ESG Regulation Standards

Trend Definition 

What is the essence of this trend? What is its impact?

• Essence: ESG Regulation Standards refer to the increasing legal requirements for companies to report and adhere to environmental, social, and governance criteria 
• Impact: The implementation of ESG Regulation Standards impacts companies by requiring them to investigate the compliance of each practice, process, and product with the criteria, also beyond their own boundaries along the entire supply chain

Trend Drivers 

Why is this trend emerging now? What’s changing? 

• Governance and Regulatory Compliance: Resulting from various trends and threats, such as climate change, politicians require high levels of ESG compliance from companies to mitigate the risks and drive fair social development 
• Stakeholder Expectations: Stakeholder pressure, including from shareholders, customers, and non-governmental organisations, demands transparency and responsibility in corporates. Failing to meet these expectations might result in bad PR and ultimately in severe damage to the business itself 

Use Cases 

How to apply this trend? 

• German Act on Corporate Due Diligence in Supply Chains: Ensuring compliance with human rights law
  Example: The law requires companies with key operations in Germany to develop a risk management system for identifying and mitigating risks of ESG violations along their entire sourcing process 
• EU Corporate Sustainability Due Diligence Directive: Regulatory focus on sustainable and responsible behaviour 
  Example: EU ambassadors confirmed that they agreed on the long-discussed directive, forcing companies to ensure compliance with human rights and environmental standards along the supply chain 

Procurement Relevance & Response Strategies 

How should Procurement adapt its Processes, Organisation, and Strategy?

• Organizational Structure: ESG compliance must be ensured across the entire organisation, e.g., by installing responsible managers for sustainable sourcing  
• Sourcing and Awarding: ESG criteria must be integrated into Request for Proposals (RFPs) and scoring systems for supplier selection, for instance assessing suppliers' carbon footprints, labour practices, and governance structures