Integrate Your Supply Chain to Meet ESG Objectives

by | Dec 20, 2022

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How to incorporate ESG in your company’s value chain

Growing scrutiny from responsible business practices from shareholders, regulators and other stakeholders is driving a boom in Environmental, Social and Governance (ESG) reporting. And the push for increased reporting exists across sectors and geographies —  nearly all (96%) of the top 250 global companies by revenue report on sustainability, according to KPMG.

But while organizations have made great strides in measuring the environmental and social impacts of their own operations, many businesses still struggle to expand data collection across their entire value chains. This is a major barrier to effective ESG reporting, since the value chain has an outsized impact on relevant metrics. For example, 65-95% of the average company’s greenhouse gas (GHG) emissions come from its contractors or suppliers. So, companies that move the needle on ESG metrics in their value chains can make significant progress toward their ESG goals — if they’re able to measure accurately.

To address the state of ESG in the value chain across industries, ISN recently published its Environmental, Social, and Governance White Paper, which dives into the results of its ISNetworld® Sustainability Questionnaire. Developed by sustainability professionals, this standardized, comprehensive questionnaire has been answered by more than 22,000 contractors and suppliers. The results shine a light on key ESG trends in the value chain and can help you understand how to approach ESG goals with your own suppliers and contractors.

Laying the groundwork for ESG data collection

Obtaining ESG improvements in your value chain is a long-term proposition. It requires building deep, lasting relationships with suppliers and contractors to facilitate accurate, timely data collection and foster close collaboration around ESG goals. Strengthening these relationships not only improves ESG-related outcomes — it can also boost efficiency and reduce value chain disruptions, among other benefits.

But even with strong relationships in place, it can be hard to know where to start. ESG encompasses a broad range of topic areas, from Diversity, Equity, Inclusion and Belonging (DEIB) to water conservation. If your organization already has an ESG strategy and goals, work backward to identify which metrics are most important for your suppliers and contractors to meet. From there, you’ll need to develop grading criteria you can use to evaluate the progress of your partners. Only at that point will your organization be prepared to collect relevant data from your partners.

Two trends to consider when optimizing your value chain for ESG

Ultimately, understanding the environmental and social impact of your company’s value chain requires working directly with your own suppliers and contractors. But overall trends can provide a starting point for identifying possible areas of focus or improvement.

The ISNetworld® Sustainability Questionnaire dataset encompasses responses from contractors and suppliers across 30 different industries, providing a comprehensive view of the state of ESG in the value chain. Key findings include:

  • Despite increased emphasis, environmental reporting has major gaps. With companies across sectors making environmental metrics a top priority, more than half (53%) of contractors and suppliers report they’ve implemented an Environmental Management System (EMS) to help create policies and monitor environmental impacts.

However, there are still significant gaps in which goals and metrics they’re tracking. For example, only 18% of respondents said they have a company-wide plan to cut GHG emissions, and only 9% said they track renewable energy consumption. Working with suppliers and contractors to develop goals and improve monitoring in these and other under-measured areas can have a major impact on achieving your company’s ESG goals.

  • Company size influences social responsibility metrics. Reporting ESG metrics used to be the province of larger companies that were required to do so by shareholders or government regulations. But small companies are increasingly being asked to share data, too. Forty percent of suppliers and contractors who completed the ISNetworld Sustainability Questionnaire at a Hiring Client’s request had 100 or fewer employees.

When it comes to adoption of social responsibility policies and training, smaller companies are still catching up with their larger counterparts. For example, while 80% of suppliers and contractors with 1,000 or more employees provide regular anti-corruption training, only 49% of suppliers and contractors with fewer than 25 employees do the same. When addressing ESG concerns in your own value chain, plan to give small suppliers and contractors extra attention and support.

A major ESG opportunity

With attention to companies’ environmental and social impacts on the rise, fully incorporating your value chain into your company’s ESG strategy will pay enormous dividends. By identifying key metrics important to your organization, then collaborating closely with suppliers and contractors to collect relevant data, you can gain a more complete picture of your own company’s progress towards its ESG goals.

To learn more about how to incorporate ESG into your value chain — and see more relevant trends across ISN’s network of 75,000+ contractors and suppliers — download the Environmental, Social, and Governance White Paper today.

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