'Potential dissonance' over ESG supply chain issues

16 June 2021

More firms are prioritising environmental, social and governance (ESG) in their supply chains, according to research.

But a lack of in-house awareness of its importance in the supply chain was the biggest challenge to extending ESG practices.

A survey by supply chain risk management software provider Avetta found 79% of companies considered employee health and safety ‘very important’, and 63% said reducing environmental footprint was ‘very important’.

Almost nine in 10 (87%) said ESG in the supply chain was important, of whom 39% said it was ‘very important’. However, 13% said it was only ‘slightly important’.

Diversity and inclusion was cited as ‘very important’ by 48%. Human rights considerations were ‘very important’ to 43% but only fairly important to 39% of respondents.

The study said the responses demonstrated some "potential dissonance" in the understanding of the interconnected nature of ESG supply chain issues.

“Employee health and safety, environmental footprint, diversity and inclusion, and human rights are all material ESG considerations and yet a company that ranks diversity and inclusion as a ‘very important’ consideration might rank ESG supply chain issues as ‘slightly important’ or even ‘not important’,” the study said.

“This reinstates that supply chain sustainability should be integrated into the company’s broader ESG architecture and not be isolated with the sole oversight of supply chain or procurement functions.”

Three-fifths (59%) said ESG in the supply chain was part of the organisation’s overall ESG programme, while 24% said they planned to do this.

Lack of in-house understanding of the importance of ESG issues was the most commonly cited challenge to extending ESG into the supply chain, mentioned by 31%. Lack of suppliers’ understanding of ESG was cited by 24%.

The report said: “While companies recognise the importance of achieving sustainable outcomes, they are less likely to recognise that most of that impact is in their supply chain. This reinstates that supply chain sustainability should be integrated into the company’s broader ESG architecture and not be isolated with the sole oversight of supply chain or procurement functions.”

The report recommended setting clear supply chain goals in reports, contracts and governance structures; and assessing, managing and monitoring ESG supply chain risks. Enhancing traceability, transparency and engagement with suppliers was also key, the study said.

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