- New EU supply chain laws still impacting UK firms post-Brexit
- New standards mean UK healthcare and pharmaceutical companies can be legally liable for failure to comply
Most companies have already taken steps to comply with the recently enacted EU Corporate Sustainability Due Diligence Directive (CSDDD), according to a survey conducted by supply chain experts INVERTO, part of the Boston Consulting Group.
84% of companies active in the pharmaceutical and healthcare sector view the EU Corporate Sustainability Due Diligence Directive as an opportunity to align human rights and environmental protection with their business objectives. This new directive will require firms with a turnover over €450m to publish detailed information regarding sustainability and human rights throughout their supply chains – and adopt effective policies to ensure compliance.
UK healthcare and pharmaceutical companies will need to ensure that their EU operations comply with the new directive – as they will now be held legally liable for the non-compliance of their subsidiaries and/or suppliers.
Some of the potential human rights risks that exist within the pharmaceutical sector and its supply chains include:
- Unethical labour practices, particularly for suppliers in emerging markets
- Breaches of patient privacy
- Breaching ethical standards and informed consent when conducting clinical trials as well as storing personal and health data, especially regarding vulnerable persons
- The danger caused to patients’ health arising from the proliferation of counterfeit medicine
- The destruction of the natural environment associated with pharmaceutical production, such as the accumulation of waste and over-consumption of local water supplies
Overall, 74% of these companies believe that compliance with the directive is achievable and have already implemented measures. These include developing compliance procedures (77%), issuing an annual financial report (69%), collaborating with other companies in the same sector (63%), and monitoring performance indicators (63%).
An Opportunity with Costs—But Also Expected Returns
82% of the survey participants anticipate that the CSDDD will incur costs, though most anticipate these to be low or moderate. In the long run, 60% believe that the financial impact will be positive and anticipate a return on investment.
Beyond the financial aspect, many respondents also see positive momentum from the enactment of the law: for example, stricter regulations could have a positive impact on their image (55%) and promote respect for human rights (55%). Other important reasons for implementing measures include greater environmental responsibility (51%) and improved relationships with customers and other stakeholders.
47% of respondents from the healthcare and pharmaceutical sector view financial performance as the main task of procurement. Only 18% prioritize improving the environmental and social impact of supply chains – 13% less compared to all surveyed companies.
Challenges in Implementation
Many survey participants from the healthcare sector are skeptical about the practical implementation of the measures, citing lack of capacity (25%) and unclear directive guidelines (20%) as major challenges. Consequently, healthcare companies find it difficult to develop an effective strategy. Over 40% of respondents therefore wish for better training for those who must implement the guidelines in practice, 9% more than in other sectors.
“Companies are now receiving uniform rules for the entire EU, which is particularly advantageous for the healthcare industry. The CSDDD enables companies in the healthcare sector to make their supply chains more transparent. UK businesses with international operations need to consider carefully how they need to align their operations with that of the EU,” explains Sabrina Morton, Principal at INVERTO and an expert in the healthcare sector.
“This new directive is a reminder that UK firms are still impacted by – and beholden to – new EU laws and directives.”
Procurement departments play a significant role in implementing the law. Hence, they should take the initiative to ensure greater transparency in the supply chain. Companies should actively request missing data from their suppliers and adjust their processes accordingly. This is increasingly important as UK-based companies look to align their supply chains across the continent.
“By creating transparency, companies can identify opportunities for cost savings and reallocate resources. This contributes to operational efficiency and thus promotes innovation and competitiveness,” says Sabrina Morton.
