Despite the Supply Chain Act, financial factors dominate when it comes to selecting business relationships

Proven criteria such as price, the reliability of payment terms or the length of the business relationship continue to play the most important role for companies when selecting their customers and suppliers. Sustainability aspects are clearly subordinate – regardless of the new supply chain law. This is confirmed by a recent survey by the German Business Panel (GBP). The GBP data shows that many companies are generally opposed to the current sustainability regulation, including the new standards for sustainability reporting.

In May 2024, the European Union passed a new supply chain directive after heated controversy, which requires large companies to do more to protect the environment and promote social standards (Environmental, Social, Governance, ESG). Documentation requirements are intended to put pressure on all companies involved in supply chains to contribute to the achievement of sustainability goals. This directive is to be implemented in stages by 2029.

In Germany, the Supply Chain Due Diligence Act has been in force since last year with a similar objective. The latest data from the GBP now show that the associated expectations are only being met to a limited extent: when companies select their customers or suppliers, this continues to be based in most cases on hard financial figures such as price, product characteristics, delivery and payment terms. According to the GBP survey, these criteria are considered to be the most relevant. Non-financial indicators such as environmental protection and sustainability, on the other hand, are at the bottom of the list. The results apply to both large companies that are required to disclose their ESG performance and smaller companies with fewer than 1,000 employees that are not required to do so.

Only companies that claim to focus on ESG factors for their own business model and therefore have strategically anchored sustainability goals are willing to increase their efforts in terms of the environment and social issues and to adapt their supply chains accordingly. These include, in particular, companies that also invest in real environmental and climate protection measures, for example by reducing their own emissions.

‘The many bureaucratic obligations that have been introduced for supply chains obviously do little to change the fact that companies are hardly willing to change their usual business processes when selecting their business relationships out of consideration for social goals. In too many cases, implementing the law is a mere compliance exercise without any real impact on sustainability goals,’ says Prof. Dr Jannis Bischof, Chair of Business Administration and Management Accounting at the University of Mannheim and scientific project manager of the GBP.

The negative assessment of supply chain regulation is accompanied by the fact that most companies rate the new mandatory standards (European Sustainability Reporting Standards, ESRS) for sustainability reporting as ‘rather negative’ or ‘very negative’: among companies without an ESG focus, this share is 56 per cent, and even among companies with an ESG focus, 39.2 per cent agree with this statement. Here too, they criticise the fact that the requirements are too bureaucratic and complex.

It is noteworthy that the new requirements are particularly poorly rated by the companies that apply them: 59.3 per cent of users with an ESG focus report that the reporting effort is too high, whereas the figure for non-users is 52 per cent. 66.7 per cent of users with an ESG focus consider the requirements to be too complex and bureaucratic, compared to 59 per cent of non-users. ‘Those who have actively dealt with the standards seem to be particularly critical,’ summarises Bischof.
The ‘GBP Monitor: Corporate Trends in July 2024’ can be found here