The U.S. Securities and Exchange Commission (SEC) — the government body that regulates investors — has joined the call for more corporate action on environmental, social, governance (ESG) disclosures. In recent years, investors have been tying their investment dollars to ESG reporting capabilities. This shift has fueled a multi-billion dollar investment blitz into building robust ESG programs that can attract investors and meet new expectations.
On July 28, 2021, SEC Chair Gary Gensler issued prepared remarks on climate risk and the standardization of climate disclosures, signalling the SEC will help companies create robust disclosures that present actionable data. This move will help clarify expectations for these programs, setting benchmarks companies can use to implement and mature their programs.
Climate change is one aspect of ESG, but other aspects — such as human rights or data security — are equally important in assessing supply chain risk and attracting investment dollars. Companies cannot simply start a recycling initiative and say it’s an ESG program. To withstand investor scrutiny, customer pressure, and growing government regulations, programs require detailed reporting that leverages comprehensive supply chain data. A business’s ESG footprint is larger than its internal measurements, and risks can hide in complex, multi-tiered supply chains. Shallow reporting won’t uncover these risks or withstand investigation into ESG disclosures.
Increasing Pressure & Stakeholder Scrutiny
The SEC move could have been triggered by the investor shift toward stronger ESG requirements. According to Gartner, 85 percent of investors said ESG factors were a key consideration in deals made in 2020. BlackRock Inc., the world’s largest investment firm, has said for years that ESG topics are crucial to identifying and mitigating business risks.
The push to develop an ESG program comes from more than capital markets. A PWC report on ESG expectations revealed that 83 percent of consumers want companies actively involved in ESG best practices, and over 90 percent of business leaders say they have a responsibility to act.
ESG Data Challenges for Complex Supply Chains
So if everyone wants it, why isn’t everyone doing it? Comprehensive ESG reporting requires clean data from all areas of a supply chain. Without it, companies cannot build strong disclosures, create meaningful actions, or uncover hidden risks. The deeper the supply chain, the harder that data is to collect. The data collection challenges go beyond that, however. They include:
- Siloed data: The broad nature of ESG means that necessary data is typically siloed and difficult to centralize for full-picture analysis.
- Stale: The time it takes to acquire ESG data puts it at risk of being irrelevant by the time it’s analyzed.
- Shallow: Self-reported data passed along by suppliers can provide limited visibility into real ESG issues.
- Sloppy: Data campaigns of this nature routinely suffer from dirty data, requiring substantial resources to clean before it’s usable.
- Simplistic: Questions posed to the supply chain should be tailored to a company’s goals, otherwise they run the risk of providing answers that are too high-level and don’t address specific concerns.
- Submerged: It’s notoriously difficult to obtain quality data from the earliest links of the supply chain, specifically minerals sourcing — a key risk area for forced labor issues.
- Silent: If ESG reporting is not understood by your suppliers, they may not be able to even reply to your requests for data.
Overcoming these challenges requires strong knowledge not only of ESG topics, but also how to acquire data. Companies can look to support its data acquisition strategy through the monitoring of government watchlists or media channels. In this way, they obtain actionable insights faster and validate supplier reported data through independent means.
With a focus on building a strong data foundation to build defendable ESG disclosures, Assent’s solution starts with a strong ESG data foundation that supports healthy growth over time. Assent’s solution provides a 360˚ view of ESG supply chain risk.
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