Asian consumer goods suppliers need to start improving their environment, social and governance (ESG) assessment and disclosures to stay competitive, according to an industry body.
Forthcoming regulations in the European Union, which is at the forefront of ESG legislation, will soon require tens of thousands of suppliers across the supply chain in Asia to report their ESG performance, said Amfori president Linda Kromjong.
Germany, the UK, Australia and Norway already have rules in place focusing on specific environmental and social aspects, and coming EU regulations will bring these all together, Kromjong said.
“Ultimately, if some suppliers fail to show that they are fulfilling those expectations, at some point, companies sourcing from them will tell them that they are a risk to their reputation and therefore not eligible for the business relationships,” she added.
The Corporate Sustainability Reporting Directive (CSRD), due to be rolled out next year, will require companies to disclose how sustainability issues, such as climate change, impact their business and how their operations in turn affect people and the planet.
50,000 companies, including all large companies and listed small and medium-sized firms, will have to make such disclosures, up from 11,700 large companies and public entities with more than 500 employees mandated under existing legislation. Auditing of the disclosures will be mandatory.
These companies will then need their global suppliers to disclose their sustainability data, such as greenhouse-gas emissions so that they can calculate their own environmental footprints and social risk exposure.
In addition, the EU Corporate Sustainability Due Diligence Directive, still in the legislative process, is also expected to require sustainability reporting in or around 2025.
The European Parliament’s environment committee recently backed tougher legislation that will force firms with over 250 staff and annual worldwide turnover of more than €40 million, to check and report whether their suppliers within and outside Europe use slave or child labour, or pollute the environment.
The proposed law affects around 12,800 large EU firms and some 4,000 non-EU firms selling to the EU. Previously voluntary sustainability reporting standards are now becoming mandatory and being enforced into law in different parts of the world.
Amfori has 2,400 members from 46 nations with combined annual sales of €1.6 trillion, of which almost 90% are headquartered in Europe. The bulk of its supplier members are based in Asia.
Improvement, rather than perfection, is the focus, Kromjong said. “As long as you can prove that you have governance, processes and transparency in place … that you are focusing on continuous improvement, and are [making] your best effort to understand your risks and issues to do better on, then you will fulfil this requirement,” she said. “It is not about being perfect.”
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