To say the global supply chain has been unpredictable over the past two year is to put it mildly, and while there have been moments of relief and even some good meme fodder, many experts believe the end of the overall crisis is far from over. Though macroeconomic factors that create bottlenecks and shortages are well outside the control of most organizations, finding ways to evaluate and reduce risk you can manage in your supply chain is critical, particularly in times of crisis.
Your Supplier ESG Risk is Your ESG Risk
At its core, ESG is about risk management. By proactively identifying potential environmental, social, and governance hotspots in your own operations, you take control of the financial, brand, and physical risk that ESG mismanagement can present. The same is true of your supply chain.
While supply chain intensive industries like conflict minerals and chemicals have been managing complex risks in their supply chains for decades, understanding suppliers’ ESG performance is meaningful for more organizations than ever before, whether it’s to comply with new climate disclosure mandates or to select suppliers whose labor practices match your corporate responsibility and human rights commitments.
Feedback Is the Fuel of ESG Performance
As with all things ESG, supplier transparency starts with strategy and is fueled by data. As an organization sets their goals around everything from emissions to water footprints to DEI, they should identify how their supply chain will impact these goals as well as overall performance. Supply chain leaders can then work with their sustainability team to set thresholds on the metrics that will most impact those goals.
To best manage supply chain and ESG data, it’s imperative to create a feedback loop with each supplier. Implement easy and intuitive ways, including digital surveys and relevant system integrations, for your suppliers to share the data that you care about. Then, compile the data to see which suppliers are performing within your desired thresholds and which may need intervention. With this data in hand, you can provide clear direction to your suppliers about how they can and need to contribute to better your collective ESG performance.
Benchmark to Make Better Decisions
There are a myriad of ways to improve performance on each of the dimensions of ESG throughout your supply chain. From selecting suppliers who use alternative fuel vehicles, pay living wages, prioritize sustainable packaging, or have a diverse workforce, there are many levers for supply chain professionals to pull. But how can they best evaluate performance of their current suppliers now and identify outliers?
Benchmarking. In addition to monitoring the thresholds mentioned above, once you’ve collected relevant supplier data you can prioritize side-by-side comparisons of similar suppliers to understand which companies are performing best on ESG metrics. Take comparisons even further by using an ESG data aggregator and rating company like CSRHub to identify how well your suppliers stack up to their peers by industry or geography.
Organizations can also use scenario analysis tools to model how changing or removing a supplier will impact overall performance. These insights will help you optimize your supplier selection, negotiate agreements, and avoid riskier relationships that increase organizational exposure.
Need help managing ESG performance across your supply chain? The FigBytes ESG Platform Supplier Transparency Solution helps organizations centralize supplier data, identify potential hotspots, and communicate with suppliers to effectively manage ESG impacts and risks.