Integrating CSDDD due diligence requirements into the procurement of consumer goods companies

There is an increasing responsibility for food and beverage goods companies to take actions that are ethical and respect human rights. Particular attention has been paid to their supply chains regarding issues like forced labor and child labor, health and safety, and environmental protection. The companies react by conducting due diligence, or in other words, investigations of suppliers. The new directive on Corporate Sustainability Due Diligence (CSDDD) applicable as of July 2024 establishes an obligation on companies to report on due diligence efforts to encourage the exercise of responsible business conduct in value chains. 

Food and beverage firms need to understand the core principles of the directive, procedures they need to fully implement, and best practices within their industry to be able to consciously introduce standards into the company’s procurement approach. In this post, we will discuss how your company can implement the procurement approach and follow best practices from industry leaders.

Understanding the CSDDD.

Your company needs to develop practices that will assist it in identifying and remedying the negative human rights and environmental impact of its activities in its value chain. The key requirements of the Directive, which applies to large companies both in the European Union and those from outside the bloc, are detailed as follows:

1. Identifying and assessing risks. 

The companies have to identify potential and actual adverse impacts on human rights and the environment.

2. Embedding due diligence into policy. 

The due diligence shall be embedded in all relevant business and risk management policies.

3. Avoiding and mitigating impact. 

Businesses are to take measures to prevent, minimize, and, as necessary, remediate adverse impacts.

4. Monitoring and reporting. 

The due diligence activities will be periodically reviewed and reported transparently.

Due diligence can thus indirectly enhance the reputation of your company and build trust with consumers, investors, and other stakeholders. Your company is better positioned to reduce potential liabilities and enhance its resilience to possible disruptions in the supply chain by identifying and addressing certain risks. Businesses that lead on sustainability and corporate responsibility enjoy competitive advantages in securing socially conscious investors and customers.

Clearly, there are some challenges to the implementation of CSDDD. Supply chains are global and gathering reliable information can be hard. Comprehensive due diligence processes might be rather resource-intensive, involving a considerable amount of time and investment. Some suppliers resist changes or are unable to meet new standards set by companies looking to implement due diligence requirements.

Let’s discuss how your food and beverage company can successfully integrate these requirements into your procurement policies. Following the steps below will help food and beverage companies establish an effective due diligence system in line with CSDDD expectations while contributing to concrete improvements in their supply chains. Begin with a deep understanding of your risks, embed due diligence into your core business processes, and continue engaging and supporting your suppliers. 

Conduct a detailed risk assessment.

Assess these risks in detail. Your supply chain risk assessment isn’t about ticking a box; it’s about really knowing each step your products take on their way to your customers. A properly developed risk assessment protects not only your business interests but also works toward a more sustainable future. Be proactive, not reactive. Go into detail. The more you know your supply chain, the more you can control your raw materials. Here’s how you can do it:

1. Map your supply chain.

Get a granular view of the supply chain, from farmers you source from to processors and onwards to the exporters and distributors. A coffee company, for example, will start at the farm level where the bean is picked, move on to the processing plants, and trace the journey of its coffee all the way to your morning cup of joy.

2. Spot high-risk ingredients.

Take the usual suspects: cocoa, palm oil, and seafood. These ingredients generally come with extra baggage: human rights abuses, and environmental degradation. Start from the potential well-known hotspots and take it from there.

3. Analyze geographic risks.

Buried deep within the chain of custody documents are the country risks associated with your ingredients. Vanilla from Madagascar? Child labor could be an issue. Soy from Brazil? Deforestation could raise a red flag. You’re in the shoes of a sustainability detective right now.

4. Process risks.

Risks don’t just lie at the sourcing but also within processing facilities. What about the safety of workers in your meat processing plants? How about the water usage in your bottling facilities? It’s ensuring every bit of the process is clean and green.

5. Assess transport and storage.

Consider the risks associated with how your products are moved and stored. Think about CO2 from transportation or working conditions in the warehouse. This does not only pertain to the question of how things are made, but how they get from point A to B.

Take a leaf out of Nestlé’s book: proper risk profiling was done with their cocoa supply chain in West Africa. However, the identification of the risks of child labor and deforestation did not stop there; the company really did something about it. This resulted in the development of their Cocoa Plan—a robust strategy to take these issues head-on.

Develop and implement a due diligence policy.

Based on the risk assessment, design an overall due diligence policy that features:

1. Setting clear commitments. 

The commitment should contain unequivocal commitments to human rights and environmental protection. For example, “We commit to eliminating child labor in our cocoa supply chain by 2025.”

2. Defining the scope. 

Clearly state which suppliers and parts of the value chain shall be covered. For example, “This policy applies to all direct suppliers and known indirect suppliers of our key ingredients.”.

3. Identifying particular standards.

Identify specific standards concerning different ingredients or processes, such as “All palm oil shall be RSPO certified” or “Seafood shall be of origin from MSC-certified fisheries.”

4. Setting roles and responsibilities.

List out who within your company is responsible for the different due diligence elements.

Unilever’s Sustainable Agriculture Code sets a very clear framework for their agricultural raw materials, with measures corresponding to the condition of the soil, biodiversity, and farm economics. This code is integrated into their procurement policies and supplier requirements.

Integrate due diligence into procurement processes.

Due diligence should be integrated into daily procurement practices by covering the following practices:

1. Supplier selection.

Introduce sustainability criteria in supplier selection processes. For instance, request proof of sustainable farming practices from potential grain suppliers.

2. Contracting. 

Include due diligence requirements in contracts with direct suppliers. This can include clauses stating that suppliers shall allow third-party audits or regularly submit reports on sustainability data.

3. Supplier scorecards. 

Establish supplier scorecards that contain sustainability metrics together with traditional KPIs, such as quality and delivery.

4. Incentives. 

Implement buyer incentives, such as tying sustainability performance to individual performance reviews of buyers.

Sustainability criteria are now part of the supplier selection process within Danone. The company has made it mandatory for all potential suppliers to complete a basic assessment of its business related to sustainability, which results are considered a part of procurement decisions along with the conventional strategic issues such as price and quality.

Engage and collaborate with suppliers.

Collaboration with the supplier is the key to the actual due diligence. Long-term partnerships established with key suppliers encourage investment in sustainability. This means that capacity building by your company by providing training or resources may go a long way in helping suppliers adhere to standards. For example, your company can participate in providing workshops on the best practices of sustainable farming for smallholder farmers. Another example of a collaborative sustainability project consists of working together with dairy suppliers to reduce methane.

1. Supplier networks.

Set up a network or forum of suppliers to exchange best practices and challenges.

Barry Callebaut, a leading cocoa processor, developed a program “Cocoa Horizons” to work directly with cocoa farmers to improve productivity, generate higher income, and eradicate child labour. This comprises farmer training, community development projects, and premiums for direct sustainable cocoa.

Monitor and report due diligence efforts.

Ongoing monitoring and transparent reporting enable successful collaboration.

1. Regular auditing.

Assess high-risk suppliers and conduct regular audits. In the case of a company involved in the production of tea, this may entail annual on-site auditing of major suppliers of tea to major customers to evaluate the welfare of employees, and workers’ conditions.

2. Technology use. 

Use technology in monitoring. For example, satellite imaging can be used to monitor the risks of deforestation in soy or palm oil supply chains.

3. Key performance indicators. 

Develop and measure the KPIs related to your due diligence. An example would be the percentage of suppliers rated for sustainability or a reduction in carbon emissions within the supply chain.

4. Transparent reporting. 

Regularly report due diligence challenges and progress. This can be done either once a year with a sustainability report or regularly whenever specific issues arise.

5. Stakeholder engagement. 

Engage regularly with stakeholders, such as NGOs and local communities, to seek their input on the implementation of your due diligence efforts.

Olam is one of the leading food and agri-business companies. It has developed a digital platform that provides detailed sustainability data on its products through its AtSource brand. This kind of disclosure helps Olam’s customers trace their purchases from farm to factory gate to stay on top of their due diligence.

Best practice lessons from industry leaders and how to apply them to your context

We shall go through what human rights and environmental commitments the industry leaders are making and why, and what you can learn from their case studies. We’ll consider Nestlé, Danone, and Unilever.

Case study 1: Nestlé – Comprehensive human rights and environmental due diligence

Due diligence practices, very much aligned with CSDDD requirements, have been implemented at Nestlé, the Swiss multinational food and drink processing conglomerate. Key initiatives are the following:

1. Human rights due diligence program:

• Conducting 12 human rights impact assessments in high-risk countries
• Putting in place a global ‘Tell Us’ grievance mechanism
• Training over 100.000 employees on human rights

2. Responsible sourcing standard:

• Extending to all suppliers, including indirect ones
• Incorporating mandatory provisions on human rights and environmental protection
• Periodic auditing and assessment of suppliers

3. Forest positive strategy:

• Deforestation-free supply chains by 2025
• Satellite monitoring of 100% of the palm oil supply chain
• Traceability systems for cocoa and coffee

4. Climate Action:

• Introducing Net Zero Roadmap aligned with 1.5°C pathway
• Setting Science-based targets for emissions reduction

5. Water Stewardship:

• Introducing Water Resource Reviews in high-risk areas
• Implementing Alliance for Water Stewardship Standard in priority sites

What your company can learn from Nestlé:

1. Focus on one thing at a time. Identify the most serious risks in your supply chain and make an informed plan to tackle them first.
2. Use technology. Through satellite monitoring and traceability systems, more transparency can be created within the supply chain.
3. Work together. Through industry efforts, cooperate and share resources and good practices with other industry peers.
4. Implement a grievance mechanism. Even for smaller companies, there is a need to have a process for stakeholders to report issues.
5. Prioritise training. Invest in employee education on human rights and environmental issues.

Case Study 2: Danone – Integration of social and environmental due diligence

Danone, the French multinational food-products corporation, has implemented robust due diligence practices that align with CSDDD requirements. Key initiatives include the following:

1. Human Rights Due Diligence:

• Conducted human rights risk mapping across all business activities
• Implemented Danone Ethics Line, a whistleblowing system
• Human Rights Impact Assessments in high-risk countries

2. Responsible Sourcing Program:

• RESPECT program covering direct suppliers
• Traceability initiatives for key commodities (e.g., palm oil, cocoa)
• Capacity building programs for smallholder farmers

3. Regenerative Agriculture:

• Commitment to source 100% of ingredients produced in France from regenerative agriculture by 2025
• Partnerships with farmers to implement sustainable practices

What your company can learn from Danone:

1. Conduct risk mapping. Even on smaller scales, it is very important to understand where your biggest risks lie.
2. Focus on key commodities. Work first on products or ingredients that are most significant to your business, or those that hold higher risk.
3. Engage with local suppliers. Build strong relationships with farmers and implement sustainable practices together.
4. Set science-based targets. This sets your environmental targets in line with global standards, albeit at a smaller scale.
5. Establish a whistleblowing system, which is relatively inexpensive but very important in picking up problems early.

Case Study 3: Unilever – Comprehensive Value Chain Due Diligence

Unilever has a significant portfolio of products in the food and beverage sector and it has already implemented due diligence practices. Some of the primary activities undertaken are:

1. Responsible sourcing policy:

• Applies to all suppliers, direct or indirect
• Binding clauses on human rights, fair wages, and environmental protection
• Audits and regular assessments

2. Human rights due diligence:

• Doing human rights impact assessments for high-risk countries
• Putting in place global ‘Speak Up’ platform for raising concerns
• Implementing remediation programmes for identified issues

3. Climate action:

• Issuing a climate transition action plan aligned with 1.5°C pathway
• Committing to Net Zero emissions target for all products by 2039
• Insisting on supplier engagement programme on climate action

4. Sustainable agriculture:

• Implementing the principles of regenerative agriculture
• Issuing Unilever Sustainable Agriculture Code
• Partnering with farmers for sustainable practices

5. Plastic waste reduction:

• Committing to 100% reusable, recyclable, or compostable plastic packaging by 2025
• Investing in waste collection and processing infrastructure

What your company can learn from Unilever:

1. Design a complete policy. Put in place a responsible sourcing policy that encompasses direct and indirect suppliers.
2. Prioritise. Take impact measurements within the most critical areas of your supply chain.
3. Engage suppliers on climate topics. Engage your immediate suppliers in reducing emissions along the value chain.
4. Introduce sustainable agriculture. Setting up the introduction of sustainable farming practices on a smaller scale has huge potential.
5. Pay attention to packaging and sustainability. How best can you make your product’s packaging more sustainable, even if in small steps?

Conclusion

CSDDD is a big piece of legislation and it can be overwhelming. If you’re a smaller food and beverage company operating in the EU, what should you do? Focus on a couple of important steps moving forward. 

Conduct a thorough risk assessment of your supply chain, focusing on human rights and environmental impacts. Create a comprehensive due diligence policy that covers both social and environmental aspects. Develop a program to engage with suppliers on sustainability issues, even if starting with your most critical suppliers. Implement a simple but effective system for stakeholders to raise concerns. Start with your key ingredients and work towards full supply chain traceability.

Secondarily, you should focus on setting science-based targets for emissions reduction and other environmental impacts, scaled to your company’s size. You should also look into joining industry initiatives or local business groups to share resources and best practices. You should begin transparent reporting on your due diligence efforts, even if on a smaller scale. You should regularly review and update your due diligence processes as your company grows and regulations evolve. Investing in educating your workforce about human rights and environmental issues relevant to your supply chain will pay off in the long term.