As the EU increases ESG regulations, meaning global businesses must understand how these policies will affect them, and prepare to implement more sustainable practices, ESG Clarity asked Kim Holly, senior vice president at ISN, how how global businesses can facilitate greater sustainability in their supply chains and honour Earth Day all year long.
Why should businesses create a more sustainable supply chain?
Supply chains are highly complex and may expose companies to hidden risks associated with sustainability, such as climate change, corruption, and human rights violations. If these risks are not addressed, companies may fall under scrutiny and experience damage to their reputation, operations and/or financial performance. Managing sustainability throughout an organisation and its supply chain in turn manages financial, environmental, and reputational risks.
Which businesses/sectors in particular does this apply to?
Any business that outsources work to contractors and suppliers should be considering the associated risks. Sustainability risks are not isolated to one industry over another, and companies should prioritise the issues of greatest consequence and impact when managing this risk in their supply chain. Outsourced work continues to be an essential component of many organisations’ operations and, in a 2020 survey of ISN Hiring Clients across various industries, 41% expected outsourcing to increase over the next one to two years.
Where is the pressure for a sustainable supply chain coming from?
This growing demand for transparency and accountability in sustainability stems from the general public, customers and investors all recognizing the importance of being a steward of our environment and community. Investors have placed an increased emphasis on sustainability when assessing the value and resiliency of an organisation, understanding that a sustainable supply chain supports business continuity plans. Public consumers want to know that they are spending their money in a responsible manner.
What are the top three considerations companies must make in assessing all elements of their sustainability in the supply chain?
An effective supply chain strategy will include a materiality assessment, ongoing oversight, and open communication with suppliers. A materiality assessment is needed in order to determine the sustainability issues that are of greatest priority and impact for an organisation and its stakeholders. What is impactful for one organization and its supply chain might be different for another. When making these assessments, organisations should be careful to not focus solely on environmental risks, but also consider social, reputational, and compliance risks as well. Sustainability risk management is an ongoing process between organizations and supply chains that must include open dialogue on expectations and methodologies to ensure those expectations are being met.