Sustainability throughout the value chain

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On April 24, the new Corporate Sustainability Due Diligence Directive (CSDDD) was approved. This new regulatory milestone pursues the integration of sustainability into the operational processes of companies. Specifically, the standard seeks for companies to guarantee compliance with human rights and the management of environmental risks throughout their value chain. This directive applies directly to large companies. However, the text also includes the responsibility of these companies towards their suppliers. The CSDDD pushes large companies to help their sellers in the development of mechanisms that allow them to identify gaps in the violation of human rights or environmental risks, and at the same time apply contingency plans and conflict resolution. That is, the aim is for small companies to leverage the knowledge and resources of large companies to offer greater solidity to the entire system. Unlike other sustainability regulations that have focused on guaranteeing minimum levels of transparency, The CSDDD seeks to go one step further. The directive imposes not only the recognition and identification of the main gaps in terms of sustainability, but also mechanisms that allow these risks to be evaluated, in order to then be able to manage or mitigate them through previously defined action plans. In addition, the standard once again points towards senior management as ultimately responsible for the implementation of due diligence in the business strategy. The good news is that, although the regulatory development is new, many of the largest companies were already complying with these principles. According to data from the Spanish Global Compact Network, 77% of Ibex 35 companies were already carrying out due diligence processes in 2023. However, only 54% had redress mechanisms for adverse events or negative impacts. This new regulatory requirement in turn responds to a financial logic with potential long-term benefits. By minimizing risks, whether reputational or operational, companies should ultimately benefit from a reduction in costs linked to more efficient management of their value chain and thus avoid events such as: interruption of production as a result of accidents in suppliers' factories due to non-compliance with minimum safety measures, fines for uncontrolled pollution, strikes in response to poor working conditions, reduction in customer demand due to impact on brand value, etc. Therefore, the CSDDD is another piece of the great puzzle in terms of sustainability that, integrated into the strategic plans, will contribute to a better channeling of the sustainability efforts made by large companies.Claudia Antuña and Irene Peña, professors from Afi Escuela. Follow all the information on Economy and Business on Facebook and xor in our weekly newsletter

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