From Compliance to Competitive Advantage
- From Compliance to Competitive Advantage 20:35
This second episode with Peter Suasso de Lima de Prado of Bluespar gets into the details of understanding the new compliance regulations. He has also written a white paper which you can download and read here.
Europe is leading the charge in sustainability legislation, despite some resistance. The new due diligence directive will impact approximately 6,000 companies within Europe and around 1,000 companies outside Europe. These regulations apply to companies with a global workforce of 5,000 employees and a turnover of €15 billion, as well as those incorporated outside the EU but operating within these thresholds in the EU.
Phased Approach to Compliance
The compliance process is structured in phases, starting with larger companies and eventually extending to smaller businesses with 1,000 employees and €450 million in turnover. Even if a company is not directly in scope, there will be a ripple effect throughout the supply chain, as larger companies will require their suppliers to demonstrate compliance with these regulations.
Opportunities for Smaller Suppliers
While the regulations may seem daunting, they also present opportunities for smaller suppliers. By adopting a proactive approach to compliance, these suppliers can position themselves as preferred partners for larger companies, enhancing their marketability and business Relationships.
The Good, the Bad, and the Ugly
The Positive Side
- Encourages Responsible Business Practices: These regulations push companies to adopt responsible business practices.
- Improved Supplier Relationships: Compliance can lead to better relationships with suppliers.
- Operational Efficiency: Implementing these practices can streamline operations.
The Challenges
- Significant Effort Required: Implementing these changes requires substantial effort, especially for larger companies.
- Higher Expectations: Larger companies face higher expectations and more scrutiny.
Mandatory Due Diligence Components
Human Rights and Environmental Due Diligence
Companies are required to develop and implement a climate transition plan that aligns with the goals of the Paris Agreement, focusing on reducing global warming to 1.5 degrees Celsius. This involves assessing and mitigating adverse impacts across their value chains.
The Six Phases of Due Diligence
Pieter outlines the six phases of due diligence as outlined by the OECD:
- Embedding Responsible Business Conduct: Integrate responsible practices into policies and management systems.
- Conducting Due Diligence: Identify and assess potential adverse impacts across the value chain.
- Developing a Plan: Create strategies to prevent, mitigate, or stop identified issues.
- Tracking Effectiveness: Monitor the implementation and effectiveness of the strategies.
- Communicating Progress: Report on advancements and actions taken.
- Remediation: Address and rectify any identified issues, whether directly or through supplier engagement.
Integration with Change Management
Charlene draws parallels between the due diligence process and traditional change management programs. While due diligence may not seem exciting or profitable, it is essential for protecting a company’s reputation and culture. Embedding these practices into existing business processes can lead to operational efficiencies and improved supplier relationships.
Continuous Improvement and Realistic Expectations
Perfection is not the goal; instead, companies should focus on continuous improvement. Businesses should take their time to implement these changes, allowing for experimentation and learning. This gradual approach helps build internal capacity and ensures that compliance becomes part of the company’s culture.
Long-Term Benefits
The episode concludes with a discussion on the long-term benefits of effective due diligence practices. Companies that embrace these regulations can enhance their reputation, improve operational efficiency, and ultimately position themselves as leaders in their industries. Pieter shares an example of a low-cost retailer in the Netherlands that has successfully differentiated itself through its commitment to responsible practices, demonstrating that compliance does not have to come at a high cost.
The 5Cs podcast, book and community are about shining a light on a better path. Think of it as a global village of business people giving Planet Earth a hand up. You can find Charlene Norman on LinkedIn and here. Consider subscribing for more thoughts from the 5Cs on Substack.
