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    The Biggest ESG Risks In Your Supply Chain

    October 2022

    The Biggest ESG Risks In Your Supply Chain

    Environmental, social, and governance (ESG) issues have risen up the agenda for businesses and consumers alike. To properly tackle ESG risk, companies must look at their wider supply chains. Here are the most important ESG risks that you might find in yours.

    Top 3 environmental supply chain risks

    1. Climate change and emissions
    2. Some industries are more carbon-intensive than others, but climate risks affect all sectors. For example, financial institutions need to consider the operations and companies they are financing. Many banks are funding renewables transitions, but must make sure that the funding is being used effectively.

    3. Natural resources and biodiversity
    4. Nature-related risks from operations include illegal deforestation, raw material depletion, and overuse of water. Resource-intensive industries, such as agriculture and manufacturing, should pay particular attention to these risks.

    5. Pollution and waste
    6. Manufacturers must think about reuse and recycling of materials, as well as waste disposal. Pollution from poor operational practices affects local communities, creating a social risk as well as an environmental one.

    Top 3 social supply chain risks

    1. Human rights
    2. This is a large class of risks, relating to the rights outlined by the UN in its Universal Declaration of Human Rights. These rights include the right to life and liberty, health and safety, and the right to work.

    3. Labor standards
    4. Risks around working conditions and pay are likely in sectors with large workforces. Even when issues including forced labor and child labor are absent from your supply chain, you still need to ensure that workers are paid and treated fairly.

    5. Community impact
    6. Companies must manage the impact that operations have on communities. Community impact overlaps with human rights, such as in the impact that operations have on the rights of indigenous people.

    Top 3 governance supply chain risks

    1. Corruption
    2. A dispersed supply chain with a wide geographical reach could make it difficult to monitor the actions of your business partners, especially those in far-off jurisdictions. Corruption in your supply chain can lead to legal action and reputational damage.

    3. Internal controls
    4. A company must have a robust audit and control process to ensure accurate and transparent reporting and compliance. If your suppliers lack proper internal controls, you cannot be sure of their true financial health, or their ability to monitor, manage, and report on ESG issues.

    5. Diversity and discrimination
    6. Shareholders and customers expect companies to promote diversity and inclusion within their management and workforce. Such expectations are illustrated by the growing number of gender-related lawsuits in the past few years.

    Find out which sectors are the most affected by supply chain ESG risks or learn more about our supplier risk solutions.