Sustainability data or trade secrets? For many companies, these two are often intertwined. In the food industry, details like recipes, origin countries, and supply chains have traditionally been kept as trade secrets, which is understandable. If all this information were public, there wouldn’t be much left for companies to maintain a competitive edge.
However, the "Directive (EU) 2024/1760, on corporate due diligence for sustainable operations", commonly known as the Corporate Sustainability Due Diligence Directive, or CSDDD, will require that companies collect and share data along the value chain. In this sense, the debate about data secrecy is partly academic, and businesses need to start preparing for the shift. The CSDDD came into effect on 25 July 2024, and from the beginning of 2026, it must be implemented into national law. Sanctions for violations can be as high as 5% of the company’s global net revenue, based on the previous fiscal year.
It’s Retailers’ Duty to Gather Supply Chain Information
Just collecting the necessary information poses a challenge. Many products are still assembled using raw materials that are sourced globally but purchased from places like the Netherlands. For example, products with “Cocoa from Netherlands” still are common, which complicates the due diligence process. Responsibility has shifted from just covering the company’s identification number to the entire value chain. For example, retailers subject to the CSDDD must acquire detailed supply chain information to assess whether there are any human rights or environmental violations. This inevitably means that companies must know the risk countries and raw materials in their supply chains, such as seasonal fruit sourcing from risk countries. Even something as ordinary as apple jam can quickly fall into this category.
A Huge Challenge for Data Collection and Analysis Systems
The challenge is amplified by the Deforestation Regulation, which demands origin information for specific raw materials that cause deforestation. Ten years ago, this would have been an unimaginable requirement. Now, it’s already a reality for many companies, even though many retailers’ sustainability processes are still largely manual. Assessing thousands of products in a portfolio will be a monumental task. Additionally, the CSDDD requires companies not only to prevent harmful impacts but also to address and correct them. This means plenty of work ahead, both in data collection and in the real world.
Large companies must ensure their supply chains meet CSDDD requirements, which calls for effective product management systems capable of responding to evolving risks and challenges. Fortunately, in today’s sustainability landscape, pragmatism is allowed – or more accurately, it’s called materiality. This is a major shift from earlier practices when responsibility was theoretically perfect but rarely implemented beyond ceremonial speeches. Today, sustainability management is driven by KPIs and is prioritised, automated, and resourced like any other business function. Priorities will certainly rise with the prospect of 5% sanctions, especially as CFOs begin to take notice. Still, we must be kind to ourselves and each other as we build transparency and data ecosystems. Standards and practices are still in development, so collaboration and information sharing are critical to moving forward together.
Due Diligence Forces a Shift in Trade Secret Thinking
By the time the CSDDD is enforced, companies will have to rethink their trade secret approach or develop new contractual arrangements. Companies will need to ensure their suppliers comply with due diligence principles, regardless of where they operate in the world. A successful supply chain will require suppliers to have their own due diligence systems since companies will request information necessary for risk assessment and management. This could include data on production processes, working conditions, and environmental impacts. Trade secrets may no longer remain secrets in supply chains.
However, the directive protects suppliers’ trade secrets and confidential information. Suppliers are not obligated to disclose information irrelevant to risk management or that could harm their business unless absolutely necessary for effective sustainability risk management. The obligation to share information is limited to what is essential to meet the directive's goals, although practical boundaries are yet to be defined. If retailers fear placing products on shelves due to potential or confirmed risks, the argument for trade secret protection becomes less valid.
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