ESG Strategies to Tackle Supply Chain Risks

21 September, 2023

A strategy is as much about what to do as it is about what not to do.

The words are just as valid for sports as for corporate sustainability. A strategy provides a game plan for your team to follow. No matter how good the team is, they are like a headless chicken in a barn without a strategy.

Unfortunately, only a few companies deem developing a comprehensive sustainability strategy essential, and even fewer take it seriously enough to follow through with it. It begs the question - how long can companies go without a comprehensive sustainability strategy? All trends indicate only a short time.

ESG is Mainstream
While ESG has been an influential parameter in board meetings and investment portfolios for quite some time, it has now gone mainstream. It is also responsible for influencing purchase patterns and brand reputation. Good ESG numbers are something brands can and should boast about. The global giant Apple just turned its ESG numbers into a marketing asset. The numbers put out by Apple are impressive - not something they achieved by winging it.

It’s time for enterprises to invest in comprehensive ESG strategies to tackle their supply chain risks.

ESG Risks and Supply Chain Disruptions
ESG risks in supply chains can cause immediate disruptions and financial losses. These risks can be categorized as Environmental, Social, and Governance risks. According to a Deloitte survey, supply chain disruptions have increased in past years.

But the impact of these disruptions goes beyond just monetary and operational difficulties. They can have a long-lasting effect on business, environment, and community.

Creating ESG Strategies for Mitigating Risks
Any game plan starts with understanding the field and players. It’s no different when it comes to putting together ESG strategies. Here’s how companies can create strategies to mitigate risks in their supply chains.

  • Collaborate and empower suppliers
    It’s perhaps the most vital step of the process. The more widespread a supply chain is, the more crucial collaboration and empowerment become. Enterprises need to ensure their suppliers are on the same page while helping them overcome their challenges to adopt ESG reporting. The challenges may include a lack of capital, a lack of trained workforce, and a lack of digital reporting infrastructure.

    Treeni’s SaaS-based resustain™ SMB can help companies accelerate ESG reporting across the supply chain.

  • Identify and assess supply chain ESG risks
    Once you have good visibility across your supply chain, you can identify and assess the ESG risks most relevant to your business, like extreme climate conditions, community distress, harmful procurement processes, non-efficient energy consumption, and more. Here’s a quick guide for enterprises on risk monitoring.

  • Prioritize the most significant ESG risks
    Not all ESG risks are created equal; some significantly impact your business more than others. Prioritize the risks that are most significant to your company and your stakeholders.

  • Develop and implement mitigation plans for the prioritized ESG risks
    Once prioritization is done, you can develop mitigation strategies tailored to the specific risks that you have identified. After this, you can implement them and monitor their effectiveness. Constant monitoring will ensure you effectively manage your supply chain ESG risks.

  • Embrace innovation and technology
    Adopting innovative technologies is vital for mitigating sustainability risks. Using advanced software for managing supply chains and procurement can help harness the power of ESG data, artificial intelligence (AI), and machine learning (ML) to enhance decision-making, improve sustainability, foster collaboration, and ensure compliance.

Collaborative efforts with suppliers on risk mitigation can reap excellent results. For example, since 2015, the Walmart Foundation has invested over $40 million to help enhance worker and community voices, promoting fair and responsible labor and recruitment practices in global supply chains. The company collaborates with suppliers to avoid 1 Gigaton of GHG emissions by 2030.

Benefits of ESG Strategy
Companies can better understand and manage their overall risk profile by identifying and assessing ESG risks in their supply chains. Here are some of the direct business benefits that enterprises can expect.

  • Increased resilience -
    Incorporating ESG strategy in the supply chain significantly enhances resilience against long-term risks like extreme weather events and resource scarcity. Additionally, it plays an invaluable role in preparing supply chains for disruptions driven by pandemics, natural disasters, or geopolitical conflicts.

  • Investor and stakeholder confidence -
    Increased resilience positions your company as a more stable and attractive investment. Making an ESG-focused supply chain more appealing to socially responsible investors and potentially increasing access to capital. Engaging with stakeholders, including communities, non-governmental organizations (NGOs), and governments, on ESG matters builds positive relationships.

  • Enhanced reputation -
    Meaningful relationship with stakeholders reduces the risk of reputational damage or legal actions. Consumers and investors increasingly demand that companies demonstrate their commitment to ESG values. By implementing an ESG strategy, companies can improve their reputation.

In the dynamic landscape of today's global business environment, sustainable ESG strategies have evolved from a trend to a necessity. They are not only critical for mitigating long-term ESG risks but also for fostering responsible business practices. Businesses must recognize the pivotal role of ESG in their sustainability journey.

Moreover, while collaboration with suppliers is essential for implementing ESG strategy, knowledge sharing across industries and companies is vital for accelerating nationwide ESG adoption. Industry leaders need to create platforms where companies can exchange knowledge, share best practices, and acknowledge contributions from other players. One such platform is the upcoming Sustainability Summit and Awards 2023 (organized by UBS Forums).

At Treeni, we are committed to helping enterprises streamline their supply chain sustainability and are a silver sponsor at the event to share our points of view and exchange notes with our peers. With the convergence of industries, we hope this will accelerate ESG adoption and help create a more sustainable future for all.

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