As the CSDDD comes into force, firms will be forced to look deeper than just a disclosures questionnaire to ratify the compliance of their supply chains against human rights and governance policies.

It’s hard to argue against this new piece of legislation being a force for good; it’s been an open secret, anecdotally at least that some companies with squeaky clean company reports and public statements have some nasties lurking in their supply chain; particularly those within multinational extraction industries, fashion retail and technology hardware.

Anywhere there is a need to mine raw materials in far away places, or the opportunity to increase profit margins by harnessing overseas labour, there is the possibility for exploitation. Firms that have got around this by essentially establishing a paper trail, or devolving responsibilities to outsourced partners, there is the potential for abuse and inconsistencies. Even if firms are acting in good faith, some supply chains are so complex and spread out there is always the potential for abuses, especially where profit margins and contract values are perpetually driven down.

Understanding Human Rights within a supply chain is fraught with challenges. Measuring an emerging market’s approach might be wildly different to ours; imposing our values may not create the desired effect. Afterall, increasing unionization and the progress of Human Rights in the workplace, in addition to National Minimum Wage and increased taxation has increased the operating costs to European companies to the extent where they outsourced to overseas in the first place.

However, it’s also impossible to argue that social equality and a safe working environment shouldn’t be the aspiration of all large businesses. CSDDD therefore may form a significant ‘next step’, aligned with SCOPE 3 to force business to consider their human and environmental impacts up and down the value stream.

What will this mean for hiring? Firms main focus over the last 2 years has understandably been data and disclosures driven. High-emitting businesses have hired extensively to roles responsible for making sense of CSRD which, when coupled with ambitious Net-Zero pledges has meant that fully understanding the status quo has taken priority over significant strategy plans. CSDDD, on the other hand places more emphasis on doing, rather than reporting. This will be particularly prescient for companies with complex operating models and global supply chains, particularly where their production methods depend on high energy consumption and workforces living in different jurisdictions and under radically different codes of practice, or legislation relating to human capital.

This will lead, we expect, to a greater demand within the industry for talent that not only understands how to undertake due diligence within ESG frameworks, but who also have a more practical knowledge of industry sectors, business practices and legislation. Human Rights, for example, is typically part of an ESG Questionnaire. It will often form part of a company’s report and ESG teams at investment houses will look into it. However CSDDD goes a step further – a questionnaire or adherence to a compliance process is not enough. Therefore professionals with Human Rights due diligence experience also possessing a more practical understanding of, for example, manufacturing practices in China will become sought after for employers.

It is possible, likely even that existing ESG people will pick up additional responsibilities, or their work will be re-prioritized in other areas. This will present some inherent risks. The profile of ESG Analysts over the last 12 months has been closer to that of an accountant or risk management professional, whereas new roles may well align closer with that of a business consultant. It will be important in these roles for people to be as adept at investigating, interviewing and inspecting as they are at data capture and analysis. The result of this may be that some ESG professionals find their scope, and by extension their career prospects narrowing. However we may also see growth in specialist ESG consulting practices, particularly boutiques able to offer a more in-depth service than their more generalist counterparts.

Overall the house view is that CSDDD is a positive development both for the industry and for individuals. I should make it harder for firms to greenwash, and a partial reversal of the ‘juniorisation’ of ESG people that we have seen emerge across the industry in recent times.