Achilles carries out an average of 6,500 audits per year in over 60 countries, including countries considered high-risk. By analysing the results obtained in audits conducted over the past year on suppliers deemed strategic by member purchasing companies of Achilles, we can assess the progress and importance that companies place on ESG criteria.
Increasingly, legislation requires companies to implement effective processes to prevent and mitigate negative impacts on human rights, the environment, and climate. Additionally, customers and stakeholders also want to work with companies committed to sustainability. Taking the above into account, the results reveal significant challenges that companies could face, especially with the implementation of the Directive on Corporate Sustainability Due Diligence in the European Union.
The first alarming finding is that 21.4% of companies still lack a code of conduct that includes ESG and contractual clauses. These codes are essential for promoting ethical and sustainable practices and are often the first step in the journey of measuring and improving ESG criteria.
Another concerning finding is that only 46.4% of companies have established a formal process to identify sustainability risks in their supply chain. This percentage varies, with 56.5% for companies with more than 250 employees and 39.4% for companies with fewer than 250 employees. Conducting an ESG assessment allows you to have the necessary data to make strategic purchasing decisions and establish improvement plans where necessary.
With regards to the inclusion of ESG criteria for supplier selection, 78.3% of companies with more than 250 employees have already adopted these criteria, compared to 54.5% in companies with fewer than 250 employees.
How many companies go one step further and conduct ESG audits on their supply chain? Less than 40% of companies carry them out, a data point that indicates a lack of comprehensive oversight in the supply chain.
Finally, very few companies have decided to extend ESG principles to Tier 2. Only 30.4% of companies are taking steps to ensure this integration. Organizations with fewer than 250 employees, at 24.2%, show even lower implementation compared to larger organizations, at 39.1%.
With the Sustainability Due Diligence Directive on the horizon, and considering the growing needs from customers and stakeholders for sustainability implementation in the business sphere, these data highlight the urgency to improve and strengthen ESG practices in supply chains.
Once the Directive is implemented by the member states of the European Union, many of these measures will no longer be optional. The purchasing and/or supply chain departments of affected companies will have to adopt the following measures:
- Risk Assessment: Companies will need to conduct a comprehensive risk assessment in their supply chains to identify potential adverse impacts.
- Establishment of Policies and Practices: Procurement departments will need to develop policies and practices that promote the prevention and mitigation of the identified adverse impacts.
- Monitoring and Tracking: The Directive will require the implementation of a monitoring and tracking system to assess the effectiveness of due diligence procedures.
- Reporting and Transparency: Companies will be required to publicly disclose their efforts, thereby increasing the transparency and accountability of their value chains.
You can find more information about the CSDDD and its requirements in our guide.
Achilles supports companies worldwide in assessing and enhancing ESG criteria in value chains. For more information about our supply chain due diligence solutions aligned with the Directive, request a meeting with our team of experts.