At least one person in your circle knows about Environmental, Social, and Governance (ESG) and at least three have at least heard about it.
Truth is, the practice and the triple pronged concept is growing in importance, escalating in application and emerging as an irreplaceable criteria when assessing a business, organisation, and even national policy and legislation.
Consider, this, just as you wouldn’t run a warehouse without knowing what’s on your shelves in real time, you can’t run a business without knowing the health of your supply chain.
Supply chain ESG looks at the end-to-end footprint of the value chain, assessing issues like data management, carbon emissions, sourcing, risk management, and waste management- and the world is paying attention.
According to the 2024 Global Trade Report, ESG is now a deciding factor for buyers and consumers, with regulatory pressure pushing companies to collect hard data on their suppliers to prove their own sustainability credentials.
Leading the charge in setting industry benchmarks for supply chain ESG is the European Union, placing green development at the core of policy creation and enforcement, weaving green principles directly into law.
The EU’s Corporate Sustainability Due Diligence Directive (CSDDD) is a directive that needs non-EU and EU companies that have large operations with or in the EU, and/or are considered to operate in ‘high-impact sectors’ to carry out due diligence on human rights and environmental considerations across their supply chains to encourage responsible corporate behaviour.
The aim is to foster responsible corporate behaviour, complementing regulations such as the German Supply Chain Act to create a unified standard for supply chain responsibility across EU member states.
At its core, CSDDD aims to regulate companies by making sure that goods are produced or procured in accordance with emerging environmental, labour, and human rights best practices.
It also pushes organisations toward minimising greenhouse gas emissions in pursuit of net neutrality and a more responsible global economy.
Risk identification is non-negotiable under CSDDD. This is a requirement rooted in the simple truth that you cannot manage what you cannot see. In practice, risk identification looks like breaking your processes down to three tiers and undergoing a three-pronged materiality assessment of the existing risk.
Examples include human rights violations, excessive carbon emissions, supplier integrity issues, and vulnerabilities buried deep within operational layers.
The goal is to develop early warning indicators, such as high-risk geographies or industries, to strengthen corporate accountability and safeguard against disruptions. In the long run, it increases corporate accountability and supports compliance with CSDDD.
This acts as a motivator as companies are to proactively design preventative, mitigatory, and remedial strategies before risks turn into crises.
For the supply chain, the rubber hits the road where CSDDD demands data collection and traceability. A lot of companies are grappling with the leviathan called ‘scope 3 emissions’- hiding in supplier scorecards, freight forwarder reports, and every outsourced process.
It’s daunting because it depends on your suppliers delivering clean, verifiable, and traceable data. But, in supply chains as in logistics, today’s bottleneck often becomes tomorrow’s breakthrough- even if it may be at the supplier’s expense.
Companies with complete certainty will start demanding more from suppliers. The scope of supplier audits will expand to include ESG considerations.
Over time, human rights, labour conditions, waste management, tracking and reporting, risk management, accountability, and emissions reductions will shift from being ‘best practices’ to being non-negotiable requirements.
Non-compliance with CSDDD can face consequences such as civil liabilities, fines, and even exclusion from procurement processes, as companies are now held accountable for ESG compliance and violations throughout the value supply chain.
Incidentally, in Kenya, due diligence is not enshrined in law, which means it is often treated as a voluntary precaution that progressive corporates can choose to adopt. However, there is an encouraging trend: early adopters in the industries such as the financial, energy, and FMCG industry are already embracing ESG-aligned due diligence checks and seeking additional support to integrate these principles into existing policies.
Incidentally, their proactive stance has inadvertently placed them ahead of the curve, preparing them for the vision set by CSDDD- where, by 2029 and beyond, enforcement will strengthen, and ESG reporting and communication will become mandatory.
This is a silent call to action for domestic suppliers to address existing gaps in their operations so that they’re not caught unprepared when due diligence checks reach their doorstep.
In practice, when managing a supply chain, new demands require agility and precision. So, as suppliers, how can we best adjust ourselves in this space?
The first step has to be education. A strong knowledge base enables us to spot operational weaknesses early and allocate resources effectively where they are needed.
Key topic areas outlined by CSDDD include human rights, environmental responsibility, good governance, and effective methods for M and E and data documentation.
After establishing an educational foundation, we then move into specialisation- assigning clear ESG responsibilities to designated individuals across the supply chain.
This means setting up standardised SOPs (standard operating procedures) for data collection and documentation so that audit-ready records are always available. Such structures build ownership, prevent duplication of effort, and improve coordination across functions.
Lastly, ESG needs to be embedded in governing policies, for instance, adding pointed clauses on anti-corruption clauses to contracts or aligning internal policies with both CSDDD requirements and buyer expectations.
CSDDD can be complex, and some may say expensive, but if we don’t accept direction and embrace them, your contracts, reputation, and market access could vanish overnight.
Even though of course this warning only applies to companies that fit the criteria to which CSDDD is applied to, we can’t deny the possibility of its scope of application extending to the smaller players tomorrow.
The bright side is that the same steps that prepare you for CSDDD can also earn you a stronger reputation, future-proof your business, attract collaboration and innovation, and unlock new markets.