When the European Union introduced at first the Corporate Sustainability Reporting Directive (CSRD), they didn’t only discuss the double materiality assessment for companies but most importantly they introduced new practices for managing the supply chain (more broadly called “value chain”). 

It was an important step in the context of ESG regulations because the Directive introduced a new obligation: conducting assessments of all the actors that are part of the value chain. 

Three major direct impacts: 

Reporting obligations. Requirement for companies to collect and disclose detailed information on their environmental and social impacts, as well as those of entities involved in the supply chain (e.g., CO2 emissions, use of natural resources, working conditions).

Implementation of the ESRS. The CSRD mandates the adoption of the European Sustainability Reporting Standards (ESRS), which require standardized and comparable reporting of ESG (Environmental, Social, and Governance) performance. Companies must therefore establish new processes and data collection systems involving all levels of the supply chain. This entails a comprehensive review of existing systems, the introduction of new technologies for data collection and analysis, and staff training on how to manage and report information in accordance with the new standards. 

External verification. Information reported under the CSRD must be verified by independent third parties, increasing the importance of accurate and reliable data from all levels of the supply chain. This process of external verification means that companies must implement rigorous internal control systems to ensure the accuracy and transparency of the data provided.

Three major indirect impacts:

Pressure on suppliers. Companies subject to the CSRD exert greater pressure on their suppliers to provide detailed data on their sustainability practices.

Improvement of sustainability practices. 

Innovation and competitiveness. Businesses and suppliers have now the benefit of attracting more investments. Suppliers that are transparent and adopt sustainability practices independently from regulatory pressures have higher chances to attract investments and deals with companies that are seeking for suppliers/partners.

Macau, Hong Kong and, more in general the Greater Bay Area, have an opportunity to adopt these practices. It is true that businesses in the region don’t have to follow the European CSRD Directive but implementing these best practices could offer many benefits. Main ones:

Higher reputation. Clients, investors and other stakeholders will look more positively at the company. 

Access to sustainable funds. Transparency can open doors to new opportunities of fund raising.

Operating Efficiency. Waste reduction, optimization of resources, better energetic efficiency: all factors that can reduce operating costs.

In the context of Macau’s “1+4” diversification strategy, strengthening sustainability practices is even more relevant. 

When looking at case studies, one of the most relevant is IKEA. IKEA, through its IWAY program and Internet of Things (IoT) technology, significantly improved the sustainability of its supply chain.

One of the key initiatives is the ‘IWAY’ program, a code of conduct that sets strict standards for suppliers in terms of workers’ rights, environmental impact and resource management. IWAY requires suppliers to ensure safe and decent working conditions, respect human rights, and adopt practices that minimize environmental impact.

IKEA has also invested significantly in innovative technologies to reduce CO2 emissions and improve energy efficiency throughout the supply chain.

The company has adopted advanced tracking technologies, such as IoT sensors and data analytics platforms, to monitor its suppliers’ emissions and energy consumption in real time. This approach enables the collection of accurate and up-to-date data, which is essential for reporting in accordance with the European Sustainability Reporting Standards (ESRS).

Another crucial aspect of IKEA’s strategy is supplier training. The company has developed educational programs to help suppliers understand and implement the practices necessary to comply with the new sustainability requirements. These programs include workshops, seminars and online resources covering various aspects of environmental and social management, from reducing emissions to promoting workers’ rights.

IKEA has also collaborated with third-party organizations to verify sustainability information. The CSRD requires reported data to be verified by independent auditors, and the company has formed partnerships with several audit agencies to ensure the accuracy and reliability of its reporting. This verification process not only enhances the credibility of the reported information but also enables the identification of areas for continuous improvement in sustainability practices.

IKEA’s integrated approach has led to concrete and significant results. For example, the company has reduced its carbon emissions and improved resource efficiency, contributing to a positive environmental impact. Furthermore, working conditions along the supply chain have improved, with increased worker satisfaction and reduced staff turnover rates.

IKEA’s strategy demonstrates that compliance with the CSRD can be an opportunity for companies to innovate and create long-term value. Through the adoption of sustainable practices, investment in advanced technologies, supplier training and independent verification of information, IKEA not only meets regulatory requirements, but also strengthens its position as a leader in sustainability. This case exemplifies how sustainability can be integrated into a company’s core business, generating benefits for the environment, society and the company itself.

IKEA finally assigns a percentage score to its supplier types. That indicates the percentage of its IWAY basic requirements that has been fulfilled.

© Eurasia Review