To meet sustainability goals and targets, businesses are increasingly seeing the opportunities to optimize supply chains in terms of sustainability performance. By using material sustainability information on suppliers’ activities – from carbon footprint to sourcing practices – companies can better measure and, therefore, manage the sustainability impact of their supply chains, as well as meet their reporting requirements.
The largest challenge is that a business’ supply chain is often made up of mostly private companies. Under fewer reporting obligations, private companies often publish little or no information about sustainability performance – thereby creating a knowledge gap for businesses looking to assess the full picture of their own impact.
Increasing reporting requirements
And, the challenge is only amplifying: from this year, companies must respond to new, regulatory reporting requirements on the sustainability of supply chains – making environmental, social and governance (ESG) data on private companies an even greater necessity.
For EU-based companies and companies with material operations in the EU, this includes the Corporate Sustainability Reporting Directive (CSRD), the incoming Corporate Sustainability Due Diligence Directive (CSDDD), the EU Deforestation Act, the Germany Supply Chain Act, among others. At both a country and regional level, regulations are increasingly mandating companies to assess their supply chains in unprecedented depth, to act to manage related risks, and ultimately to report against the sustainability of their supply chain.
Three benefits to addressing the disclosure gap
A private company’s material sustainability information could, for example, include its carbon footprint, the sustainability of its raw material sourcing, the maturity of waste management and circularity of its production, its management of sanctions, labour disputes and modern slavery risks. But, collecting this data can be more than a regulatory exercise: businesses that can collect this data from private company suppliers, as well as assess the overall ESG performance can yield other benefits, too.
For instance, these businesses are better equipped to:
- Uncover large risk concentrations within their supply chains;
- Engage in more data-driven, future-looking conversations with suppliers about their sustainability performance; and use the supply chain to improve their overall sustainability planning; and
- Meet commitments to stakeholders, including customers, investors and employees.
Moody’s helps businesses with dedicated, on-demand solutions to assess the ESG performance of their private company suppliers of all sizes and sectors.
Learn more about our ESG in Supply Chain capabilities here.
For more information about Moody’s broader ESG capabilities, please click here.