INVERTO: Time to Act on EU’s Supply Chain Sustainability Law

The Corporate Sustainability Due Diligence Directive (CSDDD), which came into force in July 2024, is setting new expectations for companies across Europe.

Designed to enhance transparency and accountability, this EU law requires firms to identify, mitigate and prevent social and environmental harm within their operations and supplier networks.

Notably, the directive holds companies legally accountable for the practices of their suppliers.

To enforce compliance, each EU member state must establish supervisory bodies to monitor and investigate adherence. Noncompliance could result in hefty fines of up to 5% of a company’s global turnover.

Deadlines for meeting the CSDDD’s requirements vary depending on company size and turnover:

• Firms with 5,000+ employees or €1.5bn+ (US$1.57bn) turnover must comply by 2027.
• Those with 3,000+ employees or €900m+ (US$945m) turnover face a 2028 deadline.
• Smaller businesses with 1,000+ employees or €450m+ (US$472m) turnover have until 2029.

Despite these clear timelines, a study by INVERTO, a supply chain consultancy within Boston Consulting Group, reveals just 20% of retail and consumer goods companies have taken tangible steps toward compliance.

Challenges in adapting to the CSDDD

Implementing the CSDDD’s requirements is proving difficult for many organisations. INVERTO’s research highlights several barriers:

• Visibility issues: More than a third of businesses struggle to gain comprehensive insight into their supply chains.
• Complex regulations: About 30% of firms find the regulations too complex to understand fully.
• Internal knowledge gaps: Nearly 39% of respondents from consumer goods companies lack familiarity with existing national laws on social and environmental responsibility.

This lack of clarity extends internally, with 22% of respondents unaware of whether their companies have implemented any compliance measures—significantly higher than the 15% average across all sectors.

Katharina Erfort, Principal at INVERTO, emphasises the urgency of addressing these challenges: “This new directive demands clear visibility of supply chain credentials and an unbroken audit trail.

"For firms operating in emerging markets, maintaining this visibility will be particularly challenging.

"However, with deadlines approaching, companies must get this right the first time or risk severe penalties.”

Turning compliance into opportunity

Despite the hurdles, the CSDDD is not merely a regulatory burden. Many companies see the directive as an opportunity to build resilience and improve long-term outcomes.

While 73% of retail and consumer goods companies anticipate additional costs, most expect these to be moderate. Encouragingly, 68% believe their investments in compliance will yield returns over time.

Businesses cite various potential benefits:

• Enhanced public image: 63% expect the directive to bolster their reputation.
• Stronger supplier relationships: 57% predict improved cooperation.
• Competitive advantage: More than half believe compliance will provide a market edge.
• Respect for labour rights: 53% see improved human and labour rights as a positive outcome.

Retail and consumer goods companies are leading the charge on ESG initiatives, driven by stricter legal requirements and consumer demand for transparency.

INVERTO’s findings show 80% of businesses in this sector are either compliant or actively implementing measures to meet the directive’s requirements.

These measures include:

• Developing annual financial reports (75%).
• Refining processes to identify corporate social responsibility risks (73%).
• Introducing ESG criteria for supplier selection (72%).

Procurement teams are central to this effort. “Procurement must take the lead in driving transparency throughout the supply chain," Katharina advises.  

"Teams should request missing data from suppliers and adjust their processes to ensure compliance.”

She adds that companies need a comprehensive plan that balances cost control, ESG engagement and supply chain resilience.

Strategies may include diversifying supplier bases, “right-shoring” (choosing optimal geographic locations for suppliers) and strengthening risk assessment processes.

Far from being a challenge to overcome, Katharina views the directive as an opportunity: “This is a chance for procurement teams to demonstrate their value by leading on sustainability initiatives.”

The CSDDD represents a significant shift in how businesses manage their supply chains, but it also offers a pathway to long-term sustainability and competitive advantage. 

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