How Scanmarket makes Governance compliance and its regional variations easier to handle for Procurement teams
Governance is of growing concern not just for Procurement teams but for the whole organization, as a result of greater scrutiny of ESG (Environmental, Social, and Governance) compliance reporting by stakeholders, investors, and the public.
The supply chain must follow governance standards to ensure that all contracts are legally consistent, but there is often a high level of complexity that must be managed, especially when combined with regional compliance concerns for ESG or DE&I (Diversity, Equality, and Inclusion) initiatives.
In this blog we will explore how governance standards are changing regionally, how large enterprises face greater complexity, and how Scanmarket’s procurement platform can make governance compliance simple – keep reading to learn more.
Why is Governance increasing in importance for Procurement teams?
Governance is vital for the supply chain; procurement teams need effective governance to ensure contracts are awarded objectively, legally, and competitively. Governance reduces cost overruns and safeguards the organization against compliance concerns with repeatable practices that align with regional governance standards.
Growing emphasis on Environmental, Social, and Governance (ESG) has increased pressure on organizations to report on procurement compliance. This heightened focus on ESG leads to greater exposure and responsibility, necessitating robust governance to ensure transparency and accountability in procurement processes.
As a result of growing compliance enforcement of ESG and DE&I reporting, stakeholders, investors, executives, and the public, are all more interested in how contracts are awarded and the governance frameworks within an organization that ensure standards are followed.
By harnessing data, procurement teams can provide stakeholders with real-time insights, fostering trust and increasing transparency. However, many Chief Procurement Officers feel unprepared for this data-driven revolution, highlighting the need for digital investment to navigate these changes effectively.
Moreover, large enterprises will naturally have more complex supply chain activities that often cross various regional boundaries, meaning they need digital solutions to manage this complexity effectively and lead the rest of the organization with a data-driven approach to governance with systems to match.
How do governance standards change per region?
By considering the regional and global complexity of governance standards, it shines a light on how large enterprises dealing in multiple regions may face complexity, and shows how an eProcuremnet platform can help satisfy this complexity and make compliance and reporting more simple.
Governance standards for Europe
Corporate Sustainability Reporting Directive (CSRD):
Effective from January 2024, the Corporate Sustainability Reporting Directive requires large companies to disclose detailed ESG information, impacting supplier evaluations.
Challenge: Procurement teams must collect detailed ESG data from suppliers and ensure alignment with the organization's sustainability goals. This requires thorough supplier onboarding and continued monitoring.
EU Green Claims Directive:
The EU Green Claims Directive aims to combat greenwashing in product marketing, by mandating accurate, verifiable claims for sustainability-related product attributes, necessitating stricter oversight of supplier claims.
Challenge: The supply chain must ensure supplier claims are backed by evidence, particularly for industries with complex supply chains like manufacturing and retail. In other words, this can require lots of back and forth between supplier that must be managed and logged effectively.
Due Diligence Directive on Corporate Sustainability:
The Due Diligence Directive on Corporate Sustainability requires businesses to identify and address adverse human rights and environmental impacts in their operations and supply chains.
Challenge: Scaling due diligence efforts across a diverse network of suppliers, particularly for small and medium enterprises (SMEs) that may lack formal sustainability practices, can be tough - this requires due diligence from procurement teams and systems to enable this.
Governance Challenges for Europe:
Data Overload - Handling the increased volume and complexity of ESG-related data with legacy systems will be particularly tough, procurement software will be key to handle the complexity.
SME Inclusion - Many European suppliers are small or medium sized enterprises, which may struggle to comply with new reporting standards with their current systems. The level of scrutiny is high and small to medium enterprises, although they may have less scrutiny than large enterprises, will still need modern systems to help them remain diligent.
Harmonization Gaps - Varying levels of regulatory adoption across EU member states create inconsistencies in compliance expectations. A European organization that operates across multiple intercontinental regions may struggle to harmonize the varying and often different standards for governance.
Governance standards for the United Kingdom
Procurement Act 2023:
Rolling implementation through 2025, the Procurement Act modernizes public sector procurement, emphasizing transparency, efficiency, and social value as well as introducing standards for contract award criteria.
Challenge: For public procurement, teams must demonstrate compliance with new transparency measures, such as publishing key performance metrics for awarded contracts.
Modern Slavery Act (Amendments):
Amendments to the Modern Slavery Act will increases penalties for non-compliance and enhances reporting requirements for supply chains linked to forced labor or human rights abuses.
Challenge: Deep supplier audits, especially for global supply chains, require investment in advanced tracking tools and more due diligence to avoid the hiked punishments for non-compliance.
UK Climate-related Financial Disclosure Rules:
The UK Climate-related Financial Disclosure Rules require large enterprises to disclose their exposure to climate-related risks and opportunities.
Challenge: Procurement functions must source from suppliers with climate risk strategies and document their climate resilience – reporting this to authorities will require diligent systems to record and communicate an enterprise approach to climate concerns in their sourcing.
Regional Challenges for the UK:
Greenwashing Scrutiny - Rising public and regulatory attention on environmental claims requires procurement to ensure supplier accountability and greater due diligence which can be hard to achieve, and report on, with legacy systems. Post-Brexit Divergence - Regulatory changes after Brexit may diverge from EU standards, complicating governance for cross-border procurement and creeping up on unprepared organizations.
Governance standards for the United States
Federal Supplier Climate Risks and Resilience Rule:
Effective from 2024, the Federal Supplier Climate Risks and Resilience Rule means government contractors must disclose greenhouse gas emissions and climate risks.
Challenge: Suppliers to federal agencies must provide detailed emissions data, requiring enhanced data collection and analysis tools as well as advanced reporting capabilities.
Foreign Corrupt Practices Act (FCPA):
The FCPA Prohibits bribery and corruption in procurement processes involving international suppliers and requires organizations to report on their governance standards which prevent this.
Challenge: Maintaining robust anti-corruption practices and ensuring that overseas suppliers adhere to strict ethical standards and that governance is consistent and clear.
Uyghur Forced Labor Prevention Act (UFLPA):
The UFLPA blocks imports tied to forced labor of the Uyghur people in the Xinjiang region of China.
Challenge: Requires U.S. procurement teams to trace supply chains deeply to avoid legal risks, particularly in industries like textiles and electronics. Focus should turn to supply chain transparency as UFLPA places significant burdens on tracing and documenting supplier practices.
Regional challenges for the US:
Geopolitical Risks - Rising enforcement of trade sanctions and tariffs necessitates careful supplier selection and contingency planning as well as software that can adapt as geopolitical task dynamically changes over time.
State vs. Federal Compliance - Companies operating across multiple states may face conflicting procurement-related regulations and need a solution to manage them effectively, understanding which need to be adhered to.
How can Scanmarket make Governance reporting and compliance simple to manage?
Scanmarket Supplier Management platform centralizes supplier data, enabling organizations to monitor compliance, certifications, and ethical practices. Advanced analytics can flag risks or discrepancies in real-time.
Our Contract Management module automates the contract lifecycle to ensure that all agreements fir your organization’s unique compliance framework – added features like version control, approval workflows, and audit trails make compliance seamless and much easier to manage.
Scanmarket’s Spend Analytics module enables 24/7 analytics that provide visibility into spend patterns, flagging non-compliant purchases or unethical sourcing practices.
Built-in dashboards and reporting tools help teams anticipate regulatory changes and assess supply chain vulnerabilities. Equally these advanced reporting capabilities enable you to make not just comply, but report on compliance efficiently to stakeholders, investors, or governing bodies.
Tracking of ESG-related procurement metrics enable organizations to measure progress against governance goals like carbon reduction while also reporting in a simple way.
To learn more about how Scanmarket can help you, visit our webpage, or talk to sales today.