Social impact is no longer an optional consideration for business leaders. Customers, employees, shareholders, and financial institutions have come to expect that companies will embrace purpose beyond profits. And regulators are increasingly concerned with companies’ accountability and progress on environmental, social, and corporate governance (ESG) objectives.
Organizations are pursuing sustainability
The good news, according to a Coupa survey of 800 business leaders across Europe, the United Kingdom, and the United States, is that leaders are strongly aligned around pursuing sustainability and other social impact priorities. Nearly everyone surveyed voiced not just acceptance, but an eager embrace of goals like improving energy efficiency, reducing greenhouse gas emissions, addressing human rights violations, and increasing supply chain diversity.
Yet, inadequate systems are holding businesses back
In order to make the kind of positive difference they want, leaders need to factor in the ESG impact of suppliers and subcontractors throughout their supply chain because they are being held directly accountable for that impact.
Unfortunately, nearly two in three companies surveyed (65%) reported that they simply cannot tell whether their closest supply chain partners are meeting any kind of ESG standards. More than half (57%) still lacked an effective risk management system in place to ensure the ESG integrity of their supply chains. And 42% admitted that, even when they sought to find or replace a supplier, that process would take months, compared to just 16% who felt secure they could adapt within days.
The inability to see, and then swiftly correct, potential infringements in a business’ supply chain represents a major blind spot, and one that could prove extremely costly. For example, the upcoming German Supply Chain Act requires companies to monitor supply chains for human rights violations and compliance with environmental standards, with the consequences for violators reaching up to 2% of a company’s annual global revenue.
With more such laws looming on the horizon, it’s critical that business leaders take action now to gain visibility into, and control over, the ESG impact of their supply chains. The key to doing so may lie in a surprising place: community.
Overcoming ESG data gaps
We asked survey respondents why they find it so difficult to assess the ESG risk of their supply chain partners. The top three answers: a lack of data on suppliers’ ESG credentials, limited financial resources, and a reliance on technology that wasn’t designed for compliance with ESG standards.
Some companies are finding that pooling spend data anonymously helps cut through these barriers by sharing the burden of collecting information, deriving insights from that data, and then using those insights to provide better business behavior.
The power of community for ESG data-sharing
A community-based approach to data sharing isn’t just about reducing duplicated effort in data collection and making this critical process easier and more efficient. It’s about helping companies to leverage the aggregate power of their business spend so they can make an even greater impact as a collective than they could ever do alone.
Once the data is collected, it can become even more useful with artificial intelligence to help model and analyze supply chains so leaders can identify gaps, flag risky suppliers, and plan for scenarios to mitigate hazards. This type of community-oriented and data-driven approach provides real-life and industry-level insights to business leaders to optimize supply chain design to reduce carbon emissions, discover leading indicators of supplier performance issues, and automate the process of assessing ESG risks.
Adapting to a world where purpose-driven operations are a must-have requires a shift in mindset. Companies have learned to embrace, rather than merely accept, the responsibility of making a positive social impact. Now they must learn to share the work of fulfilling that responsibility, and the information necessary to do so, across industries. When it comes to fulfilling the promise of ESG goals, it’s all hands on deck.