Supply chain risk management is an increasingly important issue in its own right. The pressure exerted on supply chains in recent years showed no signs of letting up in 2023. Alex Minett, Head of Global New Markets at Veriforce CHAS, looks at seven issues likely to feature highly in the next 12 months and suggests how businesses can respond.
UK Building Safety Act 2022 secondary legislation
Building safety is once again headline news in the UK, with 2023 standing out as the year of the RAAC crisis. However, 2023 also saw the long-awaited introduction of legislation under the Building Safety Act 2022, including The Building Regulations etc. (Amendment) (England) Regulations 2023, which came into effect on 01 October 2023. While largely focused on higher-risk buildings (HRBs), the legislation includes criteria that anyone undertaking projects subject to building regulations, needs to understand. Firms operating in the construction sector should pay special attention to the dutyholder regime, which comes with a host of new responsibilities. It’s also worth noting the role of the Building Safety Regulator, which is now the only body with the power to grant approval to the construction and occupation of higher-risk buildings. In addition, look out for statements from the new National Construction Products Regulator, which is already taking enforcement action against defective construction products. Find out more.
Progress of international ESG laws
Sustainability reporting requirements look set to become increasingly stringent throughout 2024 and beyond. New EU directives such as the Corporate Sustainability Reporting Directive and Corporate Sustainability Due Diligence Directive are expected to apply to businesses large and small over the next few years with Germany having already introduced the German Supply Chain Due Diligence Act in early 2023 in anticipation of the new rules. The EU’s Regulation on deforestation-free products also came into force in June 2023 to ensure key’ high risk’ goods exported or placed on EU markets are deforestation-free. Elsewhere, the USA is tightening regulations on ESG disclosure, with the US Securities and Exchange Commission establishing a climate and ESG task force to target ESG-related misconduct. Engaging with internal and external stakeholders, industry peers, and regulatory bodies can help businesses stay up to date on developing ESG standards and legislation and ensure they are aware of when new rules affect their operations.
Ongoing impact of climate change
Acute weather events such as flooding or the wildfires that spread across Europe in the summer of 2023 can have an impact on supply chains. While companies can play their part by staying compliant with environmental objectives to tackle the long-term impact of climate change, weathering the storm of unpredictable climate events requires a more proactive approach. As standard, businesses should prepare for increasing climate-related risks by practicing supply chain mapping and putting contingency plans in place, such as dual sourcing. Supporting local or domestic suppliers can lessen the impact of weather-related disruption with the added benefit of contributing to overall environmental and sustainability goals. Businesses should also consider the risks of changes such as increased temperatures pose to employees, especially in industries with outdoor work.
New guidance in the UK and abroad has brought greenwashing sharply into focus. Greenwashing describes misinformation given to consumers about an organisation’s environmental and sustainability claims. In the UK, the Financial Conduct Authority (FCA) has put forward a package of new measures to build transparency and trust. Meanwhile, the EU has set new minimum standards for how companies substantiate, communicate and verify their environmental claims under the Green Claims Directive. In the US, the Federal Trade Commission (FTC) is tackling big business greenwashing with an update to its “Green Guides“, offering clarification on when deceptive marketing around sustainability violates federal law.
Businesses should focus on being transparent both within their own operations and their supply chains and be ready to evidence a genuine commitment to sustainability.
Scrutiny on Scope 3 emissions
Accurately measuring Scope 3 emissions, which refers to indirect emissions throughout a company’s value chain, is a serious challenge but its importance is continuing to grow. Already, under Public Procurement Notice 06/21, companies bidding for public procurement contracts worth over £5 million must measure their Scope 3 carbon emissions annually and show that they have a Carbon Reduction Plan in place to meet 2050 Net Zero goals. Starting in 2025, European companies, as well as those with European operations based elsewhere, will have an obligation to disclose Scope 3 emissions.
Transparent supply chains are key to collecting the correct and most accurate data; stay proactive and establish reporting expectations with suppliers up front.
Spotlight on social value
Opportunities to embed social value are becoming more widespread as stakeholders focus on quality and sustainability instead of cost alone. One of the recurring issues around social value is that it has been difficult to define. However, new frameworks aimed at standardising social value processes are being introduced. Not only will they offer consistent methods of reporting social value, but they will also outline best practice guidance. By adopting the use of proxy values against social value key performance indicators, there will also be more clarity on how social value is measured.
Increasing focus on third-party verification
Third-party verification helps businesses navigating a progressively complicated risk management landscape. Stakeholders are increasingly turning to it for assurance when considering new partnerships. Many industries and governments now demand third-party verification to achieve compliance with specific standards and legislation.
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