Climate Change and ESG-related risks in Value Chains: What Board Directors need to know
- Ilja Bakker
- Dec 10, 2022
- 2 min read
Updated: Sep 28, 2023
This briefing highlights key points on value chain due diligence that non-executive directors should be aware of. Providing a clear overview of new and existing guidance and legislation, climate-adjacent issues, the proposed EU Corporate Sustainability Due Diligence Directive (CSDDD), minimising risk of parent company liability and disclosing scope 3 emissions, this guide will help NEDs identify opportunities and risks in their value chain.
Produced by the Climate Governance Initiative and the Commonwealth Climate and Law Initiative (CCLI)
Key points on value chain due diligence
New legislation and existing guidance require and encourage companies to carry out due diligence over their value chains to identify and mitigate human rights, and in most cases, environmental issues.
A ‘value chain’ is a broad concept. While the definition varies between legislation, it can encompass the company itself, its subsidiaries and direct and indirect suppliers, and the actions and processes used by these entities to bring a product to the end consumer and dispose of it.
Most existing and proposed due diligence laws do not relate directly to climate change impacts, but relate to climate-adjacent issues such as deforestation, environmental damage and human rights.
The proposed EU Corporate Sustainability Due Diligence Directive goes further, requiring in-scope companies to ensure that their business model and strategy are compatible with the transition to a sustainable economy and the limiting of global warming to 1.5°C in line with the Paris Agreement.
UK courts have signalled that they may take a broad approach to parent company liability, which may be persuasive in other common law jurisdictions, and have implications for multinationals with UK-incorporated parents.
Companies disclosing Scope 3 emissions targets should consider what measures they can take to ensure these may be encouraged or enforced throughout their value chains.
