For ESG to be impactful, a company cannot neglect its supporting roles, such as its supply chain
The need for creating financial and non-financial sustainability in today's world has increased multi-fold. Environmental consciousness, social justice and proper internal governance have become key metrics for stakeholders, both internal and external, to assess the success and growth of a company. However, for ESG to create the impact that is envisioned, there is a need for it to be all-pervasive. Sometimes, a company does not pay attention to its ancillary functions like its supply chain when implementing ESG practices.
With the evolution of global economies, the rise of competition and the resurgence of the entrepreneurial spirit, supply chains have extended their footprints across geographies. The phenomenon uniquely positions them as key local advocates of sustainability, with a global contribution towards a company’s ESG goals.
The choice to create an ESG compliance programme may be influenced by a variety of goals. First and foremost, it can reduce the effects of people on the environment. However, there are other reasons for establishing ESG programmes, such as legal requirements, advantageous commercial considerations, or - more recently - a desire to attract investors.
The creation of ESG-compliant supply chains comes with many benefits. First, they offer financial sustainability by ensuring adherence to ESG practices. The challenges that may crop up due to mismanagement of resources and operations can be reduced significantly. It ensures regular operation of supply chains in addition to reducing the downtime of units. Second, these supply chains offer environmental sustainability. By adopting environmentally conscious sourcing practices, supply chains can help contribute to a company’s carbon reduction activities. Third, ESG-compliant supply chains boost the creation of circular economies. These ecosystems are robust in both scale and scope, which ensures their long-term success.
ESG integration with supply chains also fosters the development of an innovative approach to product development, cost reduction and market differentiation. The constant drive to achieve more for less environmental and financial cost will always lead to the creation of products and practices that are more responsible than previous ones. The innovative production of better products and reduced costs satisfy the demands of a more informed and discerning client base. All these factors create a compelling case for the implementation of ESG in the supply chain.
Companies looking to integrate ESG across supply chains can take note of the following points:
Due to their desire to support companies that have a long-term, sustainable future, investors are driving the ESG compliance movement. They are significantly increasing the number of investment funds with ESG requirements. Businesses without a compelling ESG message are losing access to substantial pools of funding. As a result, stakeholders' perceptions of ESG programmes have significantly changed, and business processes like supply chain management and procurement are gradually shifting away from being just concerned with supply quality and cost. Executives and financial leaders now view these organisations as a vital link in the ongoing funding of any company.
Selecting a compliance framework is equally necessary. Compliance frameworks come in a variety of forms, from the generic, which may be altered to cover virtually any issue, to the custom. Each ESG-related aspect can be analysed using more focused frameworks such as the Green House Gas Protocol Corporate Accounting and Reporting Standard. They may demand more internal application work because they are more specifically matched to a given responsibility. Prioritising responsibilities is essential given the limited time and financial resources companies and people have. Once priorities are established, policies that outline the intentions and specify the resources can be created and distributed.
If companies can demonstrate that they share their employees' ethical values, they may also experience higher employee retention. More important, ESG activities assist the environment, and well-designed ESG programmes can forge a strong connection with the investment community, which is advantageous for any company's future.
The ESG mandate is being accepted globally. As per the DJSI (Dow Jones Sustainability Index), assessing the ESG performances of businesses on a global level has seen an increase in the participation rate by 33 per cent in 2021 against 19 per cent in 2019.
Therefore, the foundation is robust, and it is now in the interest of all regulators, industries, and investors to come together in a common platform. It will allow for the creation of a roadmap that ensures the initial momentum of incorporating ESG into the supply chains of companies is maintained.
(The author is President & CEO of AGI Greenpac Limited, a leading packaging company in India)