With so many unprecedented events unfolding in the world, it may seem that ESG would drop a few notches on the priority list. But according to the recently-released results of a study conducted by DP World and Supply Chain Dive’s studioID, the “pressure to align with environmental, social and governance (ESG) principles has become a top concern in global supply chain management.”
Of course, the survey was conducted prior to the start of the new war between Israel and Hamas, which will likely have a significant impact on the supply chain and influence business priorities and strategies around the globe. But for now, we’ll dig into the survey results and see what other experts are saying about the ongoing influence of ESG concerns.
DP World, Supply Chain Dive survey
For the survey, “Supply Chains Prepping for a Greener, More Agile Future,” nearly 160 leaders from across the supply chain, logistics, operations and technology sectors were polled. Findings revealed that ESG concerns join “demand and supply variability” and “lack of agility in adapting to change” in the top three challenges for the industry.
According to the announcement, the study uncovered a “reshuffling of priorities and investment strategies” among supply chains to tackle these issues: “Many organizations are altering course to implement strategies that reduce carbon emissions, enhance efficiency, improve agility, and mitigate risk. This includes optimizing supply chain activities and investments to align with ESG objectives, while also taking a closer look at vendor relationships, with sustainability credentials now playing a significantly larger role in vendor selection than before.”
“Over the past few years, we have seen businesses become increasingly proactive when it comes to evaluating their suppliers’ environmental impact, particularly as they seek to lower the carbon footprint of their products,” said Brian Enright, CEO of DP World, Americas. “Service providers that can prove significant carbon reduction — perhaps through the application of renewable energy or operational enhancements that boost efficiency and productivity — can gain an advantage in the selection process.”
Key survey findings include:
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Supply chain pain points have shifted: “Top concerns for supply chains are now led by demand and supply variability (cited by 41%), followed by inflexibility/inability to adapt quickly to change (34%). ESG and regulatory and compliance challenges tied for third place (28%).”
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Confidence in supply chain investments is high: “More than 9 in 10 respondents anticipate very or somewhat significant impacts from their chosen supply chain strategies. Top expectations include increasing efficiency (97%), increasing value to business partners and other stakeholders (93%) and making the organization more agile (89%).”
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ESG importance has risen considerably — and respondents expect real payoff from investments: “Ninety percent of respondents report the priority they place on supply chain sustainability/decarbonization has increased compared with three years ago. Benefits respondents see their ESG investments returning ‘very or somewhat significant’ outcomes, including lowering carbon emissions (89%), lowering supply chain costs (85%) and increasing efficiency (83%).”
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Supply chain optimization leads ESG strategies: “Three in five respondents are turning to supply chain optimization, such as reducing transportation distances, consolidating shipments, and optimizing inventory levels to support ESG goals. Other strategies include employing fuel-efficient driving practices, such as reducing idling time and optimizing routes (38%) and using more energy-efficient transportation methods like electric or hybrid vehicles (37%).”
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ESG is now a key part of vendor strategy: “More than a third (37%) of respondents are consolidating their number of product vendors, and 33% are diversifying their transportation and logistics partners. The majority of supply chain executives (84%) report that prospective supply chain partners’ decarbonization and sustainability capabilities are extremely or very influential in their organization’s selection processes.”
ESG in the boardroom
In a post for the Harvard Law School Forum on Corporate Governance, Diligent Institute’s Kira Ciccarelli and Spencer Stuart’s Julie Daum describe a joint survey conducted by their organizations to determine whether ESG is losing momentum among company boards.
From April 13 to May 3, 2023, board members from “public/listed, pre-IPO and other private companies across industries” were polled. Among the respondents, 44% represented U.S.-based companies, 34% represented companies based in the European Union(EU) or the U.K., and the remainder represented companies based “elsewhere across the globe.”
For their inaugural survey last year, Ciccarelli and Daum said the aim was to understand “how boards were structuring oversight of ESG and how companies were pivoting to address these issues.” However, since so much has changed in the “financial and ESG climate” over the past year, they said this year’s updated edition aimed to “shed additional light” on issues such as:
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Organizational approach
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Boardroom action
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Strategy and future state
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Oversight structures
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Regional distinctions
The following provides a snapshot of key findings.
ESG: An opportunity or a risk?
In terms of whether ESG issues are considered opportunities or risks, respondents from companies in the EU were more optimistic than those in the U.S.
Among European companies, 56% “see ESG issues as opportunities” and 13% see them as risks. But among companies based in the U.S., only 30% view ESG issues as opportunities vs 34% that view them as risks.
Obstacles to ESG progress
According to the results, the “biggest obstacles to ESG progress” include:
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The “need [for] better insights around how…ESG goals link to overall company strategy” (45%)
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Lack of clarity regarding “what ESG means to the business” (22%)
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Competing “business or strategic topics on the board agenda” (22%)
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Public “backlash against ESG” (2%)
Board oversight of ESG
Results indicated that increasingly, board oversight has “coalesced around the full board,” with 49% of respondents indicating that the “full board oversees ESG.”
That’s a jump from 2019 numbers, when 20% of respondents in a Diligent Institute survey said that was the case.
Change of ESG oversight structures
According to 30% of the respondents, oversight structures at their companies regarding “environmental or social issues” changed in the past year.
Within this cohort, 27% “created a new committee” and 19% “formalized oversight in governance.”
Focus on ESG reporting
Findings also revealed a “renewed focus and rigor on ESG reporting.”
Among respondents, 60% said their companies were “taking extra care to ensure that their ESG strategy is adequately reflected in annual reports/filings,” and 53% said they were “enhancing their current ESG disclosures.”
LRQA’s new ESG initiative
Speaking of ESG reporting, LRQA recently announced the launch of a new ESG initiative that aligns with the United Nations (UN) Sustainable Development Goals (SDGs).
“LRQA has launched Our Planet, Our Plan, a sustainability programme that outlines our ambitious internal Environmental, Social and Governance (ESG) commitments over the next seven years, underpinned by time-bound performance metrics,” according to the announcement.
Noting that it “advises on, audits and certifies the ESG performances of global industries and their supply chains…,” LRQA said the new initiative is designed as a “best practice example, demonstrating the importance of verifiable third-party data to substantiating sustainability claims, made transparent and accountable by an online dashboard that publicly tracks our own performance.”
The company says the new initiative is “rooted in seven core commitments aligned to the UN’s Sustainable Development Goals – governance, community, environment, equity, safety, inclusivity and education, each with their own performance metrics.”
“I’m thrilled to share this next phase in LRQA’s growth journey,” said Ian Spaulding, CEO of LRQA. “But this is not just about us, Our Planet, Our Plan is a seven-year action plan that will help shape a better future for the next seven generations and beyond. As a company that drives transparency and transforms sustainability commitments into robust, measurable outcomes for our clients, we also hold ourselves accountable to the highest ESG standards.
Beyond words, we will deliver meaningful action and will be as scrupulous with ourselves as we are when supporting our clients by designing their programmes or validating their sustainability commitments.”
“Third-party verification of sustainability data and claims, such as compliance and materiality assessments, will continue to grow in importance as more data-empowered legislation frameworks are implemented worldwide,” Spaulding added. “We will measure, score and externally verify every indicator in our own sustainability strategy, publishing our progress with full honesty and transparency, including when we fall short.”
“There is growing recognition of the global challenges faced by society, and crucially, the impact of these challenges is bigger than one country, one government, or one company,” said Ben Western, LRQA Head of Sustainability. “Motives for addressing ESG issues may vary between organisations, but whether it’s in response to global warming, social inequality or safety in the workplace, there is rightfully a greater expectation on how companies should manage, direct and govern their every decision. Financial institutions and governments have also introduced new regulations and legislation on ESG performance disclosure, that require companies to proactively take responsibility for themselves and their supply chains. By engaging with ESG principles and data, they can build trust through being transparent with stakeholders and, ultimately, ensure that their company is recognised as taking responsibility for their impact on their customers, communities, employees and the planet.”
LRQA is also launching an eight-episode podcast series to explore each of the seven commitments within Our Planet, Our Plan, “offering personal and professional insights per topic, as well as practical guidance for listeners in addressing, monitoring and verifying sustainability progress.”
