Supplier ESG ratings can provide important clues about potential supplier performance
Environmental, social and governance (ESG) issues have been on the radar for more than a century, but have more recently gained traction as a strategy for creating business value. And right now, the pressure to ensure business is conducted in a responsible manner has grown so strong that companies are turning to ESG to help them assess risks originating with the entities in their supply chains.
Corporate and institutional leaders have come to accept that their organizations have obligations — increasingly subject to government and agency enforcement — as “corporate citizens” in how their suppliers behave towards employees, customers, stakeholders, and the planet that houses them. In an era when regulatory regimes are expanding and any wrongdoing can be quickly and easily exposed through social media, the need for organizations to be able to accurately assess the ESG credentials of those in their supply chain becomes paramount.
Supply Chains at the Heart of ESG Performance
In many industries, supply chains can be responsible for 80% of the environmental impact. As major touchpoints interfacing with society through employees, communities and consumers, they are critical to managing reputational and financial risk.
How to Start Using Supplier ESG Data
After getting an initial supplier portfolio assessment, a company can identify those suppliers that present a high risk, and then begin to consider how or whether to conduct a business relationship with them. If the supplier is considered essential to the company’s core business — such as a direct supplier of a key part, ingredient or commodity — the company might help them find more sustainable sources or assist them in improving working practices or manufacturing methods.
If a supplier’s ESG data indicates that a continued business relationship would not be in the company’s best interest, the company can then look at the ESG data of other potential suppliers to identify lower-risk options. In time, this will ensure a network of suppliers with stronger credentials, creating a more robust supply chain that can stand up to scrutiny.
Uncovering this information through analysis of supplier ESG data means businesses — and those working in procurement teams — can have more certainty that they will not inadvertently become caught up in a scandal or disaster that could have damaging consequences. Having a stronger supply chain also puts them in a stronger position to win more business with their own customers, ultimately leading to greater productivity, profit and shareholder value.
Download the White Paper: How ESG Data Can Help You Build a Better Supplier Network
In the wake of the global pandemic and subsequent supply chain upheaval, understanding the ESG performance of suppliers can create healthier, more resilient supply chains, made up of businesses that are much less likely to incur liabilities or commit regulatory violations that could threaten security of supply in a post-pandemic world.
Our white paper, co-authored with Supply Management Insider, explores this theme in much more detail and also includes:
- Sources, categorization, and examples of ESG data
- Research findings on the correlation of good ESG rankings and positive supply chain engagement
- A case study analyzing a financial services company’s supplier portfolio ESG rankings
Read the white paper to learn more.