It’s no secret that companies who prioritize sustainability efforts outperform those who don’t. But our recently released Business Sustainability Risk & Performance Index shows it’s not enough to only focus on the performance of your own operations – the hidden risks come lower down. Drawn from 65,000 ratings of more than 40,000 companies across nine industry sectors, five geographic regions and four assessment themes, the Index provides deep and extensive insights gleaned from supply chains around the globe. One topic rang clear throughout this year’s report: strong enterprise performance includes a sustainable supply base.
Management Systems Must Include the Supply Base
Now more than ever, importance is placed on holistic sustainability management systems. COVID-19 has shown us that organizations are only as strong as their most vulnerable supplier, calling for all companies to go beyond compliance-only risk management to true performance management across the board.
The Index rates businesses sustainability systems by scoring companies across 21 sustainability criteria that fall under either the Environment, Labor and Human Rights, Ethics or Sustainable Procurement themes. While most theme scores consistently increase year-over-year, Sustainable Procurement continues to lag, showing that while companies are addressing social and labor impacts within their own operations, they are neglecting the risks that exist among their suppliers. Not only does this open them to brand reputation and business disruption issues, they are also missing out on a huge opportunity to drive value and create resiliency in the next tier of the supply chain.
With as much as 90% of a company’s sustainability impact being generated in the supply chain, it is one of the greatest opportunities for real change – and this starts with leveraging reliable and actionable indicators.
Measuring GHG Emissions is Key
Total carbon/GHG emissions are an essential management indicator related to environmental sustainability. The Index’s deep dive on carbon/GHG emissions discovered that only 18% of businesses in North America participate in direct reporting. That number is even smaller for European and AMEA regions at 15%.
Reporting on carbon/GHG emissions generated from a company’s own operations (scope 1 and 2) is an integral part of a sustainability management system, but it’s only one aspect of an organization’s carbon footprint. It’s also key to look at the emissions generated by your supply base (scope 3). By participating in all levels of carbon emissions reporting, companies can create effective GHG reduction actions across the value chain, helping reduce the significant threat posed by climate change while improving their own sustainability performance.
Health Crisis Preparedness as a Differentiator
Health crisis preparedness also plays a large role in sustainability management as it helps boost resiliency in the face of disruptions such as COVID-19. Evaluating suppliers on three key indicators, employee health and safety, working conditions (including labor practices pertaining to work hours as well as financial and non-financial benefits) and supply chain due diligence (such as regular supplier assessments and supplier CSR risk analysis), positions companies to identify who is high-risk or who is falling short in sustainability management system preparedness.
Currently, most companies are ill-equipped to transition to a new normal with 80% of suppliers lacking supply chain due diligence measures, 57% not monitoring working conditions and 44% lacking employee health and safety preparedness. Neglecting to address and improve these indicators – especially supply chain due diligence – risks overall resilience and prevents businesses from minimizing the impact of future disruptions.
Spotlight on Discrimination, Harassment and Diversity
Strong sustainability management systems must measure diversity, harassment and equality policies and actions. It’s widely accepted that an organization’s approach regarding these issues has a significant impact on its overall reputation, business innovation, and bottom line. However, last year’s Index revealed that only 1 out of 3 companies globally have at least one measure, such as whistleblowing procedures, awareness training or anti-discrimination recruitment practices, in place. With eight or more available measures, and 68% of companies implementing none, this is not enough as the insights gained from reporting on these guidelines can steer actionable strategies for both a business and its suppliers.
Finding Success with The Supply Base
It’s not enough for an organization to improve its own sustainability performance – it must also prioritize the management systems of its suppliers. Businesses that adopt sustainable practices throughout their supply base will be able to quickly adapt and mitigate challenges, ensuring future resiliency to supply chain disruptions and meaningfully contributing to global sustainability outcomes.
Ready to start measuring the sustainability performance of your supply base? Check out our Intelligence Suite which includes sustainability ratings as well as IQ risk mapping offerings.