January 28, 2024
The Emerging Importance of ESG in the Supply Chain

The Environmental, Social and Governance (ESG) issues that are faced by companies offer an opportunity for them to continually meet the demands of their customers, investors and other stakeholders. Relevant concerns involve greenhouse gas (GHG) emissions, energy efficiency, pollution and waste, human rights, safe working conditions, board independence and more. In 2023, businesses are being held to a higher standard. In order to meet these expectations, as well as manage all ESG-related risks, traceability and transparency is key. As businesses evolve and expand, their global supply chains become a vulnerable target for risk. The consideration of ESG metrics and influences in their supply chains can help them control the negative impacts.

Corporate supply chains have increased in complexity over the last decade. Supply chain ESG takes into account the entire footprint of an organisation's business activities at every level. This aims to align the business and ESG values of a company with their suppliers, investors, communities, employees, etc. Using this as a means to limit losses, manufactures can find out if their materials are ethically sourced, if resources are consumed sustainably or if their production utilises child labour so that they can make business associations accordingly. While there may be operational concerns when starting off, the advantages far outweigh the risks. ESG management of the supply chain involves immense attention to strategy and regulations, ensuring that companies are remaining updated with the latest policies and expectations.

So what are the benefits of Supply Chain ESG?

Increased credibility due to transparency

Companies with intricate supply chain links have a unique role to play because of their influence on many different stakeholders. With the expectation of companies to become stewards of the environment and remain cognizant of their impact on the community around them, inadequate management of their supply chain can severely breach the trust of their consumers, investors and more. When these stakeholders recognise that a business is going the extra mile to ensure and communicate that their suppliers and retailers are also implementing similar ESG strategies, they are more likely to retain and attract more investment, attention and talent to their organisation.

Interlinked ESG position

A company's ESG position is inevitably linked with their supply chain. In order to ascertain and understand their own sustainability efforts, they must have a grasp on their network which provides components of their product or service. A comprehensive view into their supply chain will create opportunities to mitigate risk and be proactive about current impacts.

Distinct SBTs and KPIs

A deep dive into the supply chain creates new opportunities for sustainability initiatives while cutting losses and increasing long-term profitability. In addition to this, it can provide companies with definitive Key Performance Indicators (KPIs) to measure and evaluate improvement in ESG areas in an attempt to manage risks. Businesses are also presented with a unique opportunity to define Science-Based Targets (SBTs) that serve as a framework for their environmentally, socially and ethically accepted supply chain activities, and guide their ESG strategies to fruition.

 Outpace competitors in sustainability

The emerging importance of ESG in supply chains is not taken lightly. Companies that verify their ethical actions and initiatives not only within their own activities but, along the entirety of their supply chains have a significant competitive advantage that allows them to outperform others in the industry. In addition to building and preserving a loyal customer base, such strategies allow businesses to positively impact the communities around them and meet their ESG goals.

What are some examples of ESG solutions for supply chain management?

Supplier Engagement: Close monitoring and maintaining relationships with suppliers is a way to ensure they are meeting defined ESG standards. Additionally, companies can also request disclosure from their suppliers to ensure that their goals are aligned and define codes of conduct in contracts to ensure that performance expectations are matched. These reports can assist in the company's identification and disclosure of its own position.

Multi-stakeholder Collaborations: Work closely with partners who specialise in sustainable development, keeping stakeholders updated to motivate participation and increase support. Define ESG metrics for partners to assess their sustainability practices. This is likely to greatly impact the reputation of the organisation in the public eye as well as increase reach of sustainability initiatives.

Evolving regulations: Stay aware and respond to continually changing regulations and legislations. This is often cited as the most prominent ESG challenges but companies set process in place to adapt to a rapidly changing environment find themselves at a significant competitive advantage.

ESG Reporting: Collect and disseminate ESG data to the public using one of many recommended frameworks. Transparency in reporting on a company's sustainability initiatives will increase efficiency, effectiveness and engagement.

Oren helps you manage your supply chain with ESG considerations and engage in active ESG strategy building and reporting. We make it easier for you to incorporate ESG values into your company's procurement by identifying unique opportunities and collecting data that align with the demands of your stakeholders. We are your one-stop shop for all things ESG.

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