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Is your industry under scrutiny? Audit the ESG performance of your supply chain

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When everyone’s watching and hoping you’ll trip up, you know you can’t afford to put a foot wrong, so you don’t. But what about your supply chain?

The actions of the companies you employ in your supply chain reflect on you. If one of them does something that attracts negative public and media attention, your critics will inevitably use it to attack you.

They’ll say that your vetting and procurement process are too weak – and if you can’t even get that right, how can you be trusted to do x and y right?

Reputations are hard won in business, and that’s especially true in industries that are under constant scrutiny, like nuclear power, shale gas and waste management.

You really don’t need an errant supplier undermining yours.

Evaluate ESG performance and insist on high standards

Company’s with a strong commitment to good environmental, social and governance practices (ESG) are much less likely to behave in a way that causes you a problem.

For instance, they are far less likely to breach regulations or to cut corners.

So, it’s important to implement some sort of ESG due diligence into your procurement process. Prospective new suppliers should be assessed before any contracts are placed, and existing suppliers should have their ESG performance evaluated at least annually to make sure they’re still a safe pair of hands.

It’s also important to make it clear how seriously you take this – that means setting out ESG principles that you and your supply chain are expected to adhere to, coaching and helping suppliers to continually improve their performance, but cancelling contracts with businesses if they consistently fail to meet your standards despite any efforts you’ve made to help them do so.

How to evaluate ESG performance

At Remsol, we’ve developed a unique maturity model that we use as a strategic tool to assess the ESG performance of businesses.

It considers up to 30 separate measures, and codifies performance as either Beginning, Improving, Succeeding or Leading in each area that’s assessed.

It takes the form of an online questionnaire that the target business self-completes, followed by one or more telephone interviews and one or more site visits during which we validate the information provided in the questionnaire, and test our assumptions, by collecting evidence.

The result is a tailored report packed with intelligence, actionable insights and improvement recommendations grouped under the overarching themes of environmental, social and governance performance.

Where gaps and risks are identified, these are spelt out clearly, allowing sound decisions to be made about supplier recruitment.

Of course, this is just one tool and methodology but we happen to think it’s a very good one.

At what cost?

Adding in extra checks and balances in the procurement process inevitably brings with it increased costs, and that might seem like a reason not to do it.

But assessing the ESG performance of your supply chain is a value-added process, as Anita Househam of the United Nations Global Compact explains:

“Successful supply chain managers must think beyond short-term financial considerations to build relationships that can deliver long-term value along the entire supply chain.

“This includes incorporating sustainability issues into the company’s sourcing and purchasing practices. Companies that incorporate ESG considerations into supply chain management can deliver a range of business benefits, including:

Better anticipation and management of risks, as risk is spread out across different players

Reduced operational risks such as disruption to supply, increased cost and lack of access to key raw material

“Informal” or “social” license to operate within communities, legal systems and governments that otherwise might be antagonistic

Reduced costs and enhanced efficiency and productivity

Improved working conditions, which can reduce turnover and improve quality and reliability

Improved efficiency and profitability as a result of increased environmental responsibility

Protection of corporate brand and values, and enhanced consumer confidence and loyalty

Greater process and product innovation uncovered by empowered suppliers

Potential increase in shareholder value as shown by examples from leading companies with good supply chain management

The bigger cost, of course, is the cost of not integrating ESG factors into the procurement process: because when one of your suppliers makes a mistake that wouldn’t have happened had it taken its ESG responsibilities more seriously, the reputational costs to your business could rapidly escalate.

Want to know more about our unique maturity model and how you can use it to evaluate and monitor the ESG performance of your supply chain? Contact us on 0345 123 2544 to discuss.

 

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