Following our in-depth analysis of Germany’s “Supply Chain Act” (LkSG), we’re turning our gaze to the larger European context. As businesses branch out across nations, supply chain responsibilities adapt in tandem. Recognising this, countries globally are rolling out their supply chain regulations to bolster social and environmental accountability. After the introduction of national regulations in various countries, including France and Germany, the forthcoming European Corporate Sustainability Due Diligence Directive (CSDDD), set to be unveiled in 2025, will establish new standards. The rise of new supply chain regulations brings forth unique challenges for companies. Uncertainties surrounding the exact interpretations and implementation dates, along with the need for additional resources to ensure compliance, are common hurdles faced by businesses dealing with these new regulations. This article delves into the CSDDD, its connection with the LkSG, and the way forward for businesses.
LkSG to CSDDD: Broadening the horizon
The LkSG laid the foundation for German businesses, highlighting the need for ethical conduct within supply chains. The CSDDD takes this further, aiming for a pan-European standard with a distinct focus on subcontractor challenges.
Understanding the CSDDD: A closer look
The CSDDD’s mission is straightforward: ensuring that businesses across the EU uphold ethical and environmental benchmarks in their supply chains. While the LkSG primarily targeted German firms, the CSDDD casts a wider net, enveloping all EU businesses and even non-EU companies exceeding a specific revenue threshold yet to be finalised. A standout feature of the CSDDD is its emphasis on subcontractors—it scrutinises not only direct relationships but also secondary ones. The longer the negotiations on the law continue, the more likely it is that revenue barriers will decrease further, leading to an increase in the number of companies falling under the jurisdiction of the CSDDD. Despite their variances, the core due diligence standards of the CSDDD echo those of the LkSG. Thus, the Game Theory concepts we elaborated on earlier [read here] are equally relevant for the CSDDD.
Game Theory in action
We’ve previously discussed how Game Theory can be a game-changer for supply chain strategies. With the CSDDD, this approach becomes even more crucial. Through Game Theory:
• Supplier assessments hinge on self-reporting, complemented by sporadic checks.
• Truth-telling mechanisms can ensure suppliers are honest.
• Contracts driven by incentives can help everyone stay on track.
Handling the global supply chain complexity
Moving from the LkSG to the broader CSDDD is more than just geographic expansion. It’s about understanding complex relationships in the supply chain, especially with indirect suppliers. Here, Game Theory can offer fresh, efficient ways to oversee and engage with suppliers. Plus, its inherent adaptability to legal changes ensures its strategies are evergreen, apt for regulations sprouting globally.
The CSDDD marks a new chapter in global supply chain rules. As supply chains get more complex, the need for clear rules grows. The CSDDD, with its strong benchmarks and focus on subcontractors, pushes companies to rethink their strategies. Using the principles of Game Theory, businesses can navigate this new landscape effectively.
If you’re keen to have more background information, check out our detailed article on the LkSG here. Combining that article’s insights with this one offers a comprehensive guide to navigating the world of international supply chain legislation.
Watch our related webinar: Beyond mere compliance: Entrepreneurially sensible and forward-looking implementation of Supply chain Acts