Do Your Suppliers Fit in with Your ESG Strategy?

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Many businesses today are talking about an ESG strategy. But what is one, and do your suppliers fit in with yours?

What Is an ESG Strategy and Why Do Companies Need One?

ESG stands for:

  • Environmental
  • Social
  • Governance.

When applied within the context of a business strategy, an ESG strategy means all of the factors that should be considered that impact one of these three ESG factors.

Whether a business has ESG initiatives in place can impact its reputation, according to a study done by NAVX® and even influence potential investors.

It stands to reason then that having ESG objectives makes sound sense for any business and can be an excellent way for you to build meaningful goals that align with stakeholders’ interests.

Examples of ESG criteria are as follows:

Environmental criteria

  • Greenhouse gas emissions
  • Waste management
  • Anything that contributes to climate change.

Social criteria

  • Human rights
  • Corporate social responsibility to local communities
  • Employee relations like staff satisfaction and diversity.

Governance criteria

  • Financial performance
  • Corporate governance issues
  • Bribery and lobbying.
ESG metrics

How Can You Identify if a Supplier Is Environmentally and Socially Responsible?

If you’ve identified that an ESG strategy is appropriate for your business strategy, then the next step is to screen your supply chain to check it’s aligned with your ESG initiatives.

One such way is to get accreditation that ensures your business operations cover critical areas of risk management that align with your ESG strategy.

These areas may be intrinsic to your ESG goals, like Financial risks, Environmental risks, Corporate Social Responsibility, Anti-Bribery and Modern Slavery.

You may want to create your own risk assessments that make sense against your ESG strategy. For example, if you’re in retail, you may wish to consider each of your manufacturers, listing any ESG risks and how you might mitigate them.

You may then turn your attention to your shipping company and any other parts of your supply chain.

A good idea would be to develop a Pre-Qualification Questionnaire or PQQ to send out to any new suppliers. This should help you determine whether they meet your ESG criteria ahead of working with them.

You may ask for assurances around insurance details, health and safety policies and modern slavery statements and audits.

What Are the Benefits of Working with Suppliers That Align with Your ESG Strategy?

We’ve already established that creating your own ESG strategy can positively impact your business.

It then makes perfect sense to ask for the same standards of your supply chain. This assurance aids consumer protection, ensuring that products and services adhere to strict health and safety standards.

It can also improve business operations by creating smoother supply chain management and appeasing external stakeholders’ interests.

These may be senior executives looking to improve employee productivity and cost savings with better procedures or employees working directly with your suppliers and looking for improved communication.

Both customers and potential employees often look to work with organisations that care about climate-related risks, social and environmental impact and fair governance policies.

Working with suppliers who align with your ESG strategy may give you a competitive advantage over similar organisations that do not have ESG factors in place within their business operations.

How Can You Get Started Creating or Refining Your Company’s ESG Strategy?

If you have no ESG strategy in place, the first step is to identify the ESG metrics impacted by your business. After this, you should create a risk assessment that considers environmental, social and governance factors identified and outline the ESG opportunities and risks that relate to each one.

If your current ESG strategy feels out of date, the same is true. Ensure any regulatory compliance documents are up to date for your own business and for any supply chains.

Using a risk assessment, identify any ESG factors that should be considered for each of your suppliers, engage with the relevant stakeholders and create a roadmap to creating more robust procedures for each part of your supply chain.

If you’re unsure of how to go about this, then an accreditation in risk management can help. The Common Assessment Standard by CHAS is the industry gold standard for risk management accreditations and has everything a business needs to ensure its supply chain management aligns with its core principles and ESG strategy.

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