Staying ahead of the curve: What’s on the horizon for responsible sourcing in 2024?

Post Date
12 February 2024
Author
Ana Sandres
Author
Njomza Miftari
Author
Maria-Yassin Jah
Read Time
8 minutes
  • ESG advisory

In 2024, a strong emphasis on responsible sourcing (RS) will continue to rise. In 2023, a growing number of companies have recognised the significance of corporate responsibility and their obligation to actively address human rights and environmental related risks. This has primarily been driven by emerging due diligence regulations, alignment pressures from business partners with voluntary standards, investor expectations, disclosure obligations, and consumer expectations.

Responsible Sourcing focus beyond the automotive industry

Although RS has been particularly crucial for the automotive industry, given the substantial need for critical raw materials in the production of electric vehicle (EV) batteries, the minerals rush has brought attention to a wide range of ESG risk exposures in the mining industry. As an outcome, the awareness of responsible sourcing has been extending to and making inroads into unexpected areas, such as the e-cigarettes industry, where scrutiny is increasing regarding the sourcing of materials for the disposable batteries used in vapes. Just last month, several young consumers campaigned on social media to quit vaping due to the human rights abuses of mining cobalt in DRC, a key mineral needed to make the lithium-ion batteries also used for phones and EVs. Supply chain transparency is also lacking in the solar industry as indicated in a recent report, where public trust is extremely low on companies producing solar energy technologies. Additionally, actors in agricultural supply chains will have to adhere to stringent requirements in addressing deforestation risks in the production and sourcing of specific commodities.

Implementation of due diligence regulations

Public awareness is not the only driver leading to increased pressure on companies to incorporate responsible sourcing as part of their sustainability agenda. At the end of 2023, the EU Council and the European Parliament reached an agreement for the EU Corporate Sustainability Due Diligence Directive, which sets new obligations to EU and non-EU companies to mitigate their negative impacts on human rights and the environment. This regulatory move introduces a new level of ambition, building upon prior efforts at the national levels, such as the implementation of the French Duty of Vigilance Law in 2017 and the enforcement of the German Supply Chain Due Diligence Act in 2021. The EU Directive, which is likely to come into force in 2024, is one of many sustainability related regulations being introduced in the EU which will make it mandatory for companies to engage in human rights and environmental due diligence. Other key regulations include the Critical Raw Materials Act, which has incorporated responsible production and sourcing considerations into the proposal, the EU Battery Regulation, and the Carbon Border Adjustment Mechanism (CBAM). The agricultural sector is also gearing up for significant changes as the European Union Deforestation Regulation (EUDR) comes into full effect in December. This regulation will bring notable changes in the production and sourcing of key commodities such as coffee, cacao, cattle, soy, palm oil, wood and rubber. Actors within these supply chains have to adapt to deforestation-related due diligence requirements. While certain companies may not fall directly under the EU due diligence regulations, the likelihood of these regulations impacting their customers will nonetheless require that they fulfil the same level of enhanced due diligence practices, as demands for greater transparency along full, international supply chains continue to rise.

Standardisation and the quality of data in sustainability / annual reporting

To complement due diligence regulations, there’s also been an increasing amount of disclosure led obligations such as the EU Corporate Sustainability Reporting Directive, various Modern Slavery Acts, EU Taxonomy Act and the GRI. Many companies have already been aware of such upcoming requirements and have dedicated efforts to align with the appropriate reporting frameworks. However, in 2024 it is anticipated that the implementation of more standardized processes for ESG-related disclosures will take place, with a particular focus on the quality of data in sustainability and annual reports. This shift is, in part, a response to multiple claims raised by investors in 2023, that alleged a lack of transparency in sustainability reports regarding ESG risks. Moreover, the multiple frameworks available for disclosure add complexity to performance benchmarking. Along with distinct rating systems, which give way to inconsistency, some processes’ reliance on self-reporting have sparked doubts regarding the accuracy and reliability of the data used – leading to strengthened greenwashing concerns.

Fundamental changes in voluntary standards

The surge in due diligence regulations emerging from the EU is underpinned by specific human rights principles that have gained momentum in shaping corporate responsibility over the past decade. Notably, the United Nations Guiding Principles on Business and Human Rights, along with the OECD Guidelines for Multinational Enterprises, stand as overarching frameworks guiding the development of new regulatory measures. In parallel, responsible sourcing standards have also advanced to better align with regulation. Mining standards, for instance, have undergone reforms aimed at enhancing companies’ performance and efficiency. The Copper Mark RRA and IRMA have both published their revised standards, incorporating a more comprehensive approach to specific issues and increasing the efficiency of managements systems for companies that have adopted these standards. 

Another anticipated development is the roll out of a newly consolidated standard for responsible mining by the ICMM, the Copper Mark, Mining Association of Canada’s TSM program, and the World Gold Council. Considering the vast availability of voluntary standards, mining companies have long found it challenging to identify the most suitable standard(s) to adopt and implement effectively. This collaborative initiative seeks to facilitate the adoption of a single, global standard for mining companies to disclose their ESG performance, responding to feedback from multiple stakeholders and addressing the longstanding practicality issue. By making it practical, implementable, and adaptable for any mine operator with a commitment to responsible mining practices anywhere in the world, regardless of commodity, geography or size, the new standard will encourage wider industry participation towards driving impact at scale. While this new initiative has the potential to enhance the efficiency of mining companies that have adopted multiple standards, its credibility and success will depend on the standard’s assurance process and multi-stakeholder approach.

In the agricultural sector, standard-setting bodies are adapting to changes in due diligence regulations to stay up to date. An example is Fair Trade, which is incorporating a Human Rights and Environmental Due Diligence (HREDD) cycle into its standards. This adjustment reflects a proactive response to evolving expectations and mandatory requirements for the sector.

Investors are likely to take on a more proactive role in pushing forward sustainability agendas 

Investors are also adopting a more proactive approach on responsible mining. For instance, the Global Investor Commission on Mining 2030 aims to develop a global consensus across the finance and corporate world for a reformed mining sector by 2030. Having already secured the support of 82 investors and over $11 trillion in assets under management and advisement, the Commission is committed to develop its vision of a socially and environmentally responsible mining sector by the end of the decade. In 2023, investors lodged several claims against mining companies, alleging they were insufficiently disclosing potential environmental and human rights risks contained in their operations in their sustainability reports. This trend is expected to persist in 2024, as responsible mining is increasingly seen not only as an operational, legal, and reputational concern but also as an ethical imperative.

How can we help?

2024 will come with many more expectations on responsible sourcing for downstream, midstream, and upstream companies. Such expectations will either come in directly (through regulation) or indirectly (through stakeholder pressures). Understanding the maturity level of your organisation and navigating your responsible sourcing strategy can be a challenging and complex process. RCS Global Group - now part of SLR - is the global market leader in responsible sourcing of raw materials, with audit, advisory, capacity building and digital solutions. We offer our clients a full source to store range of services covering every stage of the raw materials supply chain, from mining, production, trade, and transformation to the OEMs. Such services include helping clients establish a due diligence management system, increase supply chain traceability, improve reporting, and develop effective responsible sourcing strategies, to name a few. 

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