Supply chain ESG risk assessment – why is it important to cover the entire footprint of the organisation?
Monitoring and managing environmental, social and governance (ESG) performance within your company’s operations is relatively straightforward. However, understanding the level of ESG compliance and performance across the whole supply chain – including first-, second- and third-tier suppliers, logistics service providers, infrastructure operators or others – is a lot more challenging. Not understanding the ESG levels across the whole supply chain can result in severe reputational and even financial loss for your organisation. Also, stronger ESG performance will potentially give your organisation a competitive edge.
Reaching the top sustainability performance for your organisation’s supply chain starts with an accurate assessment of the ESG risks to which it is exposed. Global supply chains engage multiple actors in multiple geographical areas, and their coverage ranges all the way from product development to reverse logistics. This, in turn, implies a difference in the level of their compliance with sustainability goals.
Current drivers for sustainability
Sustainability is shifting from being voluntary towards being a requirement for an organisation. This also means that the supply chain must rise to the challenge of being sustainable. Legislation is toughening and makes companies look at and be accountable for sustainability impacts that reach beyond their direct control. Though companies are not directly responsible for their partners’ actions, they are the select their suppliers or logistics service providers.
The increasing complexity of supply chains and the strengthening of the legislation for sustainability make it worth knowing who you are letting in into your company’s supply chain. The issue is no longer only that of the monetary cost of running the business together with supply chain partners, there may be a reputational cost for your organisation in the case of misconduct. This could include costs resulting from overlooking climate change and greenhouse gas emissions targets, human rights, or involvement in money laundering across your company’s supply chain.
Better ESG performance across the supply chain creates a competitive advantage for your organisation as customers, business partners and other stakeholders around the globe are becoming more conscious of sustainability.
`The megatrend of sustainable business offers huge opportunities, but the risks, if realised, could cripple the entire current business of many companies. This also applies to the supply chain’, says Anne-Maria Flanagan, Partner in Climate and Sustainability.
Ensuring commitment to ESG across your supply chain
Developed countries express the highest concern about sustainability, yet most of the sustainability impact gets produced in developing countries. The more extensive your supply chain is, the more cautious your company should be about ESG compliance and performance. There are still many geographical areas in the world where national law is significantly lagging behind the EU sustainability regulations.
Identifying and evaluating the ESG risks across your supply chain will not only safeguard the reputation of your corporation, but it will also push the awareness of and commitment to ESG in less advanced parts of the world, thus growing the social value that your organisation brings to the global community. Risk awareness across your company’s supply chain opens an opportunity for you to manage the identified ESG risks and prevent them from hurting your organisation in the future.
‘We, as supply chain leaders, are responsible for sustainability, not only in our own operations but also in those of our suppliers and their suppliers. This is an enormous challenge on top of the supply chain disruptions we have faced recently. You can take one step forward with ESG risk assessment, and there is support available for that´, notes Mikko Vaara, Partner in Supply Chain and Network Operations.
This is how we can support you
Our team is there to support you with mapping out the ESG risks that your supply chain might be facing. The team provides a comprehensive risk assessment to help you identify potential risk areas and help with preventive measures. Supply-chain ESG risk assessment helps an organisation to identify the most critical risks of their supply chain and, based on that, decide on the relevant mitigation actions, and allocate the risk management resources optimally.