Today, companies are receiving an influx of requests from customers, investors, and regulators to manage a wide range of environmental, social, and governance (ESG) risks. Earlier this year, the UK’s Financial Conduct Authority announced plans to regulate ESG rating providers, while the USA’s Securities and Exchange Commission may also be introducing rules on ESG information. It’s never been more important for companies to respond to and manage ESG issues, despite the pressure this can place on business resources.
Carrying out the necessary activities to meet stakeholders’ demands is no small task, with a number of hurdles presenting complex challenges for businesses.
However, the right data, tools, and technology enable companies to overcome these hurdles, streamline sustainability-related activities, and reduce the potential burden on business resources.
Why businesses need the right data
The supply chains that support businesses’ operations and production are often large and hard to gain full visibility of, and the ESG risks within them can differ across multiple regions and industries. It can be extremely difficult for companies to see where components, products, and services originate, to know who the workers are, and understand what conditions they work in.
To complicate matters further, ESG itself lacks an agreed-upon definition, with multiple standards existing across a variety of rating providers, frameworks, and financial services businesses. This makes the world of ESG a complex one for businesses to navigate, even as its relevance increases.
This multiplicity can make preparing for ESG requirements a confusing task – especially when ESG frameworks have similar, but not identical, guidelines to other sustainability-related activities. Businesses typically also have to meet supply chain and modern slavery legislation and respond to consumer demands, all while driving their own sustainability programs.
The solution can be found in collecting, accessing, and analySing the right operational and supply chain data. This data creates the visibility and insight required to fulfill multiple sustainability requirements while facilitating other benefits including more efficient energy use and the ability to better navigate supply chain disruption.
Getting the data right
Some core areas and topics feature across various ESG frameworks. It’s likely a company will already have data on some of these topics, especially if they produce an annual modern slavery statement or conduct sustainability reporting. By taking a holistic approach to these activities, companies can identify the common data needs across the business and streamline efforts to gather this data.
Environmental data, for example, may include air emissions and physical waste, while social risk-related data might include injury rates, forced labour risks, trade union membership, and the number, gender, age, and nationality of workers. Bringing this data together allows businesses to meet various reporting needs, from modern slavery to ESG.
This data can also be stored centrally to inform additional analysis, for example through sophisticated tools to analyse ESG risks across the whole of a company’s supply chain. For example, Sedex’s risk assessment tool provides 340,000 risk scores across countries and industries to facilitate an initial, high-level global risk assessment. Where companies have collected data on specific suppliers and work sites, the tool also integrates this to create individual risk scores for every facility, to reflect site-level differences.
Putting this data to use
Demonstrating proactivity and action on ESG risks allows companies to show commitment and progress to stakeholders. As an example, let’s look at a specific risk, what is needed to address it, and the next steps that a business can take using the right data.
One issue that poses particular difficulty for businesses is identifying modern slavery. To help manage related risks, businesses need to gain and analyse data on the workplace “indicators” of forced labour, as outlined by the International Labour Organization.
Indicators of forced labour can include excessive overtime, restriction of worker movements and withholding of worker ID documents. Businesses can get data on these for the work sites in their supply chains via tools such as self-assessment questionnaires, social audits conducted by third parties, and worker voice tools that gather anonymous feedback.
Findings that indicate a higher risk of forced labour allow businesses to conduct deeper assessments at work sites, to understand whether this increased risk translates into exploitative situations in reality. Once all necessary data has been gathered, companies can then take the steps needed to protect potential victims of forced labour, and work with the different stakeholders surrounding the situation to make corrections that prevent exploitation from reoccurring.
Showing the changes
Just being aware of ESG risks is not sufficient to meet the increasing demands of investors and regulators. These stakeholders expect businesses to visibly demonstrate proactive risk assessment, and action to address any concerns they identify.
Data that maps a company’s activities, suppliers, work sites, and employees across the whole supply chain is crucial for doing this. It enables companies to identify and tackle ESG issues and measure performance in a clear and credible way. This data can go even further and help companies to earn better ESG ratings by showing they are going beyond a framework’s baseline requirements.
Using the right data to build better visibility of supply chains, highlight ESG issues, and show credible progress has the power to drive operational, reputational and financial benefits, alongside supporting long-term business sustainability and creating more resilient supply chains.
