Rethinking ESG, climate and supply chain reporting: A guide to sustainability governance

As global regulations around human rights and environmental protections tighten, multinational companies are increasingly required to reassess their Environmental, Social, and Governance (ESG) practices, climate reporting and supply chain transparency.

Navigating this intricate landscape necessitates a multifaceted approach to compliance, with an eye toward consistent policies, meticulous monitoring and proactive governance. Here, we aim to shed light on the evolving regulatory requirements and offer strategic insights for enterprises to align their operations with global sustainability mandates.

Ethical supply chains and human rights

Jurisdictions around the world have been increasing corporations’ responsibility for the actions of their entire supply chain — including third parties far up the supply chain — to address human rights, child labor, sustainable practices and modern slavery. Some recent examples are:

Canada’s Forced Labour Act

The German Supply Chain Act

The EU’s CSDDD

Updates to enforcement of longstanding US anti-bribery, anti-corruption rules

• Uyghur Forced Labor Protection Act

And these laws are just the tip of the iceberg, signifying a global trend toward rigorous oversight.

The imperative of enhanced due diligence

Global companies face significant obligations that require consistent policies and monitoring, which may require in-depth, on-the-ground analysis of partners or significant suppliers to meet the standards required by these regulations.

Third-party risk — and the amount of investment needed to comply — varies depending on industry and the structure of the supply chains. But the need for a multi-pronged approach to ethical supply chain compliance remains. That means organizations must put an increased focus on traditional, ongoing screening that monitors for corruption, money laundering and adverse media, as well as new data approaches to receive and monitor environmental degradation and proactive human rights investigations.

Identifying strategic and material topics through sustainability reports

For global companies, determining which sustainability topics are strategic and material to their business is the initial challenge. This requires meticulous oversight and alignment with the regulatory landscapes of various jurisdictions.

Companies may have to navigate the double materiality approach mandated by the EU’s Corporate Sustainability Reporting Directive (CSRD) while simultaneously complying with single materiality reporting in regions adhering to International Financial Reporting Standards (IFRS) and the International Sustainability Standards Board (ISSB).

Ensuring accuracy and auditability with proper governance

Proper governance is paramount, especially given the decentralized nature of data across multinational entities. Different sustainability reporting requirements apply at varying levels — subsidiary, country or group consolidation levels — particularly in areas like carbon accounting and greenhouse gas emissions reporting.

However, the need for precise data alignment extends beyond environmental metrics to include HR, compensation, health and safety and IT incidents. Consequently, aligning sustainability data to legal entity structures is crucial to ensure the same level of accuracy and auditability as financial data.

5 best practices for holistic sustainability governance

Piecemeal approaches to overlapping human rights and sustainability regulations are no longer viable. A holistic management strategy encompassing ethical third-party practices and sustainability compliance throughout the value chain is essential. Here’s how global companies can tackle these challenges from an enterprise perspective:

1. Establish clear governance policies: Empower teams to own the sustainability strategy and adjust their supply chains to meet these goals.
2. Provide global visibility and demand adherence: Ensure compliance and sustainability teams have a global view of regulations and can prove adherence to both the spirit and the letter of relevant laws.
3. Communicate policies: Clearly communicate policies to the broader business environment, both on regular cycles and when policies change.
4. Provide coordinated training: Implement coordinated ethics and sustainability training for all relevant stakeholders, both internal and external.
5. Request legal involvement: Engage legal teams in compliance planning and ensure their approval at each level of external reporting.

Streamlining compliance with Diligent

Adhering to diverse and stringent human rights and sustainability regulations necessitates a strategic, comprehensive approach to governance and reporting. By establishing clear governance policies, ensuring global regulatory visibility, communicating effectively, providing coordinated training and involving legal teams in compliance planning, multinational enterprises can navigate these complexities.

A holistic approach to ESG, climate and supply chain reporting will enable companies to meet regulatory demands and foster sustainable, ethical business practices. Fortunately, Diligent can help. Speak with one of our experts today to learn how Diligent can streamline your compliance and ethics initiatives.