Introduction

The Need for Supply Chain Due Diligence Inclusion in ESG

Environmental, Social, and Governance (ESG) presents challenges for companies as ESG lacks a universal definition and framework for reporting. ESG data collection and reporting are important to investors who value companies that disclose accurate ESG information. Proactive ESG approaches improve the culture and well-being of companies and have positive impacts on critical global issues, including pollution, carbon emissions, forced/child labor, and strategic trade controls. Companies involved in international trade face several ESG issues that can be addressed through proactive supply chain risk management approaches. This report discusses the importance of companies disclosing ESG metrics to include supply chain due diligence within its ESG reporting.

Environmental, Social, and Governance (ESG) Background

A critical outcome of ESG is that it allows investors and stakeholders to view the risk management of a company, which leads to better investor relations and stronger profits in the long term. More and more investors want to ensure they are investing in a company that values its employees and the impacts the company can have in the global community. Corporate ESG requirements vary according to the sector companies operate within.

Environmental reporting may include biodiversity and ecosystem loss, greenhouse gas emissions, toxic waste management, energy consumption and overall impact within the climate crisis.

Social issues may include the way a company treats its employees and investors, wages, and programs used to ensure diversity, equity, and inclusion.

Governance helps manage the conditions employees work in and potential discrimination within the hiring process and the overall conditions.It is also important for companies that manage data to handle private and important data carefully. Governance also involves management practices, managing risk for supply chains, and ethical business practices such as forced/child labor controls and foreign corruption.

It can be challenging to define and disclose ESG information consistently. ESG policies should be implemented in ways that fit a company’s specific sector, with flexibility as companies evolve.

There are frameworks like ESG, for example, the GRI, Global Reporting Initiative, and SASB, Sustainability Accounting Standard Board. GRI has universal standards set for companies to report on economic, environmental, and social factors. This report stands out because it is universal, unlike ESG, where it is not specific and easy to compare and measure. SASB is also industry-specific for reporting on companies' sustainability. These frameworks hold companies accountable for their actions like ESG. This can highlight and improve the issues companies experience.  

Importance of ESG in Supply Chain Management

Investors should do their due diligence and improve their tracing of the company's practices and supply chains. Consumers should also be mindful of the products they interact with and the companies that produce them. Consumers are a key aspect of companies and their success. When they hold companies accountable, they have the power to highlight certain issues. It is recommended that governments implement laws and fines against these violations of forced labor and environmental damage.

There are many benefits of ESG, such as better customer loyalty, sustainability, financial improvement, and overall better employee performance. ESG initiatives show that companies care about their impact on the environment and the people that make up the businesses. Overall, ESG policies can improve risk management and the impacts a company has on a global community.  

Although there are positive impacts of implementing ESG policies, there are also intricate details to be aware of. ESG is a concept that has gained popularity, resulting in companies using this framework to attract investors. When ESG is not implemented for the intrinsic purpose but for financial gain, this takes away from the main purpose. For example, there have been violations in the solar panel industry. Solar panels work to create more sustainable energy, but the root of the products and the way the company functions violate multiple ESG pillars. It is important to implement ESG to create safer, more sustainable, and equitable work environments, not to attract more favorable investors.  

Summary

ESG is a framework that can highlight specific issues within a company and how it operates. ESG can be defined differently depending on the company and its needs. Creating a standard definition and ways of reporting can maximize the framework.  

An integral part of ESG is the investors and their role in the company. ESG shows investors which companies may be more valuable to work with regarding their principles and how they operate their business. Reporting ESG can also show investors the long-term risks and benefits.

In the context of the challenges and opportunities presented by ESG, supply chain due diligence emerges as a crucial component for companies striving to uphold these principles. By integrating robust supply chain risk management into ESG reporting, companies can mitigate the risk of engaging in practices that violate environmental, social, and governance standards. This proactive approach ensures that companies not only safeguard their reputation and investor relations but also contribute positively to global issues such as human rights abuses, environmental degradation, and ethical business practices. In essence, supply chain due diligence becomes the linchpin in successfully implementing ESG initiatives, aligning companies with sustainable practices, and fostering a more responsible and ethical global business environment.

How can BITE help with ESG compliance

The BITE app is designed to provide a true risk management tool for companies to enhance their due diligence in supply chain management. Companies taking steps to reinforce ESG in their framework can benefit from the BITE app.  

Governance, refers to the set of rules, practices, and processes by which a company is directed and controlled. In the context of supply chain management, governance pertains to how a company oversees its supply chain operations, ensures compliance with laws and regulations, and maintains ethical standards throughout its entire supply chain. Companies need to have robust compliance programs in place to ensure they are not inadvertently doing business with sanctioned entities. This includes implementing systems for screening potential and existing suppliers and partners against sanction lists.

The Watchlist module allows users to search through 40,000 watchlisted entities, organizations, and people from across the world.

The BITE List module allows users to search through second and third-tier relationships to sanctioned companies that supply denied entities. It also contains over 30,000 politically exposed persons, transhippers of forced labor-related commodities, and ESG violators. These lists give users the information they need to make responsible decisions centered around ESG.

The BITE Trade Protection module allows users to check their commodities against sanction lists, tariff controls, anti-duty dumping and countervailing duty orders, wildlife trafficking and forced labor lists, and more. This allows companies to follow basic protocols and ensure their supply chains are sustainable and secure.

The app allows targeted checks depending on what information the user is looking for. This app is helpful for businesses implementing ESG reporting or systems because it gives users the awareness of where their materials come from, who they are working with, and various violations ESG works to eliminate. BITE’s offerings span from forced labor to entities and commodities marked by sanctions. This is a necessary tool allowing companies to enhance their business decisions in compliance with their social responsibility.