If you work in the area of sustainability at a commodity trading firm, you may feel that it lives in a different world from the core business operations. Sustainability feeds annual reports and generates project work that sits alongside the business. But persuading the wider business to treat it as an integrated operational priority, rather than a reporting obligation, can be harder than it should be.
Despite this, sustainability reporting is a key operational risk that needs to be managed and mitigated. A gap in your commodities traceability data can trigger a penalty or put a customer relationship at risk. But solving these sustainability challenges can also help the business close other data gaps and mitigate against other operational risks, too.
The regulatory perimeter has expanded
Regulatory obligations on commodity supply chains have grown in recent years, and compliance increasingly needs the trading desk to be involved. The EU Deforestation Regulation (EUDR) extends deforestation-free sourcing obligations all the way back to individual farm level. The UK Modern Slavery Act requires large businesses to account for the actions of their entire value chain, not just their direct suppliers. Sanctions are an increasingly common and ever-shifting political tool. And trading firms need to be aware of the growing number of sustainability requirements that vary both by commodity and by geography.
The regulations share a common demand for evidence of processes as well as of records. Data must be collected at origin, maintained through each stage of the supply chain, and available to auditors. At Gen10 we have found that the chain of evidence often breaks down in predictable places across the supply chain. For example, at smallholders and remote suppliers where paper-based records are the norm; processing and blending operations where lot-level tracking is lost; and handoffs where sustainability certificates are managed in a spreadsheet outside the core logistics management platform.
For sustainability managers, this is the challenge and the basis of the argument for systems integration. Supply chain transparency relies on the entire organisation being able to access, process, and share data better than ever before. The business cannot meet its regulatory obligations without it, but also gains a range of operational benefits from creating that transparency.
Compliance is an ongoing process, not a one-off report
The gap between what regulations require on paper and what delivering them demands in practice may not be obvious to operations, trading, and finance colleagues.
Consider what EUDR due diligence looks like for a firm sourcing rubber from Southeast Asia. Geocoding and geomapping individual smallholder suppliers, potentially numbering in the hundreds or thousands. Developing compliance questionnaires, formatting the resulting data correctly for regulatory systems, and maintaining a chain of custody through factory processing and shipping. All whilst maintaining strict segregation of material that can’t yet be verified as compliant.
This traceability doesn’t fit in the template of a once-a-year report. It runs continuously, in parallel with live operations, at every stage of the supply chain. A gap in provenance data is a live commercial and reputational exposure, just as a position limit breach or a delayed shipment would be. And the potential consequences are severe: penalties for EUDR non-compliance include a fine of 4% of the organisation’s EU-wide annual turnover.
The firms where compliance, risk, and logistics still operate in separate systems with limited shared visibility are the most at risk of these operational and reporting risks. These are structural problems and they are not going to get easier to solve as the regulatory environment tightens further.
Sustainability obligations are an operational risk
The data infrastructure needed for regulatory compliance is largely the same infrastructure needed to manage operational risk effectively. Understanding your positions, obligations, and optionalities, whilst maintaining an audit trail for reporting, are the basic underlying benefits of strong operational risk management. They are also the foundation of commodities traceability.
Tracking material from origin through processing to delivery, with the ability to segregate, verify, and document at each stage: that is chain of custody. It is also how a well-run physical trading operation manages quality, inventory, and logistics.
When those functions share a system, compliance stops being a separate workstream and becomes fully integrated into everyday workflows, with sustainability data supporting traders and operators to get more value from every contract. When they don’t, compliance work must be reconstructed from data held in multiple places by multiple teams and is less available across the rest of the business. It’s slower, costs more, and creates a new operational risk of gaps and mistakes that grows with every additional reporting obligation.
What integrated looks like in practice
Gen10’s client Corrie MacColl, a natural rubber trading company sourcing from Southeast Asia, is a practical example of how solving the sustainability reporting challenge improves operational risk management more broadly. By combining commodity management technology with real-time maritime intelligence, their sustainability and operations teams gained a shared view of the supply chain. Vessel information, shipment status, ETA changes, and sustainability and quality data all connect back to the central Commodity Management System, linking every shipment to its associated contracts and compliance obligations.
When a potential delay is identified, the team can notify customers proactively, assess contingency options, and respond in the context of both the operational and compliance picture simultaneously, because both live in the same system. The compliance question – is this material verified, is the chain of custody intact – can be answered in the same moment as the operational question – where is this shipment, and what are my options?
Making the case internally
Integrating sustainability into operational infrastructure requires sustainability managers to talk in terms the wider business respond to. Operational resilience, commercial continuity, and operational risk management are all core benefits of sustainability and traceability improvements.
The data your business needs to manage operational risk; real-time shipment visibility, traceability, quality and counterparty documentation, is the same data your sustainability compliance requires. A firm that treats these as separate problems will build and maintain them separately, at greater cost and with greater fragility. A firm that recognises them as the same problem, supported by shared infrastructure, builds compliance resilience into the operation and combats risk both in reporting and in the actual day-to-day operations.
To see exactly how other sustainability practitioners are integrating risk management and sustainability, catch up on this Gen10 webinar. The webinar explores in more depth how Corrie MacColl integrated traceability and operational risk management, and the outcomes for compliance, risk, and supply chain visibility.
