A turbulent 2020 led workers, managers, and business owners alike to seek out more meaningful partnerships both personally and professionally.
From employers to business partners and vendors, how these parties view Environmental, Social, and Governance (ESG) is at the forefront of many business decisions in 2021.
According to a November 2020 report by the U.S. SIF Foundation, as much as 1 in every 3 dollars of overall assets managed in the U.S. is now subject to some type of sustainable investment strategy or ESG requirement. That means businesses need to connect as much as one-third of their purchases and business decisions back to ESG.
So is ESG simply a trend or the latest fad? To answer this question, you have to understand what is causing this shift.
ESG Average Interest Over Time
What’s driving this shift?
There are a lot of things that are driving ESG momentum. As consumers became more aware of how fragile supply chains were, coupled with watching business’ responses to the pandemic, renewed carbon pledges, social movements, awareness, and focus on ESG reached new heights.
Added to this momentum was a significant increase in sustainable funds for investors, allowing people to put their money where their heart is also while reducing portfolio risks. There’s even a term for it; “sustainable investing” or “sustainable finance” if you’re in the EU. And when making this shift towards sustainable investing, it’s important to note that investors haven’t had to forsake gains in their portfolio. In fact, a recent report by financial services firm Morningstar found that sustainability funds actually outperformed conventional funds in 2020.
What is the future of ESG?
Well, that depends on where you live, but while we don’t have a crystal ball, it’s clear that there continues to be a significant momentum on ESG building accountability and transparency. Not the least of which is now coming from federal governments and agencies.
To spur economic recovery, the UK government intends to create a “green industrial revolution,” though corporations are still waiting with bated breath to see what new legislation will come to pass. (source)
The Securities Exchange Commission (SEC) in the United States is talking about implementing standards and structures to enhance transparency on ESG metrics and has created an ESG Task Force to identify ESG related misconduct. (source)
How does ESG apply to my supply chain?
To effectively measure and manage the ESG risks of your business, it’s necessary to capture ESG information from your supply chain. From the raw material provider to the manufacturer or packaging facility, you’ll need a complete understanding of how your supply chain is operating to identify ESG risks and manage material suppliers.
But it’s not a simple task. Gathering accurate information from all of the suppliers in your operations can be incredibly challenging and tedious and will be nearly impossible to do with paper or spreadsheets alone.
Digital solutions help overcome the complexity that data management presents, especially with a global supply chain. These solutions allow you to engage your on-site and material suppliers consistently and efficiently so you can accurately gather the ESG data needed to assess the health of your supply chain. It also helps reduce the burden placed upon suppliers. And, unlike paper and spreadsheets, digital solutions can provide real-time information and the agility leading companies need to make decisions quickly.
While the challenge of gathering and managing all of this ESG data is daunting, Veriforce is building ESG capabilities that fit into our client’s existing risk and compliance management processes, allowing them make informed decisions and manage their ESG risks.