Introduction

As the EU is preparing to transform into a greener future and with new directives being binding for member states, organisations will have to adapt both their daily operations and overall strategy. A holistic approach is important as IT, Purchasing, and Supply Chain Departments will play a critical role in assuring compliance with the new set of policies and initiatives becoming reality within the next years. (Read our article on the EU Green Deal)

This article explores how your organization can navigate the tangled regulatory landscape following the EU Green Deal and introduces you to valuable tools and frameworks to get you started in your sustainability journey.

Traversing the terrain of the EU Green Deal

Going back to 2020, the European Commission approved The European Green Deal which comprises a series of policy measures designed to steer EU on the path to a green transition and achieving climate neutrality by 2050.

One of the centerpieces of EU’s efforts to reach the goals of the Green Deal, is the Eco-design for Sustainable Products Regulation (ESPR) which stipulates the requirements to reach a circular economy. ESPR obliges a Digital Product Passport (DPP) for a vast majority of European market products, aiding consumers in making sustainable choices by scanning QR codes.

 

The regulation was provisionally approved in December 2023 by the European Parliament and will be gradually implemented until 2030. It will affect both B2B and B2C businesses for most products on the market by requiring sustainability data across the value chain in the product passport. It also offers recycling guidance for secondhand transactions.

In parallel, in March this year the CSDD (Corporate Sustainability Due Diligence) was also provisionally approved and in January 2023 CSRD (Corporate Sustainability Reporting Directive) came into force. Together, they are the foundation for stipulating the importance of corporate responsibility and sustainability in business operations, particularly focusing on supply chain sustainability. The CSDD will obligate businesses to incorporate both sustainable social- and environmental elements into their operations. The overarching goal is to guarantee that corporations commit to and take responsibility for their economic, environmental, and social impacts. It will be of particular importance to ensure compliance in the whole supply chain including the sub-suppliers.

CSDD will be implemented in multiple phases starting with large-sized corporations inside the European Union as stated down below:

CSDD is closely related to the CSRD, which aims to replace and improve the existing NFRD (Non-Financial Reporting Directive). CSRD will increase the scope of NFRD to a larger extent of corporations, including publicly listed and large private corporations as stated below:

CSRD requires corporations to report on environmental, social, and governance (ESG) aspects per ESRS standards. The directive will require a number of actions including (but not limited to): Publicly reporting on efforts to address risk related to ESG, taking responsibility for upstream and downstream supply chains, performing double materiality assessment, and conducting third-party audits by accredited auditors.

In summary, the EU is expecting corporations to adhere to and report on a large set of targets related to sustainability to reach the 2050 goals of climate neutrality. In the next sections, we will walk you through how your organization can be prepared.

Sustainability regulations from a Sourcing perspective

Clearly, the EU Green Deal initiatives are steering corporations to increase both strategic and operational sustainability efforts. With organizations being forced to disclose ESG impact and monitor activities regularly to reduce and remedy any environmental or social harm; sourcing will play a crucial role. At Opticos we have curated a “Sustainable Sourcing Approach” to help Sourcing departments aid their organizations in their compliance work by the following three pillars: Ensuring transparency, executing due diligence-focused outcomes, and Enhancing sustainability as a “way of working”.

Opticos Triple Sustainable Sourcing Approach

Along with ensuring compliance with the new regulations throughout your sourcing processes, Opticos supports and empowers your company to proactively embrace sustainability throughout your organization. We help you align your sourcing strategy with the environmental and social sustainability obligations that come with the new legislation and help your organization reach its sustainability objectives.

Complementing the triple approach, Opticos has identified a multitude of activities, guiding the way to Sustainable Sourcing, together outlining a framework that can help your sourcing department adhere to the due diligence activities.

In the Sustainable Sourcing framework, two critical perspectives of sourcing activities come into play: Sustainability Compliance and Corporate Sustainability Target activities. The former is a reactive approach, focusing on adhering to legal requirements. The latter, a more proactive approach, goes beyond mere compliance. It involves investing in sustainability as a value for your company, striving for excellence rather than solely meeting obligations. By adopting our framework, your Sourcing department can achieve compliance while maintaining a forward-thinking, proactive approach.

Opticos Sustainable Supply Chain Assessment

The new regulations stemming from the EU highlights the importance of transparency and accountability in the entire value chain. The supply chain departments must thus comprehend the expectations set forth and acknowledge the important role they play in this context.

An initial supply chain assessment can provide valuable insights as well as form a baseline for evaluating the current state of supply chain sustainability readiness and maturity. In addition, identifying and recognizing critical elements can help shape dedicated actions, or as a minimum, a firm understanding of the organizations risk profile supporting the relevant initiatives onward.

Exhibit 2 below displays Opticos framework for ESG assessment from a Supply Chain perspective with a focus on Environment, Social, and Governance.

“By following the framework with the set processes, your Supply Chain organization can remedy risks of not adhering to the EU sustainability acts” – Anders Gullbrandson, Co-founder, and Chief Legal Officer at Opticos.

Simultaneously your organization can progress to greater monitoring and predictability of your suppliers by following the regulations. (Also read: Leveraging IT to achieve Environmental Sustainability Objectives)

The Importance of Digital Product Passport IT Assessment

As stated, the EU mandates a Digital Product Passport (DPP) for the majority of European market products, supporting consumers in making sustainable choices by scanning a QR code. In this chapter, we will cover how the Digital Product Passport is set up and how your organization best utilizes it.

The digital product passport is an electronic record of a product that is stored in a database and accessible throughout the product’s life cycle. The product should have a link, as per present technology a QR code, to its passport database printed on it ensuring transparency and knowledge transfer to empower customers to make informed and green choices.

Opticos has designed an IT Assessment framework for the new Digital Product Passport, guiding how organizations can fulfil the requirements and be prepared for the ESPR regulation.

The Digital Product Passport IT Assessment covers four critical phases, defining the target setup, evaluating the existing setup, identifying gaps, and culminating with a roadmap for seamless compliance with the Eco-design for Sustainable Products (ESPR) Regulation and Digital Product Passport (DPP) requirements.

Beyond mere compliance, conducting the assessment assists in optimizing processes, increasing transparency, and enhancing data management ensuing in valuable insights for your organization.

 

Conclusion

At Opticos, we believe that Sustainability needs to be at the core of any organizations business strategy, moving beyond the legal and reactive compliance approach to regulations. Our best practices and extensive experience in this area can augment your IT, Procurement and Supply Chain departments to successfully transition into these new ways of working in conformity with the EU regulations.

Irrespective of where you are in your sustainability journey, Opticos can add value in terms of advice, domain expertise, Green Deal adapted processes, Master data knowledge or introducing ways to increase transparency in your existing processes.

In this article, we have showcased three practical ways of preparing you to not only be compliant with the new sustainability EU legislation but also how to proactively approach it and use sustainability as a business advantage.

Authors

Thimmy Bernvåg & Anders Gullbrandson

Contributors:

Nils Andersson, Agnes Lundvall, Tobias Nilsson and Sofia Gudmundsson