The United States and more than 30 other countries announced in June that they would create a blocklist of companies that purchase products from hundreds of individuals and businesses connected to Russia and President Putin. Relying on a sanctioned Putin associate for your supply chain could lead to fines, shortages and severe reputational damage.
Likewise, the U.S. started enforcing the Uyghur Forced Labor Prevention Act (UFLPA), which requires companies to provide "clear and convincing evidence" that no products were produced with slave labor in China.
Companies are also under increasing pressure to reduce their carbon footprint. According to the EPA, up to 90% of their environmental footprint is in the supply chain—making it a liability. An Edelman study finds 64% of consumers worldwide will buy or boycott a brand solely because of its position on a social or political issue—such as corporate ESG compliance (environmental, social and corporate governance.)
Whether you agree or not with the increasing ESG scrutiny on companies, your business and bottom line are in jeopardy if you are not as attentive to ESG as you are ensuring your workers and contractors are safe.
But ESG regulations aren’t just an additive business burden. According to McKinsey & Company, organizations that fulfill ESG criteria reduce costs by up to 10%, experience more growth, minimize regulatory and legal interventions, increase employee productivity, and optimize investment and capital expenditures.
However, most companies do not have visibility into each supplier's sustainability readiness and goals. This situation increases the risks of unknowingly taking on unethical work practices, using protected resources and contributing to global climate change, leading to potential regulatory penalties, civil and criminal liability along with brand and reputation damage.
Here are five ways you can improve the ESG standings for your business and help reduce risk:
1. Start with your supply chain.
Set a baseline mapping which ESG requirements apply to which organizations in your supply chain. You can do this by analyzing the multiple global standards and codes of conduct, evaluating which companies are living up to these standards during registration, collaborating with suppliers to meet gaps, bringing awareness, and finding more suppliers in alignment with these best-in-class business practices.
2. Maintain your focus on health & safety
Health and safety leaders (and metrics) are essential to ESG maturity. This Avetta white paper found 79% of executives listed employee health and safety as "very important," and 63% said managing and reducing the environmental footprint of products and services is also "very important." But companies are still missing a pivotal opportunity as only 39% of respondents said ESG supply chain issues were "very important."
3. Flex your purchasing power
For example, HeidelbergCement plans to offer carbon-neutral concrete by 2050. The company joined forces with cement and concrete firms, industry associations and certification bodies to develop a certification system for responsibly sourced concrete. This system can be difficult for small-scale suppliers, so the certification considers social, economic and environmental aspects along the entire supply chain. As more and more suppliers undertake the certification, HeidelbergCement expects to see greater acceptance regarding the sustainability potential of the concrete industry.
4. Recognize reporting realities
Businesses struggle to turn ESG goals into measurable results. Explore new ESG platforms to streamline measurement and remediation. These platforms should score ESG maturity and accurately measure and remediate ESG compliance to enable data-driven decisions.
5. Sustainable can be attainable
Discover a new sustainability and ESG platform that delivers customized solutions. Get data and guided expertise to reach operational, reputational and regulatory goals. The Avetta survey mentioned also shows that more than half (58%) of companies have formal ESG metrics and targets. About half rely on digital tools, sometimes combined with legacy systems, to track these metrics. On the other hand, 25% of organizations use only spreadsheets to track metrics and another 15% are unsure how these metrics are tracked.
Every company must integrate supply chain sustainability across the company's broader ESG strategy, not only as an isolated part of procurement functions or neglected altogether. With greater supply chain transparency against ESG compliance standards, and better data management, businesses can avoid costly hits to reputation and the bottom line by avoiding risky partnerships in an ever-changing world.