by Todd Merton, Head of Business Development, Ethical Supply Chain Program
The licensing industry is entering a new era of accountability, driven by global regulatory developments focusing on ensuring ethical and sustainable supply chains. With upcoming and existing regulations such as the Corporate Sustainability Reporting Directive (CSRD), the Corporate Sustainability Due Diligence Directive (CSDDD), and the requirements of the Ecodesign for Sustainable Products Regulation (ESPR), licensors and intellectual property (IP) owners must take immediate steps to gain comprehensive visibility into who is making licensed products, where they are being made, and the environmental and social impact of their production.
The Regulatory Shift
Regulations such as CSRD, CSDDD, and ESPR are redefining how businesses operate and influencing the production decisions they make. All of these frameworks require licensors to report on the entire lifecycle of products carrying their IP. Licensors should have detailed knowledge of who holds licensing rights for their products, where licensed products are being made, the environmental impact of the production processes, and the social conditions under which the products are made.
For licensors, failure to comply with these regulations can lead to substantial financial penalties, supply chain disruptions, and reputational damage. Establishing and implementing robust supply chain oversight processes is the only way to mitigate these risks.
Why Licensors Should Act Now
Waiting until these regulations are fully enforced is not an option. Proactive licensors will benefit in the long run by:
- Avoiding Costly Disruptions: Ensuring compliance before regulatory deadlines minimizes the risk of production halts and delays in getting licensed products to market.
- Enhancing Traceability and Risk Management: A clear understanding of the full supply chain allows licensors to swiftly respond to adverse events, such as factory violations or environmental hazards.
- Improving Royalty Management: With better visibility of product licensees, licensors can more accurately track royalties and mitigate revenue loss.
- Establishing Brand Protection: Proactively managing environmental and social compliance helps licensors avoid negative publicity and reputational harm associated with unethical supply chains.
Demonstrating supply chain transparency and sustainability compliance is becoming a competitive differentiator for licensees. By prioritizing supply chain oversight, licensees can attract more opportunities, accelerate product approvals, and ensure production continuity.
Partnering for Success
Achieving compliance with evolving regulations requires a structured, strategic approach. Licensors and licensees are advised to work with partners such as the Ethical Supply Chain Program (ESCP), to effectuate change. They can:
- Develop and implement sustainable supply chain due diligence frameworks.
- Establish policies and procedures for environmental and social compliance.
- Manage ongoing monitoring and reporting to ensure regulatory alignment.
- Educate and engage supply chain stakeholders in compliance best practices for long-term success.
Preparing for compliance should not be underestimated as it involves multiple stakeholders, supply chain assessments, and policy implementations.
Get Your License To Comply
The licensing industry is at a pivotal moment. The emergence of stringent supply chain regulations is not a passing trend but a fundamental shift in how businesses must operate. Licensors and licensees who embrace these changes now will position themselves as industry leaders, ensuring long-term success while safeguarding their brand reputation and meeting ethical responsibilities.
The time to act is today — before compliance becomes a crisis rather than an opportunity.
To learn more about the support the ESCP provides to the licensing community, reach out to our team to set up your meeting today. Contact us via membership@ethicalsupplychain.org.
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A version of this feature first appeared in The Toy Book‘s Licensing & Entertainment (+Baby!) Issue. Click here to read the full issue!
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