection: Automate the collection of relevant data directly from suppliers, reducing manual entry errors and saving time. Centralized Data Management: Store and manage all supplier data in a single, secure location, making it easier to review, analyze, and report. Data Plausibility Check: Implement checks to validate the accuracy of the data received and highlight discrepancies or missing information for follow-up. One click report: Once the data is collected, directly download the ready to go report in XML format to submit quarterly. Continuous Improvement and Feedback Finally, establish a process for continuous improvement. Use feedback from suppliers and insights from data analysis to refine your data collection processes over time. Regularly update your strategies to address new challenges and leverage advancements in technology and best practices. Conclusion Improving data collection from suppliers for CBAM reporting is a multifaceted process that requires education, communication, and the right technological tools. By implementing standardized practices, leveraging digital platforms like SupplyOn CBAM software, and fostering a collaborative environment, companies can enhance the accuracy and efficiency of their CBAM data collection efforts, ensuring compliance and fostering sustainability within their supply chains.

ESG

Why you should consider holistic ESG management

Focusing solely on specific ESG use cases, such as data collection strategies for individual sustainability metrics, rather than adopting a holistic approach to ESG management, significantly risks the effectiveness of meeting broader ESG goals. This fragmented strategy can lead to various pitfalls that not only undermine the effectiveness of sustainability initiatives but also jeopardize the organization's reputation and compliance posture. Here’s a detailed look at why an isolated approach to data collection and ESG goal setting is destined for challenges. 1. Incoherent Data Collection Leads to Gaps in Sustainability Reporting Organizations that approach ESG data collection piecemeal, without a comprehensive strategy, risk collecting inconsistent or incomplete data. This inconsistency can result in significant gaps in sustainability reporting, where key performance indicators (KPIs) are either inaccurately reported or altogether missed. The disjointed data undermine the reliability of sustainability reports, reducing their value to stakeholders and potentially leading to stakeholder mistrust. In addition, synergy effects cannot be exploited 2. Misalignment of Sustainability Goals and Business Objectives An ESG strategy that is not holistic in nature often leads to a unfavorable trade-off between sustainability goals and broader business objectives. For instance, a company might focus on reducing carbon emissions in its operations (a commendable goal) but neglect broader environmental concerns such as waste reduction or water conservation in its supply chain. This narrow focus can result in missed opportunities for comprehensive environmental stewardship and can impede the company's ability to respond to evolving regulatory requirements or stakeholder expectations. 3. Regulatory Compliance Risks The regulatory landscape for ESG is becoming increasingly complex and stringent globally. An isolated approach to ESG management, particularly in data collection and goal setting, poses significant compliance risks. For example, focusing exclusively on the Carbon Border Adjustment Mechanism (CBAM) without integrating the Lieferkettensorgfaltspflichtengesetz (LkSG) or Corporate Sustainability Reporting Directive (CSRD) into the strategy might lead to non-compliance with these equally important regulations. Non-compliance can result in hefty fines, legal challenges, and reputational damage. 4. Difficulty in Stakeholder Engagement Stakeholders, including investors, customers, and employees, are increasingly demanding comprehensive and transparent ESG practices. A fragmented ESG strategy makes it challenging to effectively engage with these stakeholders, who expect coherent and all-encompassing sustainability initiatives. Failure to meet stakeholder expectations can lead to a loss of trust, affecting customer loyalty, investor confidence, and employee satisfaction. 5. Hindered Long-term Sustainability and Innovation A piecemeal approach to ESG data collection and goal setting limits an organization's ability to innovate and implement long-term sustainability solutions. Without a comprehensive understanding of ESG impacts and opportunities, companies might miss out on innovative technologies or practices that could drive significant improvements in sustainability performance across the board. Conclusion An isolated approach to ESG management, particularly in data collection and goal setting, is fraught with risks that can undermine an organization's sustainability efforts, regulatory compliance, and stakeholder engagement. As the business world increasingly recognizes the importance of holistic and integrated ESG strategies, companies that fail to adapt risk falling behind. Adopting a comprehensive ESG management framework is not just a matter of regulatory necessity but a strategic imperative that can drive long-term sustainability, innovation, and competitive advantage. Explore SupplyOn’s holistic ESG management software by talking to our ESG experts today.

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