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Supply Chain
Supply Chains Must Be a Key Focus of ESG Strategies — Here’s How to Stay Ahead of the Risk

A recent webinar took a deep dive into building a strategy that makes both business and compliance sense.

Between the rapidly evolving regulatory landscape and growing consumer demand for transparency and disclosure, the supply chain is now the focus of both the challenges and opportunities within ESG.

A company’s supply chain often makes up the bulk of its emissions output — as much as 90 percent — so, this increasing focus makes sense as companies look to build out progressive supply chain models that make sense for their own businesses and the broader commercial environment.

A recent webinar led by experts at the intersection of supply chain evolution and ESG took a deep dive into this topic, especially around managing the risk associated with a more open supply chain and how to build out a broader effort to stay abreast of all that’s changing in the space.

Understanding the risks

Alexandra Schirmer, team lead ESG advisory at supplier platform IntegrityNext, kicked things off — highlighting four key areas for companies to consider pertaining to risk: regulation, B2B customers, consumers and investors. Each stakeholder represents its own set of risks around how a supply chain works and ultimately brings a product to market.

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“We are moving towards harmonization at a global level,” she explained.

Patricia Quinn, group procurement sustainability manager at insurer Swiss Re, added that companies must take these risks seriously because more regulation is coming “whether they like it or not.”

Existing regulations such as the California Transparency in Supply Chains Act, the Uyghur Forced Labor Prevention Act , the European Commission’s proposed Directive on Corporate Sustainability Due Diligence and others are only a starting point; and companies will rapidly need to understand their risk exposure along with potential compliance issues.

Embracing the risks

The best way to manage this risk — and ultimately, work with it — is to build a strategy and get organized.

All of the presenters — including IntegrityNext key account manager Jared Ridgley — noted that if a company doesn’t already have someone, it’s important to designate a point person specifically working on supply chain management within an ESG lens as part of a larger ESG or sustainability team.

One way to do this successfully is to join a supplier management platform that’s already helping suppliers complete a broader ESG assessment, and compile all of that data into a ready-for-reporting format — such as the Global Reporting Initiative (GRI).

“We have more than one million active suppliers on our network in 199 countries within a system that has an approach for comprehensive ESG risk management,” Ridgley said.

The idea is that having one organized entry point for all of a company’s suppliers will help it get a full picture of its supply chain and prepare data to meet the forthcoming regulatory requirements — along with other potential expected, external-facing documents, such as an annual sustainability report.

At a company such as Swiss Re, with a $1.5 billion annual supply chain spend that Quinn oversees, one of the challenges she faced was helping small and medium-sized suppliers get on board with a system that required the supplier to pay a fee. Swiss Re transitioned to using IntegrityNext — which is free for suppliers to use — and was able to get more of its 7,000 vendors on the system, to build a more complete picture of its supply chain.

“You can imagine what our data set will look like in the next two, three and five years; and it’s extraordinary,” she said.

Staying ahead of the curve

Of course, the more of this work a company takes on upfront, the less potential there is for supply chain-related risk as the global economy demands more transparency.

Ridgley cited an example of Europe’s forthcoming Corporate Sustainability Reporting Directive (CSRD), which will require most large companies who want to do business on the continent to adhere to a higher level of disclosure — part of which includes supply chains. European Commission language on the policy says, “The first companies will have to apply the new rules for the first time in the 2024 financial year, for reports published in 2025;” so, time is of the essence.

Quinn added two more issues to the list: decarbonization and diversity & inclusion. She sees the former really coming into focus over the next decade (likely with companies trying to make various carbon-reduction goals). For the latter, Swiss Re has collected significant data around the topic; and Quinn advises that companies should look at diversity, equity, inclusion and belonging on a country-by-country basis as the regulatory landscape on this issue in particular is widely variable.

Simply put, addressing all of this is also good business. There are numerous studies and models suggesting consumers are shifting their spend to companies who commit resources and efforts to better sustainability practices overall, and especially when it comes to all points and people along the supply chain. Building out a strategy and viable practices around managing supply chain-wide ESG risks is a great pathway towards communicating your company’s efforts externally about the benefits and importance of this work.

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