New EU supply chain law to impact UK retailers and consumer goods manufacturers

The EU’s new supply chain law, the Corporate Sustainability Due Diligence Directive (CSDDD), is anticipated to significantly impact UK consumer goods manufacturers selling into the EU, according to supply chain and procurement experts INVERTO, part of the Boston Consulting Group.

Challenges in implementation

INVERTO’s research reveals that while 74% of consumer sector companies view the CSDDD as an opportunity to harmonise human rights and environmental protection, 26% believe it could reduce their competitiveness compared to non-EU companies. Additionally, many companies doubt their ability to fully comply with the directive. Key challenges include a lack of understanding of the regulations (30%) and insufficient supply chain transparency (26%).

Furthermore, 22% of respondents are unaware of any actions their companies have taken to prepare for the directive, indicating a lack of internal visibility and communication. This uncertainty makes it difficult for companies to develop effective compliance strategies. As a result, 50% of respondents express a need for better training in procurement and supply chain management.

Positive signs

Despite the anticipated rise in costs (73% of participants), most companies expect only low to moderate additional expenditure. In the long term, 68% believe these investments will be worthwhile, potentially even generating a return. Key motivations for implementing measures include gaining a competitive advantage (56%) and upholding human and labor rights (53%).

Beyond financial implications, many respondents see benefits from the new law, such as improved company image (63%) and enhanced supplier cooperation (57%). However, only 31% prioritise improving the environmental and social impact of supply chains, though companies in the consumer goods sector are generally more advanced in ESG initiatives compared to other industries.

Adapting to new regulations

To successfully adapt to the CSDDD, Theodor Mizzi, Project Manager at INVERTO, emphasises the need for a proactive, cross-functional performance plan that combines cost control, ESG engagement, and increased resilience. Procurement departments play a crucial role in implementing the law and should ensure greater transparency in the supply chain.

Theodor Mizzi advises companies to actively request missing data from suppliers and adjust processes accordingly. Given supply chain risks, he recommends creating a strategic framework that includes diversifying the supplier base, near- and friendshoring, and introducing rigorous risk assessment processes.

Methodology

The CSDDD affects all companies in the EU with over 1,000 employees and an annual turnover exceeding 450 million euros. INVERTO surveyed over 680 decision-makers in Germany and France, including 117 participants from the retail and consumer goods industry. The survey, conducted in November and December 2023, offers valuable insights into the industry’s readiness and response to the new law. Results are available at www.inverto.com/study-supply-chain-law.