The Weakest Link
The due diligence demands of ESG standards stretch from your boardroom, all the way to the very end of your global supply chain.
Customers - from families carrying out their weekly shop, to institutions tendering for huge fulfilment contracts - need clarity. Whether you know it or not: your product has provenance, your service has a story.
Consider two specific ways a weak link in your supply chain damages your business – reputationally and environmentally.
Reputation
When poor working conditions are identified or human rights violations are found, it is rarely the offending supplier that makes the headlines. Companies relying on these suppliers – particularly if they are household names – are tainted too. And the reputational impact stretches far.
Last year, fashion brand Boohoo came under fire for poor working conditions in its supply chain. UK-based workers were reportedly being paid well-below minimum wage at a factory in Leicester, prompting an independent review of the firm’s operations. Much has been written about supply chain problems within the retail space, but the Boohoo story is noteworthy for how it spilled over into the world of financial services.
According to ESG investing-focused publication ESG Clarity, at least four “responsible” investment funds held a stake in the company – relying on ESG scores that had ranked the retailer highly. One of these has since been forced to shutter, despite impressive investment performance.
The lesson is clear. Do not cut corners. Drill into the detail. Visit facilities yourself. Assess suppliers’ working conditions, consider suppliers’ culture.
It is not just physical supply chains that pose reputational risk. As technology dominates, digital supply chains must be addressed.
Microsoft, for example, came under fire in 2019 when controversial Chinese facial recognition app SenseNets listed the two firms as partners. It is alleged the app is used to profile Uighur Muslims in Xinjiang. Microsoft was forced to publicly deny the partnership, but experts said it was still possible the technology giant’s code was being used covertly by the Chinese firm.
Environment
Now consider environmental risk buried in your supply chain. Your due diligence must extend to the environmental practices of your suppliers. Perhaps the food and beverage firms you rely on are working with suppliers linked to deforestation.
Some of the world’s largest players in this space have been criticised over links to soyabeans grown in Brazil or palm oil from Malaysia.
These same companies have, however, piloted solutions. Blockchain technology has been deployed to track palm oil production. Satellites have been turned to for imaging to identify where deforestation occurs in the supply chain.
Supply chains must also withstand analysis about the operational impact of climate change. There are growing requirements for companies to report on climate risks impacting their operations. Consider lessons learned in Taiwan: recent droughts have impacted chipmakers and, by extension, technology companies relying on these components. Not factoring in the environmental risks of climate change contributes to delayed production, unfulfilled contracts and unhappy customers.
The pandemic has shrunk supply chains by challenging the flow of goods – and people – across borders. At the same time, supply chains are examined afresh in the scramble for replacement suppliers at the best price, just in time, closer to home.
This new scrutiny is a new opportunity to consider every link in the chain. Out of sight must not mean out of mind.
