How Your Supply Chain Impacts ESG Compliance

Environmental, social and governance (ESG) goals remain popular for businesses prioritizing their eco-conscious objectives. The ESG compliance framework encourages corporations to take responsibility for their climate impact by investing in greener business models. 

Sectors with supply chains have more to consider, as every independent entity has a carbon footprint that directly affects theirs. As such, companies must collaborate to reduce emissions in the big picture — otherwise, the supply chain’s impact will prevent the success of the greater whole.

What Is ESG Compliance In Relation To Sector Emissions?

ESG compliance is a methodology used to determine corporate budgets. Companies should make progress transparent to employees and customers. Choosing where investments go is based on responsible action that refers to ESG at every step. It’s not a requirement to embrace ESG in supply chains, but it’s important to promote environmental health and social equality.

Concerning the planet, there are three types of emissions, labeled by their origin:

  • Scope 1: Immediate, traceable emissions from a business that is within its control.
  • Scope 2: Incidental emissions from required utilities like electricity.
  • Scope 3: Indirect emissions related to every other organizational activity, such as supply chains and end-of-life treatment of consumer products.

Knowing these distinctions is helpful for accountability and compartmentalizing internal objectives for productive collaboration. For example, a company may have safe working conditions in the main headquarters, but the supply chain might see more frequent injuries related to fossil fuels. 

ESG compliance assesses the extent of green and socially ethical responsibilities throughout the supply chain — instead of just the parent or client organization. Because every action in a supply chain trickles down and changes how the other parties operate. ESG compliance in supply chains is nonnegotiable if an entity wants to be genuinely green, free of corruption and socially ethical.

How Can Companies Achieve ESG Compliance And See Benefits?

The supply chain impacts ESG compliance by forcing companies to standardize worker treatment and workplace conditions. Everyone from CPOs, CFOs and CSCOs must collaborate to ensure they aren’t greenwashing or devaluing staff input for impactful change. 

Considering the supply chain makes holistic ESG compliance more nuanced and time-consuming to implement, but it’s the only way to see the benefits of each process phase.

Seek a Framework

There are compliance frameworks out there that support ESG in the supply chain, such as ISO or ISAE. The benefit of choosing a structure is that it creates consistency throughout the headquarters and all partners in the supply chain. 

However, companies can be malleable and fit these concepts into their ESG goals. For example, they may use process discovery, an evaluation method that reveals corporate improvements and determines the company’s needs. 

Relevant questions for this process include:

  • Does it need to minimize waste output?
  • Is there enough diversity in the workplace?
  • Do stakeholders have the workers’ best interests at heart?

Regulate Reporting and Get Audited

After finding the frameworks and outlining aspirations, companies must find a way to have their entire supply chain maintain reporting. Otherwise, there isn’t a way to measure progress. In the eyes of customers and partner companies, this is the most vital aspect.

How can supply chains prove the time and financial investment required for ESG compliance to change? If the improvement isn’t significant enough, it’s a chance for organizations to reconsider their procedures or alter goals to be more practical and measurable.

Supply chains seeking more official compliance verification can undergo audits to affirm adherence, which are invaluable resources for ensuring continued ESG maintenance. Auditors can provide tips and tricks for solidifying compliance or provide updates on how to adapt to new standards. 

The benefit of these third-party analyses is a decreased chance of bias. Customers appreciate the legitimacy of external verification sources, which is substantial given that 92% of customers trust eco-conscious brands more than others.

Maintain Data

As the supply chain reports on its ESG progress, it has to funnel into an all-inclusive system that provides a singular picture of all insights. Without connecting data silos, there is no way to self-evaluate — supply chains must rely on themselves alongside auditors instead of delegating all suggestions and responsibilities to compliance administrators. 

The benefit of this reporting is that it makes companies more self-aware and facilitates the creation of genuine habits that promote ESG without as much effort. Plus, 55% of UK companies vouch that finding partners with a strong desire to embrace ESG is more cost-effective.

Accountability And Awareness With ESG Compliance

ESG in supply chains creates more comprehensive enterprises. The supply chain can account for far more environmental, social and governance concerns than the central business because each party involved has its own unique method of operation. 

When companies look at how a third party’s ESG relates to its own, they will understand the gravity of how and who they partner with in the future, resulting in a meaningful, positive impact on customers, workforces and the planet.

Lavanya Rathnam

Lavanya Rathnam is an experienced technology, finance, and compliance writer. She combines her keen understanding of regulatory frameworks and industry best practices with exemplary writing skills to communicate complex concepts of Governance, Risk, and Compliance (GRC) in clear and accessible language. Lavanya specializes in creating informative and engaging content that educates and empowers readers to make informed decisions. She also works with different companies in the Web 3.0, blockchain, fintech, and EV industries to assess their products’ compliance with evolving regulations and standards.

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