What does ‘good’ supply chain ESG look like

Environmental, Social, and Corporate Governance. The big ESG. We hear the term all the time now, arguably more so than ever before.

There is an increasing push for businesses to implement more robust, end-to-end ESG practices across their supply chains. The intent for this renewed push is noble, but given the ever-changing supply chain environment, evolving investor demands and government enforcement, and new emerging risks from the pandemic, the question arises as to whether a business’ execution of ESG measures is really contributing to a sustainable program.

The goal for most companies navigating the new world around corporate ESG strategy is a resilient supply chain program that reflects a sustainable business implementing pragmatic, effective, life-improving measures. The hurdle is that there is no shortage of issues to tackle to get there – wages, working hours, transparency, sub-contracting, health and safety, carbon emissions, forced labor-, making it difficult to know where to begin. And as the pressure for deeper due diligence mounts, the question of what “good” ESG actually looks like becomes a crucial one to investigate.

At LRQA (formerly ELEVATE LTD), we work with businesses to develop tailored fit for purpose programs to promote real, business-driven solutions. We emphasize transparency and integrity to understand the true risk and then help brands and retailers with global supply chains promote these values across the board.

Through our work with hundreds of global blue-chip companies and leading brands worldwide, we have outlined five characteristics to prioritize for development and five tendencies to avoid when developing ESG best practices for your supply chain.

What to prioritize in supply chain ESG management:

• Do focus on supplier transparency: This continues to be one of the most crucial components of an effective supply chain ESG program. Transparency is the pillar of credible data and helps responsible sourcing managers conduct informed decision-making when onboarding new suppliers. Equally important, this will be the difference between investors having confidence in your data and not.
• Do prioritize high-quality data sourced from the ground: Assessment data must be granular and conducted from a factory level to ensure it is verified and promotes a holistic view of a supply chain.
• Do foster and build relationships: In order for brands and retailers to have end-to-end consistency and visibility across their supply chains, fostering relationships with all parties is paramount. From vendors to suppliers, messaging must be conveyed consistently across the board to guarantee everyone is aligned with a company’s sustainability efforts.
• Do understand the total cost of ownership: Understanding the total costs of compliance and investment and the average cost of social responsibility program per factory will help companies in their efforts to measure return on investment and channel efforts for impactful change.
• Do ensure your ESG program is aligned with sourcing AND procurement: Oftentimes, these are separate initiatives that do not connect the dots. The more we can help connect the dots, the higher likelihood for success within a supply chain.

What to avoid in supply chain ESG management:

• Don’t focus solely on “tick the box” and “one size fits all” approaches: The time has long passed for companies to treat ESG strictly as a compliance checkmark. Thorough due diligence is the new norm and companies that overlook its importance face financial and reputational risks if they do not follow suit.
• Don’t structure a program solely on audit: Rather self-explanatory, there are many other factors to prioritize when structuring a program as outlined above. Audit rollouts will only go so far in ensuring proper due diligence is performed and risk mitigation efforts are in place.
• Don’t overlook worker sentiment: A huge priority at LRQA (formerly ELEVATE LTD) is ensuring workers’ voices are heard and taken into account. Worker sentiment provides an opportunity for unfiltered feedback on a factory and its conditions, allowing for a more in-depth look into a site and where it can be improved.
• Don’t mishandle risk management responsibilities: It’s important to assign an experienced staff member to handle your supply chain risk management. Building a team and governance structure with staff who have an understanding of the responsible sourcing industry and ESG challenges greatly reduces risk exposure and increases proper risk mitigation.
• Don’t over-build: New strategic initiatives often open up opportunities for expanded budgets and the temptation to expand the team. While this is often a good idea, it is important that any new hires are core competencies that your organization can’t do without. Adding “nice to have” staffing will often distract and dilute the strategic part of program development.

Business-driven sustainability efforts have increased in importance due to global events like the United Nations Climate Change Conference (COP26), Covid-19, and human rights issues within supply chains becoming more present in media headlines (i.e. CBP withhold release orders).

Businesses have an opportunity to contribute to global efforts to improve ESG by embracing more aggressive sustainability targets, while recognizing that the program needs to be tailored to their unique business model and needs. Partner with LRQA (formerly ELEVATE LTD) to begin developing your responsible sourcing program today.