The sustainability and supply chain regulatory environment has become increasingly complex. This complexity can lead to delays, confusion and uncertainty for business as it continues to align its responsible sourcing programmes to an evolving regulatory framework. What should companies be doing at a time when there are more economic and societal pressures than ever before?
Competitive disadvantage or opportunity for business model transformation?
As more laws addressing modern slavery, carbon emissions, deforestation and wider environmental impacts are being implemented, regions such as the European Union are finding themselves under pressure to scale back the stringency of certain laws. Additionally, the Trump administration in the United States has already initiated a deregulation agenda, that aims to reduce federal oversight and accelerate economic opportunity. Arguably, this may lead to a competitive disadvantage for overly regulated businesses if their operating models fail to evolve in line with the fast-changing operating landscape.
Despite these challenges around clarity and implementation, smart companies will continue to prioritise sustainability and supply chain due diligence. A shift towards deregulation does not eliminate the demand for corporate accountability; rather, it highlights the need for companies focused on the medium term to double down on sustainability and to ensure it is embedded into core business practices in ways where it demonstrably mitigates risks and adds value. When integrated correctly such practices can improve supplier relationships and business resilience, build more trust with consumers and gain favour with investors.
Companies that embed sustainability and due diligence into core business and risk management practices are more proactively positioned to navigate a changing risk landscape. Forbes shares similar sentiment in a recent report on business-driven sustainability:
"When you look at the data, you find that sustainability has never been more important to businesses. However, unlike the politicised narrative, which draws on emotionally charged rhetoric, the business case for sustainability is increasingly focused on impacts, risks and opportunities. At the end of the day, businesses exist to create value. Anything that could impede that function is a risk, and those risks need to be managed.”
Don’t get distracted by the noise. Stay focused on delivery, efficiency and business impact!
Here are a few key reminders as you address your supply chain sustainability needs in 2025:
- Supply chain regulations are still in place: For instance, the EU's Corporate Sustainability Due Diligence Directive (CSDDD) requires companies to conduct thorough human rights and environmental due diligence. This means that even if deregulation trends emerge, or the proposed ‘omnibus’ legislation in the EU brings a new look to the regulations, companies must still comply with existing and emerging requirements to avoid penalties and maintain their reputations.
- Human rights risks to business are rising and must be addressed: Amid politicised rhetoric or contradicting sentiments, the truth is in the data. Human rights risks continue to be visible in supply chains. EiQ data shows that going into 2025, more than half of supply chain sourcing regions are high or extreme risk and critical issues such as forced labour, child labour and inhumane treatment are widely prevalent. This includes in more developed markets where there are high levels of migrant workers, reduced union representation and there is a need to reduce the cost of production to be competitive especially in manufacturing and agriculture sectors.
- There is an urgent need for climate risk assessment and resilience: Some (still limited) engagement is ongoing to quantify and reduce Scope 3 emissions and support energy and emissions transformation in supply chains. But there is very little work on physical climate risk assessment and resilience as noted under the Task Force on Climate-Related Financial Disclosures (TCFD). With an increasing occurrence of hugely disruptive climatic events, businesses with robust risk management protocols should expedite their physical climate risk assessment and response programs.
- Supplier collaboration and alignment must be prioritised: Supplier collaboration builds trust, can improve transparency and allows businesses to align their partners on targets and strategies. This in turn promotes resilience, value creation and fosters site empowerment and improvement. This collaboration can take place through digital learning courses, centralised data channels and corrective action plans (CAPs) as well as deeper sustainability improvement projects and even collaboration on sustainability linked loan arrangements.
While deregulation may create a more complex regulatory environment, the benefits of prioritising supply chain sustainability and due diligence far outweigh the challenges. Companies that remain committed to these practices will not only comply with regulations but also build stronger, more resilient, and more accountable business models that are well-equipped to thrive over the medium and long term.