Compliance is almost always one of the key drivers for introducing basic environmental, social and governance (ESG) initiatives. But sustainability and ESG = More than compliance. Having to take action for regulatory purposes can be the perfect springboard to broader ESG action. The fact that companies are required to comply does not mean that there isn’t an organizational appetite. Brands recognize the value ESG initiatives can create.
Compliance and more
Forrester research indicates that ESG is an area in which companies will focus initiatives, not necessarily only for regulatory purposes but for self-reported (50% of survey respondents) sustainability improvements. Compliance is a must-have but isn’t by itself a driver of innovation. It can be the impetus for introducing solutions that help secure transparency and trust. It can also be the bedrock of sustainability initiatives, such as traceability, digital transformation and connected products.
Requirements to report against ESG metrics combined with consumer demand to understand the sustainability of the products they purchase have begun to make traceability technology critical. For brands to get more data and visibility into end-to-end supply chains (i.e., from the acquisition of raw materials all the way through to the product arriving in consumers’ hands), proof comes through traceability and using unique digital IDs to enable this type of complete journey tracking.
Using traceability to get ahead of regulatory demands
As governments and regulators introduce new requirements, it makes sense to prepare for these regulatory demands. But this should be done in ways that add value to the organization beyond proof of compliance. Early investment in traceability technology up and down the supply chain enables brands to prepare for important aspects of current and coming regulatory requirements. At the same time, it lays the groundwork for value-adding use cases. These include circular business models, end-user experiences, and many applications from supply chain visibility, such as brand protection and anti-counterfeiting measures.
Sustainability and ESG intertwined with regulation
Across industries, many regulatory efforts are already underway, and traceability can help to get ahead of changes:
- The EU Green Deal and digital product passports will require that products sold in the EU market must meet higher sustainability standards. Traceability technology will be central to maintaining compliance and collecting data to show and report validity. Up first in the EU’s strategy are textiles, batteries, and toys, with a comprehensive rollout plan for other industries over the coming months and years. A part of this regulatory landscape includes giving consumers the right to repair goods. Compliance extends beyond legal requirements, converging with environmental concerns and circular solutions as well as consumer demand and engagement possibilities.
- Compliance may become more granular than just at the EU level. From 2023, Germany’s new Supply Chain Due Diligence Act will require businesses with a significant presence in Germany to assume some responsibility for human rights and environmental violations throughout their supply chain.
- From 2027, point-of-sale devices in the United States will be expected to support GS1’s Digital Link specification, turning the humble barcode into a web-enabled connection to product recalls, supply chain data, and more.
- The US Food Safety Modernization Act (FSMA) encourages companies in the food value chain to invest in digital traceability technology. As concerns about contaminated food products, food safety, and ease of recalls in a global supply chain escalate, traceability helps deliver, among other benefits, more targeted and effective recalls.
ESG-connected compliance as a path to innovation, efficiency and dynamic end-user experiences
Although only a sampling of regulatory demands, it’s clear compliance is critical. But it is just the beginning of the value traceability technology and connected products can create. Woven into many of these regulations and directives is the implicit (and sometimes explicit) concern for ESG concerns. Brands can piggyback on the ESG-connected compliance work as a pathway to greater innovation, efficiency and end-user experiences.
Traceability for sustainability and ESG: Innovation beyond regulation
By focusing on sustainability and ESG through traceability, organizations can ensure compliance while also tapping into the vast potential for innovation beyond regulation.
Learn more about achieving sustainability and circularity with Kezzler.