An increasingly growing factor of importance, ESG (Environmental, Social, and Governance), is empowering corporate organizations to measure within their supply and value chains.
Today, a strong ESG framework is reflective of the organization’s commitment toward sustainable growth – and how it caters to the sustainable viewpoint of investors, broader stakeholders, as well as customers, suppliers, and the community.
The years 2020 and 2021 were challenging for many companies, who were trying to navigate the new normal. With companies demanding to return to the office in 2022, they will explore new frameworks for their business and build more flexible and responsive strategies. Likewise, ESG strategies will take on new attributes to cater to the greater expectations and demands.
With the way the world is changing, owing to several factors, including climate change, COVID, and social awareness, corporate organizations are monitoring and advancing their ESG strategies. However, implementing an ESG program is not a cakewalk. Organizations that are adopting and estimating ESG within their supply value chains are facing emerging areas of challenge.
In 2022, corporate boards and management leaders will face rising pressure to demonstrate whether they are equipped to understand and oversee ESG issues.
Read more: Sustainability Tech Innovations that will power 2022
These key ESG challenges will take on more importance:
-
DEI (Diversity, Equity, and Inclusion) will transform into DEIA (Diversity, Equity, Access, and Inclusivity)
The year 2021 saw the emergence of diversity, equity, and inclusion as a critical component of every company’s ESG strategy. Many organizations realized the gravity of paying more serious attention to matters of diversity, equity, and inclusion with their employees, customers, and communities. The year 2022 will witness the addition of antiracism, another critical part of this challenge. The DEI efforts of many corporations are focused on creating and sustaining a diverse group of employees and assuring that they feel included and equally compensated. With the growing demands, companies and their employees are taking on a more active role in fighting against institutional and structural racism. By taking action to end racial inequities in institutions, corporate stakeholders are exploring proactive ways to change any operations that reflect an inherent bias in their systems.
-
Transparency to push toward accountability
The notion of corporations being transparent with their stakeholders is gaining considerable traction. Over the past few years, customers, community leaders, and regulators have been demanding access to insights about the operations of the organizations and the strategies they plan to employ in the future. While earlier it was possible for organizations to hide behind walls of silence, gone are the day. Today activists are uncovering more information to hold companies accountable for their actions. While transparency is just the beginning of this cycle, accountability is the actual target. Stakeholders are now demanding companies report their actual results instead of just making promises. Companies are now continuing to experience more demands for accountability, and this list of third-party verifiers is likely to increase in number and importance.
-
A Shift in Culture
Implementing ESG factors into an organization and value chain is not just about the tools used to measure its effectiveness, but it also has to do with employee mentality and values matter. While an organization can put a lot of policies in place, they cannot make each of these decisions by themselves. This is where culture comes into the picture. Senior authorities must lead by example to maintain a high-value company culture by employing transparent goals, policies, and ESG mission. Employees, customers, and stakeholders must understand what the organization stands for and why sustainability plays a critical role in company efforts. The more the employees can understand ESG benefits and importance, the more likely they will help to drive the company’s sustainability goals.
-
Forming Sustainable Partnerships
ESG is a huge factor to monitor, specifically for larger organizations. Many companies cannot supervise or measure their sustainable activities daily. When it comes to ESG, organizations cannot fix the E,’ the ’S,’ or the ‘G’ aspects on their own. This is where partnerships become key. Unless businesses are in constant contact with both suppliers and clients within their supply and value chain, they can never know their exact ESG targets.
To gain a better understanding as well as visibility of the involved ESG factors, organizations, agencies, employees, stakeholders, and investors need to collaborate and establish an enhanced communication channel for open and honest conversations. By joining forces, businesses can achieve the targeted ESG factors and commit to long-term sustainability goals that can be realized.
Read more: ESG & Sustainability: Shaping the Future of Digitized Procurement Value Chain
-
A Focused Approach on Lowering Scope 3 Emissions
Scope 3 emissions are all other indirect emissions associated not just with the company but with the organization and its value chain. That involves the emissions of the suppliers it operates with. Scope 3 emissions tend to be the largest when it comes to emissions output. But they traditionally have been ignored in favor of the more direct fixes companies make. While there are many challenges to consider when implementing ESG within a supply chain, Scope 3 emissions take the crown as the most complex to manage.
Why are they tough to manage? The size of scope three as part of the total GHG (Greenhouse Gas) emissions amount to more than 90%. While employee vehicle travel and office emissions are easier to track as they account for less than 10% of the GHG total, the rest is generated within the supply chain.
-
Tax compliance to shift to tax fairness
Many organizations employ teams of professionals to ensure that they not only are complying with the tax laws in every jurisdiction where they operate but also are paying no more than is legally required. While this approach is completely legal, activist stakeholders are scrutinizing companies to pay their fair share no matter what the law permits. Tax fairness advocates closing tax loopholes, but others advocate for a minimum corporate tax. While this debate will gain strength over the coming months or years, stakeholders are demanding more corporate responsibility in the form of tax payments and other forms of community support.
-
Walking the Talk Instead of Just Talking
While sustainability is a hot topic, it is still hard to implement it and get it into practice. Organizations often make promises about monitoring their ESG factors but fail to follow through with the entire process. Just issuing marketing and PR statements about achieving the set ESG goals and net-zero targets is not enough. To monitor the ESG policies, enterprises need to establish a strong employee culture, clear policies, and software systems. By integrating their operations with each other, organizations will be able to gain a clear understanding of their company value chains and operations and execute future judgments around sustainability.
-
Establishing Ethics for Compliance Regulations
Supply chains are not lifeless, and hence it is easy to forget that there are real people working within them. State legislation is significantly needed in areas of safety for these out-of-sight employees to eradicate any forms of social inequality or dangerous workplace practices. With compliance on the rise, it is important to employ advanced technology to track, measure, and maintain ethically raising standards. Technology has a crucial role to play. By bringing together ESG solutions, tech innovations can help companies and their suppliers to meet these ethical challenges across the supply chain. With modern technology, issues such as child labor, conflict minerals, and human rights standards are being more easily monitored than ever before. But it is still a huge area for many organizations to manage.
Read more: Is Silicon Valley Still Dominating Global Innovation?
In Conclusion
Environmental, Social, and Governance issues are continuing to create a paradigm shift in the way organizations function. And 2022 is expected to be another big year in the ESG space, with organizations that are slow to adapt will be left behind.
Sustainability is becoming a priority as stakeholders, partners, customers, and suppliers alike are demanding transparency on carbon and social impact, seeking commitments with increased ESG priorities, and targeting firms with shared values for partnerships and business arrangements. While it is not only the right thing to do, but also, a smart business move.
Companies are evolving their ESG strategies to respond to greater challenges. These adoptions determine which enterprises are considered leaders in this field rather than followers. With the bar-raising each year, companies are expected to continue improving their policies rather than resting on past promises and commitments. Institutional leaders are continually advancing their own thinking as they now move forward in this new normal.
With presence in New York, San Francisco, Austin, Seattle, Toronto, London, Zurich, Pune, Bengaluru, and Hyderabad, SG Analytics, a pioneer in Research and Analytics, offers tailor-made services to enterprises worldwide.
A leader in ESG Consulting services, SG Analytics offers bespoke sustainability consulting services and research support for informed decision-making. Contact us today if you are in search of an efficient ESG integration and management solution provider to boost your sustainable performance.
