Rethinking how to capture and make sense of ESG data across your extended enterprise

When consumers buy “fair trade” coffee they are buying a pledge from a company–that the suppliers involved in producing the coffee pay fair wages and provide good working conditions, among other factors. The point is to help producers achieve sustainable and equitable trade relationships. This is generally considered a win-win, even if, in some cases, fair trade products are somewhat higher in price.

This is just one example of how integrated sustainability performance management is intended to meet increased consumer and investor interest in and scrutiny over environmental, social, and governance (ESG) reporting and sustainability performance,¹ which is increasingly being mirrored within B2B ecosystems as well. Hardly a day goes by that we don’t read headlines about oil spills, wage and labor lawsuits, corporate instability, workplace safety violations, excessive CEO pay without performance targets, and lack of board accountability. Focusing on what companies are doing about these and other issues across their supply chains is part of the improved transparency many different stakeholders are looking for and demanding, and there are increased potential risks associated with not making related changes or improvements.

This growing class of potential risks can be financially material and increasingly a concern in today’s growth-challenged and volatile market, where even shocks from the outside world such as bad press can determine whether a company sinks or swims.

Time for “need to know”

One of the hottest of the hot buttons for investors, customers, and regulators is better performance and disclosure related to a company’s climate impact. Early in 2022, the Securities and Exchange Commission (SEC) proposed a new set of mandated disclosure requirements requiring corporations to provide transparency on ESG performance across their operations and, critically, their supply chains.² In November 2022, the European Council (EC) and the European Parliament approved the final text of the Corporate Sustainability Reporting Directive (CSRD), which will require sustainability reporting far beyond what most companies provide today and will affect U.S.-based companies with E.U. operations.³ For some companies, emissions from their supply chains, which make up what’s called Scope 3 emissions, can be as much as 95% of a company’s overall contributions to greenhouse gases.⁴ Moving forward, companies that don’t properly track, report, and reduce their Scope 3-related emissions could be subject to costly legal action and a higher cost of capital and insurable risk premiums.

Companies have numerous questions to consider when evaluating how increasing demands for transparency and accountability affect them and their suppliers, including:

• What emissions-related information is currently gathered and available?
• What level of assurance is currently associated with this information?
• What additional information (if any) would need to be developed or gathered (including for disclosure in the audited financial statements)?

If tedious and manual offline spreadsheet management and excessive email requests come to mind, you are not alone: This is exactly the cumbersome management process that many companies pursue today. And for every supplier in their supply chain, which for many companies can number in the tens of thousands. Simply put, many companies are understandably struggling with this task.

A better way to capture and take action on more holistic supplier information

How can you respond to ESG transparency and sustainability performance expectations across your organization’s entire value chain? It starts with robust data collection which, when enabled through automation and analytics, can enable you to…

• proactively and automatically capture data in line with any of the major ESG reporting standards (reducing reliance on spreadsheet-enabled tracking and hundreds of email follow-ups)
• generate transparency across the value chain, including creating granular, end-to-end visibility (unlocking the ability to sense emerging risks and opportunities)
• seamlessly exchange data across the customer-supplier ecosystem, at will (reducing duplicative requests)
• integrate ESG insights into operational decision-making (enabling the ability to make forward-looking ESG-informed decisions)
• aggregate and visualize organizational and supplier product-level sustainability data (powering customer transparency and traceability for the products and services that you sell)

Automation and analytics alone won’t get you all the way…you need to know what types of data you need, where to look for it, and how to apply the insights which, given the complexity of supplier networks, is no easy task. That’s why Deloitte has developed a sustainability management system, Sustainability 360™, which maintains a pulse on evolving regulatory requirements and helps automate data collection, create performance baselines, and illuminate operational improvement opportunities. Imagine if you could:

• Benchmark suppliers’ ESG performance attributes against their category peers to proactively influence and shape supplier ESG performance trajectories
• Uncover imbalanced spend allocation based on ESG performance and determine where spend can be shifted or consolidated with ESG-accretive suppliers
• Leverage ESG simulations to identify the positive or negative impact of swapping a supplier or manufacturing location on the organization’s broader ESG profile in order to optimize procurement decisions in line with broader sustainability objectives
• Establish an ESG-focused improvement plan that includes a suite of services to help enable purpose-driven change across the extended enterprise

Ultimately, it’s about being good stewards of our planet, and when “purpose” is taken seriously, companies can expect added value in the form of brand and product differentiation, workforce attraction and retention, and price premiums. The question comes back to: do you have clarity on the ESG footprint of each product and service you’re purchasing and the decisions you can make to drive material sustainability improvement? Institutional investors want to know, because they are also monitoring their own risk–on climate impact, diversity, governance issues, and social issues. Regulators want to know–and will soon be looking for proof. And consumers want to know, too. A focus on improving the environments we all live, play, and work in is our collective responsibility. What role and impact will you have?

¹ Investopedia, https://www.investopedia.com/terms/e/environmental-social-and-governance-esg-criteria.asp
² Comprehensive Analysis of the SEC’s Proposed Rule on Climate Disclosure Requirements, Deloitte, 03.29.2022
³Global Reach of the E.U. Corporate Sustainability Reporting Directive and the Impact on U.S. Companies, Deloitte, 01.09.2023
⁴https://www.nytimes.com/2021/11/02/business/corporate-climate-pledge-supply-chain.html