by Source Intelligence
on February 5, 2021
As companies of all sizes look to gain more transparency and visibility through their supply chain, one new term has been surfacing that adds pressure to the already heavy scrutiny from stakeholders: the concept of sustainable supply chains. One of the best methods for promoting a sustainable supply chain is with Environmental, Social, and Governance (ESG) reporting.
Incorporating ESG factors in supply chain risk management is not just a trend, it’s the path forward. Millennials are setting the tone, with a UBS Q2 2020 survey revealing that 63% are highly interested in sustainable investing.
While ESG investing may be of increasing importance for financial institutions as a means to protect portfolios and ROI, ESG risk management appeals to a wide variety of industries primarily to improve their operational and financial performance, as well as a way to demonstrate the ethics behind their operations.
What is your ESG risk score? Is your business faring well in contributing to a better tomorrow? Are your suppliers aware of your efforts towards a more sustainable supply chain?
Risk management can no longer be restricted to only adhering to a handful of regulations. ESG factors allow a better understanding of not only where risks lurk, but also provides the insights needed to be proactive in mitigating supply chain disruptions.
Some factors you can monitor through ESG reporting include:
How to find your ESG risk score will largely depend on which metrics are most relevant to your industry (metrics materiality¹) and your unique ESG goals. From there, you can perform virtual supplier audits that will identify risks. Following that you can implement corrective measures, and take action to solve the issues.
Corporate ESG policies will greatly contribute to effectively managing and measuring the impacts of your purchasing operations on the environment, the people, and your company. - Click To Tweet
Taking appropriate actions after identifying ESG risk is a crucial and often overlooked step of the process. All too often, suppliers will gain negative publicity from dubious activity and their only response is a promise to “work on it” and continue business as usual.
Once you identify high-risk suppliers, it’s crucial to provide them both the education and guidelines needed to reach ESG success. - Click to Tweet
Such was the case with a prominent Asian Contract Manufacturer in 2010², with a wave of suicide attempts at one of its plants in China. Under pressure from its clients and to calm public outrage, this supplier added a clause to their employee contracts: new hires had to pledge they would not attempt to take their own life. Should they, the company could not be held responsible or pursued so that “the company's reputation would not be ruined and its operation remains stable.”
Long story short, this supplier did not fix the problem. However, they reported they did. Unless their clients had an ESG reporting system in place to flag high-risk activity and follow up with supplier audits, then they could be tied to unethical behavior and risk a supply chain disruption.
ESG reporting allows you to:
Several frameworks exist you can use directly or modify to your needs, but there is no standardized solution. Some organizations use different frameworks as a base for benchmarking, others create entirely new templates to best meet their ESG initiatives. There is no best and worst, but your ESG rating may vary from one to the other due to different methodology and scoring systems.
If you are just getting started, sticking to widely used categories and guidelines will save you time and prepare you for more ambitious programs. Consider internal and external risks, opportunities, objectives, timelines, key performance indicators, and overall performance.
Check out our white paper “Turn ESG Reporting Into Your Best Asset: A How-To Guide” to learn more.
Source Intelligence’s platform makes collecting ESG data and documentation from your supply chain automated and easy. We strongly believe that businesses deserve an affordable solution that makes ESG reporting easy and accessible for companies of all sizes.
Our ESG Reporting Solution first gathers the supplier documentation you need to fulfill different ESG frameworks and stores them in one centralized platform. Then, once the documentation is gathered, our AI scans for accuracy and flags any areas of risk. We help you access the tools and expertise required to address and mitigate/remedy the risks and help with supplier follow-up.
If you are ready to gain advanced risk management analytics and improve your ESG risk score, request a demo of our ESG Reporting Solution today.
1. Materiality metrics are indicators that directly relate to a specific industry, such as greenhouse gas production in the energy industry. ESG indicators with more “materiality” are given more importance when reviewing companies in that category. Simply put, all ESG indicators are not equally relevant across different industries and companies.