There’s no denying that ethics and sustainability in business are now non-negotiables.  

Any business wishing to ensure its longevity must be addressing these two critical areas. 

Governments have introduced sustainability legislation to help promote ethical practices, so we can live in a more sustainable global society.  

Today, we will explore four pieces of legislation that are shaping the way companies operate:  

  • The Supply Chain Due Diligence Act (SCDDA) 
  • The Corporate Sustainability Due Diligence Directive (CSDDD) 
  • The Uyghur Forced Labor Prevention Act (UFLPA) 
  • The EU Corporate Sustainability Reporting Directive (CSRD) 

This article will discuss: 

  • The standards of each legislation 
  • Which companies will be impacted  
  • Requirements of compliance 
  • Penalties for noncompliance 
  • Benefits of compliance

What is sustainability legislation? 

Sustainability legislation is a set of regulations and policies put in place by governments and governing bodies such as the UN to enforce sustainable practices in various sectors of society.  

These laws aim to address environmental sustainability concerns to ensure a more balanced and environmentally friendly future. 

Supply Chain Due Diligence Act (SCDDA)  

What are the SCDDA standards? 

The SCCDA is an ethical and environmental legislation that works as a push for companies and businesses to have sustainable and ethical supply chain practices.  

Below are its core standards for companies to adhere to: 

  • Transparency: Companies are required to provide transparent information about their supply chains. 
  • Due Diligence: Firms must conduct thorough due diligence to assess risks related to unethical practices within their supply chains.  
  • Risk Assessment: The SCDDA mandates a systematic assessment of supply chain risks. 
  • Human Rights: Companies are required to ensure that their supply chains are free from human rights violations such as modern slavery and human trafficking. 
  • Environmental Impact: SCDDA standards may include requirements for companies to minimise their environmental footprint such as reducing their carbon footprint and scope 3 emissions.   
  • Reporting: Companies are often required to report on their due diligence efforts and the steps taken to address identified risks.  
  • Auditing and Verification: Independent audits and third-party verification processes may be part of the standards.  
  • Supplier Engagement: Companies are encouraged to engage with their suppliers to promote ethical and sustainable practices. 
  • Continuous Improvement: The SCDDA promotes a culture of continuous improvement. 

Companies must ensure they align with the above standards to comply with the SCDDA. 

Which companies are impacted by SCDDA? 

The SCDDA mainly impacts multinational corporations and large companies that operate complex supply chains. Any business that imports or sources goods and materials internationally should take note.  

In Phase 1 starting January 2023, the legislation applies to: 

  • Companies operating in Germany that have more than 3,000 employees. 
  • German branches of foreign companies with over 3,000 employees. 
  • Employee count includes personnel working abroad for German companies. 
  • Act defines employees as “any worker with an employment contract lasting longer than six months.” 
  • Approximately 600 companies will be subject to this criterion in the initial phase. 

In Phase 2 starting January 2024, the legislation applies to: 

  • Companies based in Germany with more than 1,000 employees. 
  • German branches of foreign companies with over 1,000 employees. 
  • After this expansion, around 2,900 companies will fall under the Act’s requirements. 

Small and medium-sized enterprises may also feel the indirect impact as they become part of larger supply chains. Suppliers may also be impacted as they must adhere to their clients’ ethical standards.  

Penalties for noncompliance to the SCDDA 

Non-compliance with SCDDA can result in significant fines, damage to a company’s reputation, and legal consequences. Moreover, it may lead to exclusion from lucrative markets or business partnerships. 

Benefits of SCDDA 

The SCDDA has many benefits, as it encourages: 

  • Ethical business practices 
  • Sustainable supply chains  
  • Reputation enhancement 
  • Ethical purchasing practices 
  • Global sustainability 

Corporate Sustainability Due Diligence Directive (CSDDD) 

What are the CSDDD standards? 

The Corporate Sustainability Due Diligence Directive (CSDDD) sets specific standards and requirements for companies to ensure sustainability and responsible business practices.  

Here are some common elements and standards associated with the CSDDD: 

  • Sustainability integration into corporate practices 
  • Sustainability risk assessment 
  • Detailed sustainability reporting 
  • Ensure suppliers adhere to ethical and environmental standards. 
  • Protection of human rights throughout a company’s operations and supply chain. 
  • Reduce environmental footprint through sustainable practices. 
  • Companies to provide non-financial disclosures related to ESG factors. 
  • Companies may set specific sustainability targets and demonstrate progression.

Businesses must ensure they align with the above standards to comply with the CSDDD. 

What Companies Are Impacted by CSDDD? 

CSDDD targets a broad spectrum of companies, such as those operating within the European Union. It applies to large corporations, SMEs, and even non-EU companies that do business within the EU market. This is in a bid to push for global sustainability.  

Penalties for noncompliance to the CSDDD 

Companies who fail to comply with the CSDDD standards may face fines, legal consequences and reputational damage amongst industry peers and consumers. They may also find it difficult to be trusted by stakeholders and investors.  

Benefits of CSDDD 

Companies that comply with the CSDDD will experience the following benefits: 

  • Ethical business practices 
  • Increased consumer trust 
  • Sustainable supply chains.  
  • Reputation enhancement 
  • Global sustainability 

Uyghur Forced Labor Prevention Act (UFLPA) 

The Uyghur Forced Labor Prevention Act (UFLPA) sets specific standards and requirements aimed at preventing forced labour and human rights abuses, particularly in supply chains connected to the Xinjiang region in China, including: 

  • Forced labour prohibition: The UFLPA prohibits the use of forced labour within supply chains especially in areas like Xinjiang. 
  • Supply chain traceability: Companies must trace the origins of materials and products to ensure they are not linked to forced labour human rights abuses. 
  • Supplier audits: The legislation requires companies to conduct audits of their suppliers. 
  • Transparency: Firms must provide transparent information about their supply chains. 
  • Due diligence: Robust due diligence processes are mandated to identify the risk of forced labour within supply chains. 
  • Import restrictions: Restriction of goods produced with forced labour, especially those originating from Xinjiang. 
  • Government reporting: Companies may be required to report to government authorities on their efforts. 
  • Supplier engagement: The legislation encourages companies to engage with suppliers to promote ethical and responsible labour practices. 

Companies must ensure they align with the above standards to comply with the UFLPA. 

Which companies are impacted by UFLPA? 

UFLPA primarily targets companies with supply chain connections to the Xinjiang region in China, where concerns about forced labour violations have arisen. 

Penalties for noncompliance to UFLPA 

Failure to comply with UFLPA can result in legal actions, including import bans, against companies linked to forced labour in Xinjiang. Additionally, companies risk significant reputational harm which can impact their revenue.  

Benefits of UFLPA 

Companies who comply with the UFLPA standards will experience the following benefits: 

  • Ensures products and services are sourced without forced labour. 
  • Mitigates legal risks, including import restrictions and associated penalties. 
  • Demonstrates a company’s commitment to human rights which improves reputation. 
  • Provides transparency in supply chains, reassuring consumers and investors. 
  • Reduces the risk of being linked to forced labour practices in Xinjiang. 
  • Attracts consumers who value ethical and responsible sourcing. 
  • Provides a competitive edge in an ethical and socially conscious market. 

EU Corporate Sustainability Reporting Directive (CSRD) 

What are the CSRD standards? 

The Corporate Sustainability Reporting Directive (CSRD) is a proposed EU regulation that aims to establish standards for sustainability reporting by companies operating in the European Union. Here are a few of its standards that businesses must comply with: 

  • Expanded scope: The CSRD expands the scope of reporting requirements, applying them to a wider range of companies, including large and listed SMEs. 
  • Comprehensive sustainability reporting: Companies must provide comprehensive sustainability reports covering sustainability in their operations. 
  • Materiality assessment: The directive often requires companies to conduct a materiality assessment to identify and report on ESG
  • Alignment with non-financial reporting standards: Companies are encouraged to align their sustainability reporting with recognised non-financial reporting standards 
  • Board oversight: Boards of directors are expected to have oversight and responsibility for sustainability reporting. 
  • Sustainability targets: Companies may be encouraged to set specific sustainability targets and disclose their progress towards achieving them. 
  • External assurance: The CSRD may require companies to obtain external assurance or verification of their sustainability reports to enhance credibility. 
  • Stakeholder engagement: Firms should engage with stakeholders, to gather input and address concerns related to sustainability. 
  • Non-discrimination: The directive may emphasise non-discrimination and equal opportunities as essential aspects of sustainability reporting. 
  • Environmental impact: Reporting should encompass the environmental impact of operations. 
  • Social responsibility: Companies should disclose social responsibility measures, such as labour practices, diversity and inclusion efforts. 

Companies must ensure they align with the above standards to comply with the CSRD. 

Which companies are impacted by CSRD? 

CSRD legislation applies to a wide range of companies operating within the EU, with a focus on large and publicly listed firms. 

Penalties for noncompliance 

Failure to meet CSRD requirements can result in financial penalties and reputational damage. Non-compliant companies may also face legal consequences. 

Benefits of CSRD 

Companies who comply with the CSRD standards will experience the following benefits: 

  • CSRD compliance leads to increased transparency. 
  • Comprehensive sustainability reporting provides valuable data for informed decision-making. 
  • Transparent sustainability reporting attracts socially responsible investors. 
  • Reporting fosters better engagement with stakeholders. 
  • Identifying and addressing ESG risks in reporting helps companies mitigate potential risks. 
  • Compliance with CSRD can facilitate market access within the EU, as it aligns with the region’s sustainability goals and regulations. 
  • Reporting encourages companies to adopt and implement sustainable business practices. 
  • Companies with strong sustainability records gain a competitive edge in the global market. 
  • Enhanced reputation.  
  • Transparent and consistent reporting builds trust with stakeholders. 

Do you need help ensuring compliance with regulations? 

Authenticate has the supply chain management tools you need to ensure ethical practices across all your supply chains. Contact us and discover how we can help with sustainability and environmental management across your supply chains.  

For more information on the Authenticate platform or to discuss your challenges and requirements, get in touch with the team.