Building the Case for ESG: One Supplier at a Time

A company’s approach to ESG used to be a differentiator for issue-driven investors and talent; now it’s practically a requirement for any competitive business. 

ESG stands for environmental, social, and governance, three considerations that should be at the forefront of every company’s operations. ESG benchmarking indicates to stakeholders and the broader community an organization’s impact on the world around it. 

And yet, no matter how important ESG is in today’s economy, there are few organizations that truly understand what they should be doing to design, manage, and track ESG performance. Most don’t even know where to start.

The complexity of monitoring ESG benchmarking lies in the fact that 90% of a company’s sustainability impacts are estimated to originate in its supply chain. Considering and maintaining the ESG performance of all of one’s suppliers is daunting at best. 

At worst, it’s an impossible task for organizations that do not have the capacity and resources to dedicate to it. Especially when you consider that most businesses usually work with suppliers in multiple tiers. Hint: Your suppliers have suppliers. 

The safety and compliance managers who are being handed this responsibility do not understand how to track ESG back from the lowest tier supplier — for example, the cotton used to make the thread, which is used to construct the fabric, that is then sold to the craftsman who creates a piece of clothing and is eventually sold at the retail store. 

Another term for this is scope 3 emissions, or those that are not controlled by the reporting company but play a role in its value chain.  Studies have shown that most low-tier suppliers — aka, smaller companies providing materials and products to Tier 1 suppliers — fail to mirror the ESG standards expected from the end user.

Many companies have a long way to go before they are effectively communicating their ESG expectations to suppliers and getting them to understand, respond, and comply with these expectations. It’s one gargantuan task. 

But, there is a path to compliance. And, about time you get started.

The question is: Do you have the right resources to motivate your partners?

Surveys show that diversity, workplace and public safety, and labor standards are some of the top social risk issues for investors. How can your business quantify both the diversity of your staff and the D&I practices of your suppliers? 

The same question can be asked in regards to environmental initiatives. If you’ve named water conservation as one of your ESG commitments, you’ll want all your vendor partners and suppliers to do the same. And yet, how can you track how much water your subcontractors are using and/or preserving? 

Many of the businesses you partner with will not be set up for this level of accountability and reporting. But, the more important question is: Is your business? 

• How robust is your vendor management system? 
• What information are you collecting other than vendor name, mailing address, and phone number? 
• How many levels of your supply chain are you tracking? 
• What do you know about the group of contractors who show up on your job site, or where your material supplier sources their materials? 
• If you’re not asking the right questions and using the right software to organize responses, it’s virtually impossible for you to solve for ESG. 

With the right platform, you can build a community of partners aligned on ESG goals. These more robust platforms incorporate ways to communicate your expectations and requirements for vendors, as well as methods for vendors to input, organize, and verify metrics that show compliance with these requirements. They also provide tracking tools that move beyond snapshots in time to show progression and demonstrate long-term value and true impact.

Yes, compliance is important but that’s not the motivating factor here. While vendors may be worried about reporting on ESG because they are not yet where ‘they need to be,’ unifying under a more long-term value goal is what really counts when we’re talking ESG.

Are your ESG initiatives “doing good?”

Assembled in early 2022, the Strategic Advisory Board is already creating training solutions around what is not

If you’re only considering your own business and its operational outputs, are you actually driving your ESG principles forward and making an impact?

Yes, but only partially. 

It’s no secret that strong ESG compliance impresses investors and other stakeholders, but the ultimate benefit of ESG practices is simply “doing good.” Greater good can be championed when you engage your partners in purpose-built ESG strategies that will benefit all businesses in your supply chain and the community at large. 

This isn’t easy. Especially since the importance of ESG is still a relatively new concept and so many compliance standards exist. Which standards do you follow and how can you get everyone on board?

The key is to not let these questions and gray areas scare you off. Someone has to lead the charge and get things started, and it’s less likely your vendors have the resources to take control. Veriforce’s end-to-end supply chain risk and compliance management solutions can help you collect, organize, and build an engagement strategy around data that will jump-start your ESG quest.