As the importance of environmental, social, and governance (ESG) factors grow, business leaders face complex challenges when it comes to managing and measuring ESG performance. This statement is extremely true for supply chain management where the variety of sources and levels of data that need to be reported on can be vast. The truth is, when it comes to ESG, it’s not just your business practices that need to be considered, but the practices of your entire supply chain ecosystem.
The task of culminating, organizing and accurately reporting on all of this data in order to build a connected view of your full supply chain can be daunting. But with increased measures being set out by the SEC, and a host of regulatory initiatives being implemented by the European Union including the newly introduced Climate Benchmarks and Sustainable Finance Disclosure regulations, new business leaders must make ESG reporting a top priority in 2023.
There is a way to make the task less overwhelming all while ensuring you’re reporting the right metrics and information, and it starts with overcoming the data integrity roadblock. Below I explain more about the importance of ESG for businesses and their wider supply chain, as well outline four key steps to ensuring data is ready to support ESG reporting requirements.
What is ESG and why does it matter?
ESG refers to three key factors that are used when measuring the sustainability and ethical impact of a company’s business practices. The concept has gained popularity in recent years, with issues such as data privacy, energy consumption and lack of diversity in the workplace driving a bigger focus. Here are a few examples of key considerations for each ESG factor:
- Corporate climate policies
- Energy use
- Waste and pollution
- Natural resource conservation
- Employee relations and diversity
- Impact on local community
- Workplace conditions
- Accurate and transparent financial reporting
- Data privacy practices
- Corruption and bribery
- Ethical data sourcing, enrichment, and management
Aside from increased regulations, ESG is becoming a bigger focus in investment analysis with investors increasingly viewing ESG factors as key in understanding a more holistic view of a business for more sound investment decisions. But it also has other potential impacts too, increasing numbers of employees and customers are stating that a company’s ESG credentials influence where they choose to work or spend money. The short of it is, that in order to stay competitive ESG must be a priority for every company.
ESG and the supply chain
The challenge for many businesses is that much of their ESG footprint is hidden within their supply chain not in their direct business operations. Collecting the data on one’s own energy consumption and hiring practices is challenging enough and in order to report on the full picture, companies must consider their suppliers and every single touchpoint within their supply chain. Businesses need to understand their suppliers in a more intimate way.
If a company uses a third party for shipping, they may need to have insight into the third-party’s fuel usage, where they’re sourcing fuel from and how they treat their employees as well as other factors. Another example would be the packaging of goods. If a vendor is used to create packaging, the recyclability of the packaging must be known, including where it came from, what it’s made of and the probability of it being recycled.
Overcoming the data integrity hurdle for supply chain ESG reporting
It’s easy to see why ESG reporting for supply chain leaders is such a headache with so much data coming from so many disparate sources. But it doesn’t need to be this way.
By deploying a data integrity strategy, companies can ensure they are basing reporting and decision-making, on accurate, consistent and contextual data, not just when it comes to ESG but across their entire business. Here are the steps business leaders should be taking in 2023 to achieve data integrity and get a jumpstart on ESG reporting:
1. Integrate data from disparate sources
An organization’s infrastructure must be able to integrate data across different sources and formats to have a comprehensive view of all ESG data. This will help spot trends that would not have otherwise been visible and facilitate more efficient and timely reporting.
Data integration is especially key when it comes to businesses with complex supply chains. On top of integrating their own data, which is often residing across multiple areas of a company’s infrastructure, it’s also likely that goods are changing hands multiple times throughout the supply chain, going from manufacturer to carrier, to port authority, to delivery driver and so on. Understanding the profile, provenance, implicit and explicit assumptions and calculations of that data is a baseline requirement for accurate ESG reporting. Accessing data through this chain of command and viewing it in one location is an inherent problem that flexible and automated data integration can resolve. Step 1 in 2023 should be investing in the time and resources to make data integration a seamless process across the organization.
2. Build a company-wide approach to data quality and governance
ESG reporting that’s based on poor quality data will ultimately yield poor results. In contrast, a robust data integrity strategy will not only help to bring data into one location, but help clean it up too, bringing visibility and confidence in its quality.
Data governance is often a very manual or at least a very siloed process and frequently led by IT programs. A board-level mandate on data governance is also required to not only help you save time but provide real-time analytics which support confident in-the-moment decision making.
3. Leverage location intelligence to unlock hidden context
Location intelligence unlocks essential context that the data on its own won’t reveal, connecting insights and serving as a common link between silos of data. It serves to elevate business decision-making in relation to people, assets, places and opportunities. This is important to monitor as it affects how a business infrastructure will operate as environmental factors such as climate change continue to impact every part of the world.
4. Enrich data to uncover further insight
Data enrichment is the process of adding trusted third-party data to existing internal data, helping to reveal even more insight when assessing ESG factors. The addition of risk datasets related to wildfires, floods, earthquakes and weather events can help to uncover the history and likelihood for hazards in certain locations. This can help support organizations who are being required to report on the potential impacts of climate change on their own business empowering them to make faster, more confident decisions to proactively forecast and manage risk.
It seems clear that ESG reporting, especially for the supply chain, is not an easy task. Getting it wrong can have an array of negative impacts, spanning regulators, investors, employees and customers. By developing a robust strategy for data integrity, organizations can make more confident ESG decisions based on data that has maximum accuracy, consistency and context something that will become even more crucial as pressures around ESG reporting continue to increase in 2023.