Data Bridges for ESG Due Diligence Across the Supply Chain5 min read
Governments have raised the bar for supply chain ESG due diligence. Learn how companies on both sides of the logistical equation can use data to establish conformity
Performing ESG due diligence across the supply chain has always been part of enterprise best practices. Now, it’s a requirement. Governments have written strict laws driven by pressing concerns about geopolitical risks, human rights, and sustainability. With heavy fines and penalties hanging in the balance, companies and their suppliers need to demonstrate conformity. So, what’s stopping them?
As in so many cases, the problem is one of data — or rather, the lack of it. The new laws — like Germany’s supply chain due diligence law (Lieferkettensorgfaltspflichtengesetz) (LkSG) — effectively mandate digital supply chain ESG data reporting. Meanwhile, many companies lack established data transfer protocols between suppliers and buyers.
The LkSG and similar laws have made supply chain ESG due diligence reporting a critical business objective. Fines, penalties, and damage to brand image are only some of the possible consequences of non-compliance. Achieving conformity will require a robust, collaborative data strategy. Read on to learn how you can integrate data-sharing best practices across your supply chain — for dependable ESG due diligence reporting.
Who needs to report on ESG?
First, it's crucial to understand that supply chain ESG due diligence reporting isn’t just a concern for German companies. Though the LkSG currently applies to companies with a German presence of a certain size, they will, in turn, need to place stringent ESG data reporting demands on their suppliers. Companies located in Scandinavia or the U.K. with German clients will end up just as impacted by the LkSG as their German peers.
Accordingly, the requirements of the LkSG and similar sustainability reporting mandates from the European Union will quickly trickle down the value chain — affecting not only suppliers but the supplier’s suppliers as well. Before long, all companies interested in participating in global commerce will have to start paying attention to their ESG reporting.
Disparate data: The challenge of supply chain ESG reporting
Supply chain ESG due diligence requires that companies and their vendors have collected, organized, and merged their data. The first blocker to this undertaking is that data, if available at all, is often unstructured and stored in disparate locations. Companies rely on incompatible systems, use different metrics, and tend to not refer to a single source of truth for their ESG data.
While those data blockers are thorny issues in all supply chain management endeavors, they are particularly fatal for ESG due diligence. That is due to the wide diversity of data required for a conform supply chain ESG due diligence.
Consider the following:
The Minamata Convention regulates the use of mercury products in manufacturing.
The Basel Convention lays out the requirements for hazardous waste.
The international rights of workers are outlined in the ILO Declaration.
Accounting for all three is required for adequate ESG reporting, and all three rely on distinct types of data reporting. But that accounts only for a small fraction of all ESG-relevant data. Ensuring cooperation across the supply chain to centralize these disparate data sources means building enduring data-driven reporting relationships.
Data-based bridges for reliable ESG due diligence reporting
Those relationships entail enhancing accountability, identifying areas for improvement, and working collaboratively with suppliers to achieve sustainable and responsible practices throughout the supply chain.
The first step to building data-based bridges starts with establishing where to lay the foundations. In the case of ESG due diligence reporting, that begins with an assessment of the greatest risks from suppliers.
Navigating the many aspects of supply chain due diligence risk is highly complex. That’s where SoftServe’s ESG Due Diligence Platform comes in. It conducts an assessment of the data maturity of ESG due diligence efforts and reporting capabilities of both the enterprise and suppliers.
Through 50+ topics across five categories including technology landscape, risk management, organizational governance, and reporting processes, it allows companies to evaluate their own — and their suppliers’ — data readiness for ESG due diligence reporting.
With that foundation, you can embark on the steps to establishing ESG due diligence conformity:
- Collect: Gather information from your suppliers to streamline the risk management process.
- Assess: Conduct risk due diligence on suppliers and evaluate your enterprise and suppliers by aggregating information.
- Mitigate: Prioritize the risk areas by categorizing suppliers and assign tasks to them to minimize impacts on your business.
- Monitor: Establish continuous risk monitoring with ongoing compliance checks to gain valuable insights into the global reach of your supply chain.
- Report: Document the fulfilment of due diligence obligations on a regular basis for your suppliers.
By aggregating data-driven insights, targeted risk mitigation, and stakeholder communication, you can use SoftServe’s ESG Due Diligence Platform to establish the firm, data-based communication you need to ensure compliance with ESG due diligence reporting requirements. With that, you are protected from fines, penalties, and damage to your brand’s reputation.
If you want to take the first step towards data-based ESG due diligence along your entire supply chain, let’s talk.