Successful ESG risk management needs the right data

Customers, investors, and regulators have all demanded effective large-scale environmental, social and governance (ESG) risk management and performance from companies, as they require companies to demonstrate transparent and credible ESG practices. In the first half of the year, some countries have already drawn up plans and rules regarding the issue. For example, the UK’s Financial Conduct Authority is preparing to regulate ESG rating providers, while the USA’s Securities and Exchange Commission may also propose rules regarding shared business information.

However, meeting every demand of all stakeholders is not an easy job, as companies need to define the proper strategy. It takes the right data, tools, and technology for companies to overcome the matters, so they can eventually reduce the business resources burden.

Having the right data is a must

Stakeholders often expect companies to know and understand every layer within their supply chains, although the scale is very large and can cause various ESG risks across multiple areas, operations, and industries. What is more intriguing is the fact that ESG is still perceived as multi-interpretation with multi-standard that can make ESG requirements preparation quite a job.

For that reason, companies need to gather, access and analyze the right operational and supply chain data. Having this kind of data will help companies meet a wide variety of sustainability-related requirements with the required insight and visibility. To take it further, companies can even use energy more efficiently and do better in facing supply chain disruption.

Setting the groundwork

By conducting regular sustainability reporting and taking a holistic approach to related activities, companies can gather some core areas and topics across various ESG frameworks to identify which types of data are needed across the business and streamline efforts. It is an integrated analysis that will allow them to meet various reporting demands from investors and regulators, while demonstrating transparency to consumers.

To further help companies, this data can also support further insights. For example, Sedex’s risk assessment tool provides 340,000 risk scores across countries and industries to facilitate an initial, high-level global risk assessment. The tool can integrate data on particular suppliers and work sites to reflect differences between sites with individual risk scores. 

Prioritizing focus with the right data

Using the insight, companies can take action and address the most significant ESG risks with precise reasons behind their decisions as evidence of effective and progressive ESG risk management to stakeholders. In a nutshell, what companies need to do is to look at a specific risk, the data needed to identify it, and how they can use this data to inform their next steps. 

If there is one issue which can be notably challenging to identify, it must be modern slavery. Companies need to analyze the “indicators” of forced labour that may occur in the workplace, including excessive overtime, movement restrictions, and withholding of identity documents, through various tools like self-assessment questionnaires, third party social audits, or even anonymous feedback via worker voice tools. By analyzing combined information from these tools, companies can draw deeper insights, while building a more detailed picture of many related subjects. 

Companies can also prioritize their next steps from findings that indicate a higher risk of forced labour, such as carrying out deeper assessments at work sites to understand whether this increased risk manifests as an exploitative situation. After that, companies can address any mistreatment and protect workers, depending on the results of these assessments.

Indicating results

Meeting the increasing demands of investors and regulators can no longer be answered by only knowing about current ESG risks. Stakeholders may expect companies to determine proactive risk assessment, mitigate extreme risks, and act to address any identified issues. It is crucial for every element across the whole supply chain, including a company’s activities, suppliers, work sites and workers, to be involved in the process. This may facilitate companies not only to identify and deal with ESG issues but also to drive social and environmental sustainability while credibly measuring performance.

By using the right data to get a better comprehension of supply chains, manage ESG issues, and demonstrate progress, companies can encourage operational, reputational and financial benefits, while at the same time supporting long-term business sustainability and building stronger supply chains.