Surge in Sustainability Regulations Poses New Challenges for Global Supply Chains

A recent report by Gartner titled How Sustainability Regulations Are Impacts Supply Chain outlines how the exponential growth in sustainability regulations is affecting supply chain operations across industries. Sustainability regulations have increased 155% in the last decade, presenting an increasingly diverse set of compliance challenges to manufacturers and supply chain executives globally. As governments are tightening environmental and social governance regulations, companies need to make changes in their compliance systems quickly and efficiently to avoid penalties, reputational damage, and business disruption.

The report recognizes that sustainability compliance is no longer the responsibility of one department or function within an organization. Instead, the requirements now cross procurement, operations, logistics, product development, and corporate compliance functions. Such patchwork format inspires ambiguity in respect to responsibility and accountability. Absence of central or cross-functional strategy, however, makes the majority of companies struggle to realize the full picture of rules, implementation timelines, and resources that are needed to ensure successful compliance. Such ambiguity often translates to silo efforts, where corporations attempt to follow each new regulation when it crops up, thus duplicating effort, wasteful workflows, and neglecting to close gaps in compliance.

As Gartner analysts Marta Muñoz and Laura Rainier contend, the traditional reactive model of managing compliance on an ad-hoc case-by-case basis is no longer sustainable. The volume and speed of evolving rules necessitate a more scalable, proactive approach. Organizations today must move to building systems that not only can handle current compliance requirements but can scale to handle new and evolving regulations. This includes the integration of regulatory monitoring tools, supply chain data automation, and investments in cross-departmental team training to establish the function of each in adhering to sustainability.

The report further states that failure to establish a strategic compliance infrastructure will overburden resources and lead to product shipment delays, which eventually affect business continuity and market competitiveness. Organizations with an ad hoc style are most likely to miss compliance deadlines or disregard region-specific regulations, which could result in fines, product recalls, or restricted market access. Conversely, organizations that invest in forward-looking compliance strategies are best positioned to manage risk, be transparent to stakeholders, and meet their environmental, social, and governance (ESG) responsibilities.

In addressing these issues, Gartner offers four broad recommendations. First, organizations need to adopt a centralized governance framework for compliance with sustainability to give improved visibility and coordination. Second, organizations need to improve cross-functional coordination to reduce silos and attain level understanding of rules. Third, technology needs to be used at a greater level to track regulatory changes, automate tasks, and facilitate audit procedures. Finally, it is necessary to develop a compliant strategy that will be flexible and scalable, enabling the business to respond to shifts in regulation without continuous restructuring or redeployment of capital.

The report underlines that it has become mandatory to comply with sustainability. While regulatory bodies all over the globe increasingly require higher standards of environmental protection and human rights in supply chains, there is no way out for companies other than ensuring compliance strategies comply with the transformation. Proactive planning, digitalization, and cross-functional communication are the imperative actions that corporations have to initiate to remain resilient and competitive as the global economy is becoming ever more regulated.

This Gartner report is a much-needed call to action for businesses to rethink their models for sustainability compliance. It suggests that the discarding of haphazard, reactive approaches in favor of a complete, organization-based compliance plan will be necessary to deal properly with the rising complexity of international sustainability laws.

Source/Credits:
Gartner, How Sustainability Regulations Are Impacting the Supply Chain, by Marta Muñoz & Laura Rainier, December 13, 2024.