Managing sustainability risks in your supply chain
What is at stake if your suppliers or supply chain are deemed to be unsustainable or unethical?
11 November 2022 • 4 minute read

No business is an island: your start-up's survival hangs on a web of suppliers whose activities shape operations and your sustainability credentials. With hyper-conscious customers, ESG investors, and regulators all demanding businesses police the environmental, social, and governance performance of their supply chain, failure to do so represents substantial risk.
That risk is rooted in a lack of traceability. "If your supply chain can't be interrogated to demonstrate it's ethical and sustainable, you can't report that it is, and that's a risk," says Chris Gledhill, CEO of software engineering company PDMS. "The data needs to be available so you can trust the people who've aggregated into the products and services you're buying." If you can't prove ESG performance, he points out; you'll lose your position in the trust frameworks you trade within.
There are four major areas of risk embedded in your supplier base, says Andrew Black, principal and supply chain expert at consultancy Efficio. "The first is reputational: for instance, sourcing products or components from sanctioned countries can hurt reputation. Next are financial risks. Suppliers with poor financials create risk, as your ability to conduct business as usual depends on their survival, especially if they are not easily replaceable."
There are also health, safety, and environment-related risks. "Poor performance in these areas could impact the wellbeing of employees or damage the corporate reputation," warns Andrew. "Last, but not least, businesses must manage cyber security risks, with cyber-attacks, including ransomware and industrial espionage, on the rise."
Focus efforts on the most significant risks and suppliers
Supply chain risks intensify when entering a new market, where there may be less regulation and you don't have direct oversight of your suppliers' activities. Depending on the complexity of your supply chain, evaluating sustainability-linked risk can be challenging, requiring access to large volumes of high-quality data and the ability to analyse them for meaningful results.
"It can be expensive and time-consuming and relies on the goodwill of suppliers who may not be motivated to provide this information," says Andrew. "The solution is to narrow the potential risks to those likely to have a significant impact, so your team's efforts are channeled into obtaining the most relevant data."
Tracking greenhouse gas emissions in your supply chain should be a priority, says Chris. "Even smaller organisations need to start understanding their carbon footprint. It's the most pressing issue that will be most regulated in the future."
Next, focus on the requirements of your specific trust frameworks and the authorities regulating them. "It's about ensuring that you're rigorous in understanding the sustainability attributes of all the things you trade in," Gledhill adds.
Acquiring the relevant data should be straightforward, where suppliers are eager to advertise their ESG performance. Conversely, be wary of those that bury this information. "Identify the highest quality data supporting a product set in the market," advises Gledhill
Supplier surveys are a direct way of sourcing data but have their limitations. "Questionnaires can be useful but often have a low response rate," warns Edward Cox, principal at Efficio. "Use publicly available data, and prioritise questionnaires to high-spend or high-risk suppliers."
When taking on a new supplier, do your due diligence on their sustainability pedigree, and initiate regular checks to ensure their systems and processes continue to meet your standards. "The frequency should depend on the criticality and risk within each supplier, so take a methodical, prioritised approach," recommends Edward.
Identifying appropriate data feeds and setting up tools such as a risk dashboard will allow automated – and therefore faster, easier, and constant – checks, says Andrew. "The key is that supply chain and procurement teams take steps to proactively prevent risks, rather than reacting to them."
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