Adopting ESG standards across the supply chain is a move towards socially responsible and sustainable business models. For this to happen, ESG performance needs to be measured, risks mitigated and transparency increased. Companies are increasingly being asked by their customers to make efforts to carry out due diligence checks on their suppliers.
With an increase in recent years in social media, reputational risk and consumer knowledge is now abundant. Consumers care where a product came from and if workers were treated well. It is clear that this trend will not go away, so good social and environmental working practices, along with being transparent about them are critical to a companies’ future.
Implementing responsible sourcing practices extends the requirement for higher ESG standards throughout the supply chain, passing along the need for a more responsible and transparent supply chain, helping to resolve undesirable working practices before they become an issue and increasing trust between customer and supplier. Demonstrating this commitment also improves investor and financial institution trust, leading to financial security. SEDEX outlines that ‘although there are many benefits associated with implementing an effective ESG strategy into your supply chain network, doing so also presents challenges and risks that need to be addressed’ ESG’s Impact on Supply Chains: What to Expect in 2024 – Sedex. Uncovering these challenges and risks is part of the continuous improvement process.
Obstacles in the way of progressing responsible sourcing throughout the supply chain are; there is no one standard method to evaluate a suppliers performance, many pieces of data are either very difficult to put together or non-existent. Historically, systems are set up for financial records, not sustainability. However, as strategies improve, systems and processes to track performance improve.
New regulation is being put in place to support ESG transparency;
US Uyghur Forced Labor Prevention Act (UFLPA) and the German Supply Chain Due Diligence Act (LkSG).
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