The EU’s (European Union) new Corporate Sustainability Due Diligence Directive (CSDDD) is the bloc’s most ambitious reform of supply chain law to date. The directive imposes due diligence obligations on businesses to protect human rights and the environment. It compels companies to identify risks in their businesses, subsidiaries, and partners, and take preventative and remedial measures where necessary. In doing so, they must include both the upstream and downstream supply chain, i.e. raw material extraction and production, as well as factors such as product delivery to the end customer.
This is a challenging task. To comply with the new Directive, larger companies must develop and disclose detailed plans that demonstrate how they will bring their business activities across their whole supply chain in line with the Paris Agreement’s 1.5°C target and human rights standards. As things stand, those affected have only two years to adapt. Given the short timeframe, businesses must prioritise smart technology adoption to meet their obligations.
A new and complex challenge for IT
Mapping the new governance rules for CSDDD compliance represents an enormous technology challenge. Many companies are still reliant on documents, spreadsheets, and emails, which makes compliance considerably more difficult and far more time-consuming.
Due diligence is also required when managing service-provider relationships. Here, companies must ensure compliance with complex, multifaceted sanctions checks depending on factors such as region, product category, or order volume. This will often involve several departments working manually on cases, resulting in slow and inefficient processes that are subject to human error. Without effective and reliable digital tools, this inefficiency can result in reporting errors, which can be very costly for businesses in the age of the CSDD.
A bridge between the old and new
Companies must update their enterprise resource management (ERP) systems if they are to rise to the challenge. However, this does not have to be a painful process. AI-powered process automation platforms can act as a powerful bridge between old and new IT architectures.
These innovative solutions can be seamlessly integrated with existing systems as an “agility layer”, using data fabric to connect previously siloed data from different sources in a uniform environment for process orchestration and display contextual, relevant data for users in an intuitive interface. In this way, these platforms can help businesses orchestrate the necessary process variations across systems to vastly improve supply chain efficiency and transparency.
Besides generative AI, which is quite familiar to most people now thanks to the popularity of ChatGPT, artificial intelligence also plays a key role in intelligent document processing (IDP), which is particularly useful within enterprise environments to extract data from PDFs and other documents to then generate reports, populate forms, and even create applications based on sanctions lists from different compliance providers that will change periodically. Moreover, AI can transform unstructured data from new legislation into structured formats, and then automatically populate and classify documents in line with company standards, ensuring accuracy and consistency.
Leverage data and processes for visibility and risk management
Once accurate data is accessible from different systems and silos through data fabric, process automation can streamline the data collection process by identifying and correcting errors and inconsistencies to correct and standardise the data. This can help ensure that data is consistent and easy to analyse. Automation capabilities can then help supply chain companies and partners analyse large volumes of ESG data quickly and with far greater accuracy. They can also use AI technologies to identify patterns and trends in ESG data to catch potential risks.
Additionally, once this layer has been established and data sources linked, the required environmental, social, and governance (ESG) reports can be created automatically. In practice, ESG data sets are large, complex, and extremely tough to analyse. This is where a data fabric can play a critical role by breaking down data silos and allowing an organisation to seamlessly connect ESG data from disparate departments and software systems. This not only minimises the amount of work required but also increases transparency in the creation of reports.
With a process automation platform that seamlessly interfaces with existing systems, databases, and third-party providers, risk teams can generate ESG reports based on processed information, key figures determined by the system, or manually recorded figures. This creates visibility into key performance and key risk indicators and gives full transparency to all stakeholders; providing a much more valuable contribution to risk registers and board decision-making.
Focus on process automation platforms
Typically, all these technologies would come from different software vendors for ERP, data management systems and databases, master data management (MDM), enterprise application integration (EAI), business process management (BPM), document management systems, optical character recognition (OCR), to of course, machine learning (ML) and artificial intelligence (AI). Not only are these tools expensive to implement and maintain, but they are also cumbersome to integrate and modernise within an enterprise environment, which can add further complication.
However, there is a viable alternative. A process automation platform enables developers and non-technical employees to easily create bespoke enterprise applications for each organisation with visual workflows and automated processes. In addition, these platforms come with intuitive interfaces for business users to access information and tasks from any device, ensuring accessibility and efficiency. Compared with traditional software and development approaches, businesses using process automation platforms benefit from much-increased speed and agility. In supply chain management this means greater responsiveness – and ultimately a significant competitive advantage within a highly dynamic market.
Time to act
The CSDD represents a significant regulatory shift for business operations in the EU, and the clock is ticking for companies to get their houses in order. Although the challenges are substantial, AI and process automation platforms can transform this into an opportunity. These advanced technologies can streamline processes, increase transparency, and enhance agility, ensuring not only compliance but also better risk management and increasing overall business competitiveness.
