Compliance with environmental, social and governance specifications, more commonly known as ESG, will be one of the top trends in 2023 and beyond, says Steve Banker, vice president of supply chain services at ARC Advisory Group in Boston in the United States.Writing for Forbes magazine, Banker says “governments are increasing their demands for companies to prove that they operate sustainable and ethical businesses”.An important development in this regard, he writes, is the coming into effect of the Germany Supply Chain Due Diligence Act in 2023.According to Banker it will require “businesses to monitor supply chains for human rights violations and ensure that partners are not causing environmental degradation across their entire supply chain.”He adds that “there has been supply chain legislation before whose goal was focused on making sure various aspects of ESG performance were enforced by companies”.“But supply chain practitioners never have seen compliance legislation that was so broad and impactful. In the past, this kind of ESG legislation was focused on a specific risk domain.”It included, among other things, combating child or forced labour, resulting in the 2020 Uyghur Forced Labour Act.“Now we are seeing a move to all-encompassing ESG legislation with significant penalties.”In the United States it could mean fines that could be up to two percent of annual sales.Banker warns that “perhaps as bad as a fine is the brand damage that could result if a company is prosecuted”.Getting back to Germany, he writes that it “has the fourth largest economy in the world, so many multinationals will be affected by this”.“Multinationals might contemplate moving a regional office out of Germany to avoid this. That won’t work. The European Union has similar legislation moving forward that may come to fruition in about a year and goes even further than the G erman Act.”
