Survey reveals gaps in European companies’ preparedness for new supply chain regulations

EQS-Media / 16.10.2024 / 10:00 CET/CEST

Munich - October 16, 2024

As European companies prepare for the phased implementation of the Corporate Sustainability Due Diligence Directive (CSDDD), a new survey among 400 European companies, conducted by EQS Group and the University of Applied Sciences Ansbach, reveals critical gaps in supply chain transparency and the resources required to comply with the new Directive. Companies surveyed identified lack of staff as well as supply chain visibility as major obstacles in meeting CSDDD requirements.

With the CSDDD set to come into effect in 2027, for companies based in the EU as well as global corporations with €1,500 million in EU revenue, organizations need to start preparing to proactively manage human rights and environmental risks throughout their supply chains. 86 % of survey respondents have already started to familiarize themselves with the CSDDD, even though the final text of the Directive had not been published yet at time of the survey.

Lack of human and financial resources tops list of CSDDD challenges

According to the companies surveyed, a significant lack of personnel as well as financial resources is currently the biggest challenge organizations face in relation to the Directive. In addition, they cited documentation and reporting requirements as well as lack of supply chain visibility as key issues. However, only 30 % of companies are planning to allocate additional resources – budget, staff, or IT tools – to address these challenges and meet the requirements of the CSDDD.

Risk levels surge further along the supply chain

While companies are confident in their ability to manage risks within their direct operations – 84 % reported low risk – the level of perceived risk escalates further along the supply chain. For indirect suppliers, more than half of respondents (55 %) rate the risk of human rights and environmental violations as high or very high, while 41 % rate it as medium.

“The deeper you go into the value chain, the more complex the risks become”, says Professor Dr. Stefanie Fehr, lead researcher of the study at Ansbach University. "This poses significant challenges for businesses seeking to comply with the new regulation, and requires a proactive, risk-based approach.”

94 % of organizations have established a whistleblowing channel in accordance with the EU Whistleblowing Directive or national whistleblowing legislation. Since the introduction of these channels, 73 % have received no reports regarding human rights or environmental violations. When reports were received, they were usually made anonymously, so they could not be assigned to a specific group of people such as employees or other affected parties.

ESG integration into risk management grows despite limited resources

Despite resource constraints, companies are prioritizing ESG issues in their supply chain strategies, recognizing that human rights and environmental protection are increasingly shaping their supplier relationships, business practices, and risk management. 68 % have integrated human rights and environmental issues into their risk management processes, ensuring that these criteria are considered in the selection of suppliers. Of these organizations, 26 % are using digital solutions to support risk management, highlighting the growing role of technology in achieving compliance.

Achim Weick, Founder and CEO of EQS Group: “The complexity of global supply chains presents not only challenges but also significant opportunities to build a more sustainable infrastructure. The CSDDD, as well as the German Supply Chain Due Diligence Act, offers an opportunity for companies not only to meet legal requirements but also to strengthen the trust of business partners and customers. By investing in transparency and responsibility now, companies can gain a lasting competitive advantage. To fully capitalize on this, further investment in technology solutions will be crucial to compensate for staff shortages.”

German companies struggle with LkSG compliance

In addition to their handling of the CSDDD, the survey also inquired how German organizations are handling compliance with the Supply Chain Due Diligence Act (LkSG) which has been in effect in Germany since 2023. Many German organizations still face significant challenges in complying with the LkSG, with 89 % citing a lack of staff as the biggest obstacle. Most rely on small teams of 1 to 5 employees from compliance, procurement, or legal departments to manage the law’s requirements. Despite these limitations, 87 % have implemented risk management systems, although 58 % still use Microsoft Excel and only 34 % use specialized software.

Similar to the CSDDD, the risk for LkSG violations most companies see within their own operations and direct suppliers is low; however, the risk grows considerably with indirect suppliers, with only 27 % reporting a low risk at that level. In addition, 46 % of companies have already received complaints related to the LkSG. Despite these challenges, 52 % see an opportunity in the LkSG to reinforce values and responsibility in their supply chains, with 30 % believing the law will help them secure contracts and 28 % seeing a positive impact on their reputation.

About the survey

For the survey, EQS Group and the University of Applied Sciences Ansbach surveyed more than 400 companies headquartered in the EU in May and June 2024. The organizations were selected to be representative of their sector, number of employees and revenue, and were based in 7 European countries: Germany, Switzerland, France, Spain, Denmark, and the UK.

Press contact

Christina Jahn

Phone: +49 89 444430133

E-Mail: christina.jahn@eqs.com

About EQS Group

EQS Group is a leading international cloud provider in the areas of corporate compliance, investor relations and sustainability reporting. Thousands of companies across the world use EQS Group’s products to build trust by reliably and securely meeting complex regulatory requirements, minimizing risks and transparently reporting on business performance and its impact on society and the environment.

EQS Group’s products are bundled in the cloud-based software EQS COCKPIT. This allows compliance processes in the areas of whistleblower protection and case handling, policy management and approval processes to be managed just as professionally as business partners, insider lists and reporting obligations. Listed companies also benefit from a global newswire, investor targeting and contact management, as well as IR websites, digital reports and webcasts for efficient and secure investor communication. In addition, EQS Group provides software for the fulfillment of human rights due diligence obligations along corporate supply chains, as well as for compliant sustainability reporting.

EQS Group was founded in Munich in 2000. Today, the group employs around 550 professionals and is represented in the world’s most important financial centers.

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