Digital Tools Start To Reduce The Workload Of Supplier ESG Risk Assessments

During the next three years voluntary reporting on suppliers’ environmental, social and governance (ESG) compliance and policies will morph into more of a required business activity especially for high-profile brands. This will partly be driven by growing investor expectations to understand risks and partly by regulations covering ESG disclosures. For example, the 2016 French Energy Transition Law now requires investors to disclose how they factor ESG criteria into their investment policies.  France is the first country in the world to adopt this type of rule. Large private equity groups, conscious both of their reputations and the real risks they face in opaque global supply chains, have also grasped the nettle of supplier ESG risk assessment. In the face of this increasing forcefulness of ESG supplier risk reporting, the 2017 Task Force on climate-related financial disclosures warns of the challenges with the granularity and availability of data for organisations applying risk assessments of ESG issues, particularly in handling different jurisdictions and geographies.

Whether you are in a corporate sourcing or compliance role, or you are part of a deal team conducting due diligence under time pressure. There are multiple digital tools available to speed up, simplify and prioritize supplier ESG risk assessment. Anthesis, an EHS and sustainability services provider, is one of a number of vendors addressing this challenge with a digital offering. The RiskHorizon product is ESG risk management software launched in collaboration with Acclimatise, a risk management consultant. Drawing on the materiality metrics database of the Sustainability Accounting Standards Board (SASB) RiskHorizon screens 30 customizable ESG issues, such as air quality, labour rights or corruption, and identifies the risks associated with a particular supplier. RiskHorizon then presents the user with a series of questions to identify what actions the firm needs to take to address those issues. As well as quantifying the exposure to certain risks, the Anthesis software provides financial analysis to understand the cost in resolving a risk versus the potential revenue lost from supply chain disruption.

RiskHorizon shines a spotlight on suppliers and ESG issues which pose the greatest risks but doesn’t provide the actual data. That’s where providers like 3E Company, Achilles, EcoVadis and thinkstep come into play. 3E Company has developed a comprehensive supply chain compliance platform with a focus on product, substance, chemicals, ingredients and conflict minerals compliance. Thinkstep has online tools to support the collection of supplier disclosures about manufactured components, called BOMcheck, and another tool for integrated materials management. EcoVadis offers a capability which would serve as a follow up to the Anthesis RiskHorizon assessment, providing hard data on supplier compliance and policies on a platform which facilities disclosures and sharing between end customers of supplier audit data. Verdantix hears from large enterprises that they’d like a more holistic online solution.