Addressing ESG Risks and Blind Spots in the Supply Chain

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Written by: Alcumus
7th June

The credibility and impact of your ESG program rests fundamentally on data visibility, and the ability to connect remote workers, supply chains and daily operations to ‘one true view’ of ESG risk.

In spite of the progress organizations are making with their own ESG reporting and data capture, supplier monitoring remains a major challenge, with Alcumus global research finding that two in five companies[1] (38%) struggle to access and collect data from their supply chain.

To connect people, processes and data, businesses can no longer rely on spreadsheets, notebooks, and pen and paper – all of which are susceptible to gaps, mistakes and inconsistencies.

Your business needs to identify, control and limit your risks. The complex nature of extended global supply chains, alongside evolving legal requirements, and growing expectations from customers, employees and investors all form a strong case to identify and address blind spots across supply chains. This will help mitigate issues around brand impact, climate action, ethics and operational disruption. It will also give you a competitive advantage

So, in our final of three blogs, we go through our latest research on ESG (Environmental, Social and Governance) and discuss why visibility through the full supply chain is needed to manage operations without compromising on safety, sustainability, or ethics.

And if you missed them, you can catch up on the first blog and the second blog anytime.

So, let’s get started.

Supply chains under increased stress – and data as a solution

The spotlight is on supply chains as businesses manage the effects of the pandemic and ongoing global disruptions. That means it’s high on the C-suite agenda.

 Our latest research[1] shows 84% currently don’t monitor the full supply chain and 70% are unclear what data to track. The reason for that is predominantly down to the fact that 78% of suppliers don’t report or collect such data, with progress hindered even more so with 54% of suppliers not willing to disclose their data.

At the same time, ESG is rising to become front and center in business plans due to increased pressure to build back better. Collectively, this has placed an increased pressure for businesses to look beyond their own ESG responsibilities and require suppliers and contractors to demonstrate their own commitment to managing their businesses responsibly.

In short, organizations will need to be effective at gathering information and data to show progress on ESG, and to prove that they are taking responsibility for protecting people and the planet.

ESG reporting challenge

When errors or gaps in the supply chain occur, your business is the one that often covers the cost of increased operational expenses, delays, or reputational damage. The C-suite can make more intelligently informed decisions, take positive action and drive constructive change when they can use data to track critical areas around forced labor, the organization’s carbon footprint, as well as employee health and wellbeing.

Yet with verification often restricted to the larger tier 1 suppliers, there are challenges around gaining visibility over suppliers in tiers two, three and four.

As Helen Jones, the COO of the Enterprise division at Alcumus, points out, “Visibility through the full supply chain is not only key to combat rising greenwashing accusations which now threaten companies of all sizes and sectors. The ability to manage these risks will determine which companies will have customers, investors and staff in the future.”

ESG technology to drive performance and outcomes

It is clear that there’s been a real appetite from businesses to have the ability to deliver real-time risk insights. This is a shift towards the use of technology to capture and shape ESG performance and outcomes. Technology is therefore pivotal to digitize processes that help track, manage, report and improve sustainable outcomes.

How this appetite is translating into actual practice is less evident. A small number of respondents in our 2021 research said they have a third-party data visibility and tracking system in place for ESG or are planning to have one.

In addition, research we conducted in 2020 found that two-thirds of businesses believe they’re not realizing the full potential of digital technology, while 64% said it could be valuable, but don’t use it much.

When it comes to suppliers themselves, our recent research suggests that using technology for better outcomes is not being embraced fully, with 46% not able to report performance data and 42% without the systems in place to automate data collection.

One true view

The ESG agenda isn’t going away. Whether driven by regulation or by stakeholder pressure, businesses will continue to feel increasing pressure to meet ESG goals. The most successful companies will integrate such changes throughout their supply chains, working with suppliers to find solutions that meet both business needs and the greater good.

By focusing on continuous improvement, your business will be able to tell a more accurate story and drive better outcomes through technology. There is an opportunity right now to build a resilient supply chain of the future, and businesses that get this right will be stronger and more adaptable than ever before.

[1] Online survey with a sample of 621 businesses (207 in each of US, Canada and UK) conducted between 28 September and 11 October 2021 among senior managers working a role which demands knowledge of ESG or Sustainability requirements or processes for the business.

David Picton, Global SVP of Sustainability brings multi-sector experience to Alcumus, having held chief sustainability and advisory roles in the technology, infrastructure, and logistics sectors.

Through his consultancy work, David has helped global corporations and organizations in the fields of leadership, people engagement, change, operational performance, and strategic growth.

David is responsible for driving the global sustainability strategy within Alcumus and new product development, linked to ESG and sustainability through technology and data across the UK and North America.