{"id":11166,"date":"2023-05-23T08:28:18","date_gmt":"2023-05-23T15:28:18","guid":{"rendered":"https:\/\/www.qad.com\/blog\/?p=11166"},"modified":"2023-05-23T08:30:25","modified_gmt":"2023-05-23T15:30:25","slug":"how-to-navigate-esg-risk-with-supplier-management-software","status":"publish","type":"post","link":"https:\/\/www.qad.com\/blog\/2023\/05\/how-to-navigate-esg-risk-with-supplier-management-software","title":{"rendered":"How to Navigate ESG Risk with Supplier Management Software"},"content":{"rendered":"

[vc_row][vc_column][vc_single_image image=”11167″ img_size=”full”][vc_column_text]Early adopters of environmental, social and governance (ESG) initiatives should be patting themselves on the back. ESG activity, initially driven by consumer demand and a general desire to do better, has grown into a massive movement that\u2019s captured the attention of customers, investors and governments worldwide.\u00a0<\/span><\/p>\n

ESG requirements can no longer be ignored, but they shouldn\u2019t be feared, either. Companies that move fast and act smart now can stay ahead of due diligence legislation, mitigate supply chain risk and gain a competitive advantage in the process. As I explained in a <\/span>recent article<\/span><\/a> on Supply & Demand Chain Executive<\/em>, organizations that leverage supply chain digitization will be the most likely to succeed.<\/span><\/p>\n

Product Sustainability Begins in the Field and Factory<\/span><\/h2>\n

Sustainability has become a priority for businesses of all shapes and sizes and across every industry. <\/span>Ninety percent<\/span><\/a> of companies have an ESG strategy in place and chances are good yours does, too \u2013 or will very soon.\u00a0<\/span><\/p>\n

The goal, from a manufacturing perspective, is clear: learn how to do more with less as efficiently as possible while maintaining profitability and complying with due diligence legislation. This sounds simple enough, but we all know it\u2019s a very complex issue and that\u2019s partially because ESG concerns touch every part of the value chain, from the field or mine where raw materials are sourced to the packaging and transport modes used to bring your finished product to market.<\/span><\/p>\n

It\u2019s easy to forget about where materials come from when you\u2019re holding a product in your hand or looking for a supplier that can offer a great deal and reliable shipping, but many of those items come with ESG implications.\u00a0<\/span><\/p>\n

The International Labor Organization reports that <\/span>27.6 million<\/span><\/a> people were in forced labor in 2021, with children accounting for more than <\/span>12%<\/span><\/a> of that total. As discussed in a recent QAD <\/span>blog post<\/span><\/a>, the United Nations forecasts 160 million children between the ages of 5 and 17 are involved in child labor.\u00a0<\/span><\/p>\n

With statistics like these, it\u2019s clear that ethical sourcing isn\u2019t just important from a legislative and trade compliance perspective, but is simply the right thing to do.<\/span><\/p>\n

ESG Regulations are Driving Investment in Sustainable Procurement<\/span><\/h2>\n

Regardless of where you stand on the ethics behind ESG issues, you\u2019d think consumer demand would be a clear driver for sustainable product development. One recent study found <\/span>78%<\/span><\/a> of Americans value a sustainable lifestyle, while another discovered <\/span>66%<\/span><\/a> are willing to pay more for products that fit the bill.\u00a0<\/span><\/p>\n

Brands, however, have been slow to respond to consumer demand for ethically sourced products <\/span>given that this effort could require ending decades-old supplier relationships, pricing, and established logistical processes and replacing them with entirely new ones. That doesn’t happen overnight, and without any ‘carrot’ to help incentivize companies to begin that work, it’s easy to understand their reluctance.\u00a0<\/span><\/p>\n

Instead, the US Government and other countries have led with the ‘stick’ approach where the pain of non-compliance can include Customs\u2019 seizure of entire shipments, and it appears to be working. In a recent BearingPoint survey, a <\/span>whopping <\/span>85%<\/span><\/a> of companies attribute their move to sustainable procurement practices to government regulations. Compliance appears to be a significantly larger driver for sustainable procurement than ethics or consumer demand.<\/span><\/p>\n

ESG Legislative Requirements are Many and Varied<\/span><\/h2>\n

The underpinnings of sustainable procurement and ESG strategy aside, it\u2019s important to note that virtually every nation is taking a slightly different approach to ESG issues. Companies are faced with a patchwork of government mandates and due diligence is a business imperative, but it can be especially difficult for those involved in global trade.\u00a0<\/span><\/p>\n

There are too many ESG-linked policies to list and new ones are emerging seemingly every day, but here are a few you should watch:<\/span><\/p>\n