Third-party risk management is now one of the most important aspects for retail supply chain companies in ensuring compliance with ESG objectives.
That’s one of the core messages emerging from a new White Paper, entitled “ESG priorities for Retail Supply Chain Companies, published this week by Toronto-based 15Rock, a global leader in climate risk management and advisory services, whose revolutionary risk platform combines sophisticated analysis, machine learning, and science to account for the financial implications of companies practices.
“ESG risks can extend beyond a business’s immediate vendor, embedding themselves further across the supply chain within vendors that individual suppliers use. This may not always be immediately visible to the retailer or its key supplier company,” explains Gautam Bakshi, Head of Product and Engineering at 15Rock.
“A shift from mere compliance monitoring towards proactive risk assessment and management can strongly position supply chain companies on their ESG journeys.”
The White Paper, entitled “ESG priorities for Supply Chain Companies” sets out the breadth of key ESG concerns currently facing the supply chain sector, including environmental contamination, raw material and natural resources shortages, workforce health and safety issues, labor conflicts, corruption, bribery, and geopolitical factors.
“Mismanagement of these ESG factors can result in dire consequences,” continues Bakshi, “impeding operations, and launching a ripple effect with the potential to disrupt the entire supply chain. This can tarnish a company’s standing among both consumers and investors.”
The paper argues that, considering the imminent risks posed, revamping supply chain management systems to recognize and address ESG risks is paramount. It says that a deep understanding of the environmental, social, and economic ramifications of a company’s products and services throughout their life cycle is integral to identifying potential risks. Enhanced awareness and amplified performance can be achieved via supplier Key Performance Indicators (KPIs), incorporating codes of conduct into supplier contracts, and instituting incentive structures. Collaborating with industry peers, civil society, and regulators is also an effective strategy for managing emerging ESG supply chain risks.
“Effective handling of ESG issues across the supply chain reaps considerable benefits,” continues Bakshi, “spanning reputation management, disruption risk reduction, workforce condition enhancement, compliance improvement, and unearthing of innovation potential. A pivotal role is also being played by insurers such as Allianz Global Corporate & Specialty in offering risk transfer solutions for supply chain risks and assisting clients in identifying and mitigating substantial ESG issues.”
Supply chain companies that understand and prioritize ESG criteria, Bakshi adds, can effectively collaborate with retailers to build a more sustainable retail environment, but this entails being cognizant of the latest trends and insights.
The White Paper sets out how incorporating ESG factors into the daily activities of supply chain companies is vital for facilitating sustainable retail and enhancing retailer-customer collaboration.
“Given the increasingly complex and expansive nature of supply chains,” it says, “businesses potentially face several risks, such as supply disruptions, cost volatility, reputational damage, and local legal compliance issues.”
The paper argues the case for initiating and incorporating sustainable policies into supplier selection; for establishing clear expectations for suppliers and relaying these through a code of conduct that can improve compliance; equipping buyers with clear visions, adequate training, and the necessary tools can reinforce sustainable sourcing practices; helping suppliers establish and adhere to their own business standards; regular monitoring of supplier Corporate Social Responsibility (CSR) performance offers, and transparency in managing stakeholder expectations. It says that external factors should also be considered, such as the social and environmental regulations in the production countries, the enforcement level to evaluate production risks, and independent conformity certifications.
The paper mentions that more than 5,000 businesses have committed to net-zero emissions as part of the United Nations’ “Race to Zero” campaign, signifying that ESG principles can’t be overlooked.
It cites Unilever, the leading global consumer goods company, for successfully blending sustainability into its business model. Its ambitious targets to reduce its environmental footprint and enhance the livelihoods of millions across its value chain has seen its Sustainable Living Brands consistently outperform the rest of its business.
Similarly, Walmart, the world’s largest retailer, initiated the “Project Gigaton,” aiming to eradicate one gigaton of greenhouse gas emissions from their supply chain by 2030. Through this initiative, Walmart collaborates with suppliers to drive innovation and improve operational efficiency. Such synergy is resulting in notable cost savings for Walmart and its suppliers, once more proving the positive impact of integrating ESG goals into business strategies.
Against this background, there has been a surge in the importance of end-to-end visibility within supply chains. Recent surveys indicated that visibility has emerged as a leading priority among supply chain leaders, with 58% of surveyed corporations identifying it as one of their top two priorities.
“Achieving transparency, especially in areas outside of direct company control such as logistics and suppliers, presents a crucial challenge,” explains Bakshi. “But transparent reporting of ESG performance metrics is central to a supply chain company’s identity, playing a crucial role in highlighting their dedication to sustainability, garnering stakeholder trust, and unveiling avenues for further improvement.”
“A staggering 80% of a company’s emissions are attributed to its supply chain, further stressing the importance of incorporating ESG goals into supply chain strategies,” continues Bakshi. “This not only helps in achieving sustainability targets but also enhances relationships with investors, in turn contributing to the overall growth of the company.
Furthermore, such alignment boosts investor confidence. ESG compliance is likely to attract more investors, thus improving the company’s access to capital and paving the way for financial expansion.
In essence, the focus on ESG alignment within business strategies in supply chain companies has moved from being a mere option to a fundamental driver of sustainable growth and long-term profitability.”
To download a copy of the White Paper, go to: https://www.15rock.com/research/climate-risk-unleashed-rethinking-retail-and-supply-chains-for-a-sustainable-revolution