We are in a period of rapid change for supply chain management, brought about by a powerful combination of investor focus on ESG factors, rising consumer demands for sustainable products backed by increasing scepticism of ‘greenwash’, and an upwards trend in Government regulation. With a heightened awareness of climate risks, modern slavery and other ESG related issues, the government, customers and other stakeholders have a growing expectation for all businesses, including SMEs, to adopt a responsible approach by assessing their business practices thoroughly and proactively addressing the impacts of their supply chain activities on the environment, society and people. Organisations are now looking beyond supply contingency planning to supply chain management across a broader range of risks; extending their values and emissions reduction targets down to suppliers. This includes the public sector, which is increasingly using its buying power to do social good.
Suppliers expose businesses to the greatest ESG compliance risks. As a result, more businesses are now concerned with ensuring visibility within their supply chains to ensure that all parties adhere to ESG standards. Legally, this can be achieved by conducting enhanced due diligence on prospective suppliers, and ensuring that supply contracts are carefully drafted to include ESG compliance and appropriate monitoring provisions. Failure to address ESG risks in the supply chain could be crippling as it exposes businesses to hefty fines, costly litigation, reputational damage, impacts on business continuity, supply chain disruption amongst other consequences. Conversely, effective management of ESG factors will make a business more attractive to investors and customers, whilst presenting a responsible outlook.
In the UK, the ESG legal regime requires disclosure against ESG factors in different forms of corporate reporting, a duty for directors to consider ESG factors when making business decisions, and increased oversight over supply chain activities. The list of UK and EU legislation mandating ESG and supply chain requirements is extensive and not limited to:
- Modern Slavery Act 2015: Requires commercial organisations with an annual turnover of £36m and above to publish an annual slavery and human tracking statement to disclose the steps taken to prevent modern slavery in the supply chain.
- UK GDPR: Requires the inclusion of data protection clauses in contracts which involve the processing of personal data – including contracts between processors and sub-processors.
- UK REACH: Requires businesses to identify and manage the risks regarding the chemical substances they place in the market. Requires all supply chain parties to communicate information on the safe use of chemicals.
- Bribery Act 2010: Aims to prevent bribery within the supply chain.
- Environment Act 2021: Requires certain organisations to establish and implement a due diligence system for any forest risk commodity or product derived from it used in their UK commercial activities, and report annually on their due diligence.
- Companies Act 2006: Imposes a duty on directors to promote the success of the company and in doing so, must have regard, amongst other things, to the impact of the company’s operations on the community and the environment, the need to foster relationships with suppliers, the interests of the company’s employees, and the desirability of the company maintaining a reputation for high standards of business conduct.
- The GB and EU Illegal Timber Regulations: Require operators to follow a due diligence system to ensure no illegally harvested timber or derived timber products are placed on the GB and EU markets.
- The EU Conflict Minerals Regulation: Requires importers into the EU to conduct due diligence and report on adverse impacts occurring in the supply chains for tin, tantalum, tungsten or gold from conflict-affected or high-risk jurisdictions.
On the horizon, the Corporate Sustainability Due Diligence Directive will impose obligations on large EU companies and non-EU companies which operate in the EU over a certain financial threshold to implement human rights and environmental due diligence measures on the entirety of their supply chains. The EU Corporate Sustainability Reporting Directive will impose reporting obligations on large EU companies to publish information relating to ESG matters. The proposed Sustainable Batteries Regulation will require operators placing rechargeable industrial batteries or electric vehicle batteries larger than 2 kWh on the EU market to establish supply chain due diligence policies, with a particular focus on raw materials that may have adverse social or environmental impacts. Economic operators will be required to submit compliance documentation for third-party verification. The proposed Regulation on deforestation-free products would also mandate supply chain due diligence for companies that want to place specific commodities associated with deforestation and some derived products on the EU market.
We are expert in helping you review, mitigate and manage the legal risks, regulatory requirements and soft law standards associated with ESG and supply chains. We advise organisations on how they can implement supply chain compliance requirements within their supply chain throughout the lifecycle of a contract. We also advise on handling complaints and represent clients in court proceedings where they cannot be avoided. Drawing on expertise from our environment, procurement, employment, data protection, corporate and disputes teams – and from sector specialists throughout the firm – we build our service entirely around the client.
Sustainability and ESG at Burges Salmon
In the firm’s work with our own suppliers, we understand the importance of positive supplier relationships and having confidence in the standards to which our suppliers operate. These supplier relationships are important to us and align with our values, as well as helping to maintain shared reputations, security of supply and operating standards. Sustainability and ESG is core to our purpose and our long-standing commitment to being a responsible business.
We have supplier assessment and performance measurement processes so that our key suppliers are carefully selected and measured, against clear criteria, whilst extending influence down the supply chain.
Areas of focus
- Our supply chain management expertise includes advising investors, funders, developers, contractors, local authorities, government departments and chemical companies on the following:
- Implementing supply chain compliance requirements within the supply chain throughout the lifecycle of a contract
- Advising on workforce issues, data protection, cyber security, product stewardship, governance, reporting requirements and environmental impact
- Dispute resolution and dealing with breach of contract
- Bespoke compliance strategies across multiple jurisdictions
- Compliance and enforcement action by the environmental, planning and health and safety regulators
- Financings (including project finance) and equity financings of infrastructure and services
- Business crime and regulatory investigations
- Corporate and asset acquisitions and disposals, legal due diligence, support and advice in connection with transactions
- Supply chain legal due diligence
- Procurement