Since the European Union passed the groundbreaking law banning imports related to deforestation in December, businesses have been rushing to clean up their supply chains.
Now, Munich, Germany-based startup IntegrityNext is taking what TechCrunch calls a “new twist” on supply chain software, to help businesses tidy up those supply chains faster.
Several industries are reportedly unprepared for the EU’s strict regulations, which apply to products across sectors including coffee, palm oil, rubber, wood, cocoa, soy, meat, and more. Palm oil and rubber farmers have even filed petitions against the law and toilet roll shortages are looming across the European continent as the demand for alternative tissue rises.
However, businesses that rely on forests for their products must scrub their supply chains for anything linked to deforestation if they want to survive. The EU is even launching tech like drones and satellites to ensure environmental and sustainability governance (ESG) reports are truthful.
That’s where IntegrityNext comes in.
Announced on March 23, the startup raised its first-ever funding around of €100 million ($109 million) for its platform that helps organizations with lots of suppliers automatically audit and monitor supplying companies for compliance with ESG rules. They can also prevent purchasing from sketchy suppliers before it happens.
The platform helps businesses adhere to legal regulations whether it be the new EU laws or the recently passed German Supply Chain Act and develop risk profiles, while also aiding businesses in supply chain decarbonization to meet and accelerate their reduction targets.
This is more than necessary as following the new IPCC report, that in a nutshell said it's now or never for climate action, U.N. Secretary-Genertal Antonio Guterres called on governments to create regulatory environments needed for climate action and for both sectors and countries to fast-track their climate efforts.
“This acceleration has already started in some sectors, but investors now need crystal clear signals,” he said at a press conference. “Shipping, aviation, steel, cement, aluminum, agriculture – every sector must be aligned with net zero by 2050 with clear plans including interim targets to get there,” he added.
The next cycle of climate plans will come in November as the U.N. parties meet to discuss climate change at the 28th conference. However, ESG regulations are already rising globally, as governments in the EU and the Phillipines for example both have circular economy regulations, with several other countries either having existing regulatory measures or proposed laws for climate reporting, electric vehicles, supply chain due diligence, and aviation.
According to insights from the global accounting company BDO, the EU in particular, has the most ESG regulations of any regulatory bloc in the world with new requirements going into effect later this decade.
As TechCrunch reports, IntegrityNext’s funding came from a single investor, EQT Growth, and it will be used to continue building out the breadth of the platform, and accommodate its growing customer base in both the U.S. and Europe.
This may be the startup’s first round, but they have been profitable since 2004. According to Dominik Stein, Partner in the EQT Growth Investment advisory team via a statement, “Their [IntegrityNext’s] cutting-edge product and large footprint in their home market of Germany positions them well to expand across Europe, as they have already built a significant proprietary supplier database.”
Now, they say businesses are seeing that ESG is a business advantage as well as a marketing opportunity even where it's not required. However, somewhere it's a "must have," considering that in 2024, German regulations will strengthen: businesses with more than 1,000 employees will have to submit audits reporting their ESG compliance. Rules like this exist across the EU but are still only voluntary in the US.
“Yes, some companies complain but others see it as a competitive advantage to be good in ESG,” said CEO Martin Berr-Sorokin. “Of course, the regulatory regime helps us but if it gets pushed back we still have trends in our society and good corporate practices.”