Contact Us

ESG Due Diligence (FAQ)

Regulations such as the CSDDD are reshaping how businesses manage ESG (Environmental, Social, and Governance) risks. Compliance is essential for protecting your reputation, enhancing your supply chain, and maintaining competitiveness. It’s important to understand ESG due diligence and learn how to approach it.

What is ESG Due Diligence?

Due diligence refers to a comprehensive and systematic identification and assessment of (potential) impacts related to ESG topics in an organisation’s value chain. Once ESG impacts have been identified, the next step is to co-operate across the value chain to prevent, mitigate and remediate the negative impacts.

For example, suppose a company discovers that one of its suppliers harms human rights. In that case, it should engage with this supplier and ensure actions are taken to address the negative impact.

Why would you start working on due diligence?

Ensure compliance with law and standards

  • Anticipate and prepare the upcoming due diligence obligations coming from the CSDDD

  • Ensure that no deforestation occurs in the production process to align with EU DR

  • Ensure compliance with CSRD and ESRS

  • Phase out or substitute any substances of concern in the value chain, in compliance with REACH

  • Comply with the Critical Raw Materials Act and the Conflict Minerals Regulation

Answer questions or adapt to requirements from the value chain

Having a due diligence process allows companies to answer clients’ questions and requests about ESG practices and compliance.

Increase resilience

Having a due diligence process increases visibility and transparency into your supply chain and mitigates the impact of potential ESG risks on your company, which could lead to supply disruptions, reputational damage, etc.

Meet investor requirements

Investors typically require transparency and set ESG requirements.

Enhance reputation and build trust

Having a clear diligence process will help to build trust with customers and other stakeholders. It can also help in appealing talent, which is often concerned with companies’ ESG efforts. This in turn results in a competitive advantage.

supply chain

To what extent should you engage with up- and downstream supply chain?

The OECD guidelines on due diligence emphasize that companies should engage with both their upstream (suppliers, raw material providers) and downstream (distributors, customers) supply chain partners as part of their due diligence process. The extent of engagement depends on the severity of risks, the company’s leverage, and its role in the supply chain.

On the other hand, the omnibus regulation – proposed by the European Commission in February and aimed to simplify the CSDDD – specifies that due diligence efforts should be focused on direct business partners (both upstream and downstream). Only when a company has plausible information suggesting that adverse impacts may arise at indirect business partners, a larger due diligence scope is required.

What are the different steps in an ESG Due Diligence process?

supply chain mapping

Mapping the supply chain

Identify all of your suppliers and your link with each of them.

ESG risks

Identifying and evaluating potential ESG risks within your operations and supply chain

This includes, for example: legal and regulatory compliance, evaluating social and labor practices, assessing risks related to climate change, etc. Through this ESG risk analysis, you will gain a clearer view of existing ESG risks, their severity, and where they occur the most.

hierarchy

Categorising the suppliers

Prioritise suppliers based on criteria such as their risk profile, turnover, and your dependencies.

document

Developing a due diligence policy

Create a policy outlining due diligence standards and disseminate these principles to employees. The policy should include actions to reduce the severity or impact of ESG risks within the value chain.

discussion

Approaching suppliers

Engage with suppliers to ensure they implement necessary measures, such as adopting human rights and labor standards, reducing environmental impacts and resource use, and installing governance and ethical principles.

What are the possible deliverables of a due diligence process?

Due diligence management system

Various mechanisms in place that can identify and remediate potential social and environmental risks in the value chain or limit the consequences for your company.

Internal governance on due diligence

Roles and responsibilities to anchor the due diligence process in your organisation and make sure it is monitored and reported upon.

ESG practices overview

A comprehensive analysis of ESG practices across the operation and value chain and recommendations for mitigating and minimising risks.

Compliance checklist

Concerned colleagues can easily identify potential risks and act upon them via the checklist.

Action plan and policies

A concrete strategy to improve ESG performance and proactively address upcoming due diligence regulations.

Complaint mechanism

Procedures through which employees and workers in the value chain can safely register issues they might experience or observe.

Common challenges

The most important challenge when starting an ESG due diligence process is the complexity of assessing a global supply chain (sometimes being confronted to different ESG standards). Additionally, incomplete and inconsistent data make it harder to conduct the assessment phase.

To make sure you are fit to deal with these challenges, here are some tips & tricks:

  1. Be selective and focus on a limited number of suppliers/products/materials (e.g. tier 1 suppliers). Focus on suppliers with the biggest impact on humans and the environment, and the largest suppliers for your company.

  2. Start small and narrow your attention to the most urgent areas. Link your due diligence process to material topics for your organisation, and focus on topics linked to the biggest risks.

  3. Search for a strong connection with the supplier. Prefer a conversation over a questionnaire. And prepare yourself by going through the suppliers’ publicly available ESG information.

  4. Make use of existing data: Ensure the use of open-source data and existing reports, as well as scientific studies that provide insights into ESG risks related to specific regions and products.

Available tools

Many online tools and studies are available to help identify and assess ESG risks. Here are some examples:

  • The WWF Risk Filter assesses environmental and water-related risks in supply chains by analysing geographic and industry-specific threats, helping companies identify high-risk regions for biodiversity loss, deforestation, and water stress to prioritise mitigation efforts.

  • The SBTi Target Dashboard tracks companies' Science-Based Targets (SBTs) for reducing greenhouse gas emissions in line with the Paris Agreement, enabling businesses to evaluate whether their supply chain partners have credible decarbonisation commitments and align with sustainability goals.

  • The MVO Risk Checker provides quick insights into social, environmental, and governance risks in global supply chains based on industry and country, allowing businesses to identify human rights violations, corruption, and environmental hazards linked to their suppliers.

  • The Fairtrade Risk Map highlights ethical and sustainability risks in commodity supply chains, particularly regarding labor rights and fair trade issues, supporting companies in assessing supplier compliance with fair trade standards and reducing reputational and legal risks.

How is the due diligence process connected to the CSRD?

Core elements of due diligence can be found in various CSRD disclosure requirements, a full overview can be found in the table below. Most importantly, the double materiality analysis must be informed by the due diligence process.

Additionally, companies in scope of the CSRD are required to report on the due diligence process itself, as part of disclosure requirements in ESRS 2.

 

Core elements of due diligence

Paragraphs in the sustainability statement

Embedding due diligence in governance, strategy and business model

ESRS 2 – GOV-2

ESRS 2 – GOV-3

ESRS 2 – SBM-3

Engaging with affected stakeholders in all key steps of the due diligence

ESRS 2 – GOV-2

ESRS 2 – SBM-2

ESRS 2 – IRO-1

Relevant DRs for policies in topical ESRS (e.g. E3-1)

Relevant DRs for engagement processes in social ESRS (e.g. S1-2)

Identifying and assessing adverse impacts

ESRS 2 – IRO-1

ESRS 2 – SBM-3

Taking actions to address those adverse impacts

Relevant DRs for actions in topical ESRS (e.g. E5-2)

Relevant DRs for transition plans in environmental ESRS (e.g. E4-1)

Tracking the effectiveness of these efforts and communicating

Relevant DRs for metrics in topical ESRS (e.g. E1-6)

Relevant DRs for targets in topical ESRS (e.g. E2-3)

 

About the Corporate Sustainability Due Diligence Directive (CSDDD)

What is the objective?
The CSDDD was introduced to create a harmonized legal framework across the EU, ensuring better protection of human rights and the environment, and to promote sustainable business practices. The CSDDD achieves this by setting due diligence obligations for companies regarding the identification and mitigation of actual and potential ESG impacts in their own operations, as well as in their supply chain. It further sets an obligation to adopt and implement a transition plan for climate change mitigation in line with the Paris Agreement.
What is the scope?
The CSDDD applies to large EU limited liability companies and partnerships with over 1,000 employees and a turnover exceeding EUR 450 million, as well as large non-EU companies with a turnover exceeding EUR 450 million in the EU. SMEs are not directly covered by the directive, but they may be indirectly affected through their business relationships with larger companies.
What is the timeline?
The directive came into force on July 25, 2024. There is a phased implementation period, in which the largest companies will have to have their due diligence process in place by July 2027 (or July 2028 in case the Omnibus regulation is accepted).

About the EU Deforestation Directive (EU DR)

What is the objective?
The EU Deforestation Directive (EU DR) is the European regulation that promotes the consumption of "deforestation-free" products and reduces the EU's impact on global deforestation and forest degradation. The regulation covers commodities such as cattle, wood, cocoa, soy, palm oil, coffee, rubber, and their derived products like leather, chocolate, tyres, and furniture.
Scope & timeline
The EUDR entered into force on June 29, 2023. There is a phased implementation period, with full compliance required by December 30, 2025, for large and medium companies, and by June 30, 2026, for micro and small enterprises.

How can I use ESG purchasing criteria to select sustainable suppliers and renew contracts?

Sustainable purchasing is a theme that is becoming increasingly important in both the public and private sectors, as more organisations adopt a value chain approach to sustainability. ESG procurement criteria, when combined with thorough ESG due diligence, can significantly aid in identifying new suppliers with commendable social and environmental performance and in setting higher standards for existing suppliers during contract renewals.

To introduce sustainable procurement in an organisation, follow these key steps:

  1. Define objectives and scope: Set clear objectives that are aligned with your company’s sustainability goals. Determine the scope of your procurement policy and decide which products, services, and suppliers it will cover.

  2. Assess current practices: Conduct an assessment of your current procurement practices to identify areas where sustainability can be integrated. This includes reviewing your supply chain, existing supplier relationships, and the lifecycle impacts of the products and services you purchase (see above).

  3. Develop a sustainable procurement policy: Create a policy that includes guidelines for selecting suppliers, criteria for product and service selection, and the environmental and social standards you expect from your partners.

  4. Supplier engagement and selection:

    • Engage suppliers: Communicate your sustainability goals to your existing suppliers and involve them in developing more sustainable practices.

    • Selecting new suppliers: Include sustainability criteria in tenders/selection processes to reward suppliers who can demonstrate their sustainability actions. Consider factors like suppliers’ management systems certifications (e.g., ISO 14001, ISO 50001, ISO 45001) and sustainability certifications (EcoVadis, B Corp).

  5. Capacity building: Train your procurement team and relevant stakeholders in sustainable procurement practices.

Tools to integrate ESG criteria into procurement

Public purchasers have an exemplary role to play in sustainable procurement. By applying sustainable procurement practices, governments, who have significant purchasing power, can send a powerful signal and encourage companies to offer environmentally friendly and socially responsible products and services.

Several tools can assist strategic purchasers in effectively integrating ESG criteria into (public) procurement processes:

  1. Green Public Procurement (GPP) Toolkit: The Green Public Procurement (GPP) Toolkit of the European Commission provides comprehensive guidelines and example criteria to integrate sustainability into the procurement process. These criteria are categorized by product group and can be adjusted to different levels of ambition.

  2. MVOO (Maatschappelijk Verantwoorde Overheidsopdrachten) and MVI (Maatschappelijk Verantwoord Inkopen) criteria tool: With the help of the MVI (developed by the Dutch government) and MVOO (developed by the Flemish government) criteria tool, you can quickly collect the most recent ESG criteria, and related evidence, for your procurement documents. Criteria are available for a wide range of product groups and services. You can select criteria related to selection and exclusion, technical specifications, award criteria, and conditions for contract execution. You can choose from three levels of ambition and also see the relevant sustainability themes to which the criterion relates.

  3. Gids voor Duurzame Aankopen: This guide for sustainable procurement (developed by the Belgian federal government) also offers practical assistance for environmentally friendly purchases under socially responsible conditions. You will find example criteria, relevant labels, and good practices.

Get clarity on ESG due diligence

Navigating regulations like CSDDD can be challenging, but you don’t have to do it alone. Our experts are here to understand your specific needs, discuss your challenges, and explore the best path forward for your business.

Schedule a free introductory call to discuss your ESG challenges. Fill out the form, and we’ll be in touch.