Shifting to a Risk-Based ESG Approach: What You Need to Know to Stay Ahead

The landscape continues to evolve for Environmental, Social, and Governance (ESG) standards and businesses are being forced to adapt to the rising pressure and legislation surrounding their supply chain due diligence.

While due diligence is a phrase commonly used in the world of ESG, the meaning and execution of the due diligence required today has not always been clear.

Previous approaches have leaned toward compliance and yearly box checks – but as stricter measures are implemented, and reputations are at stake for brands connected to unsustainable practices or human rights violations, the approach must shift from compliance-based, to one of risk-based monitoring and mitigation.

Current Challenges

Supply chain programs have typically been centered around time-based auditing and assessments of their suppliers- a once or twice-a-year check to comply with basic requirements. However, an annual check can only provide a surface-level view of a site and its potential risks to your supply chain.

The results of an annual site audit may not provide full transparency and can make it difficult to gain insights into important ESG areas like harassment or forced labor. New issues could be emerging every day and relying on a time-based approach can greatly increase risk exposure and hinder opportunities for site improvement and capacity building.

This fragmented strategy is becoming outdated and the need to adapt to the shifting landscape is paramount to ensure a dynamic program and year-round monitoring strategy.

ELEVATE introduces its end-to-end ESG due diligence platform EiQ, resolving these gaps through its robust dataset, near-real time monitoring, and granular risk scores of geographies, products, and suppliers.

End-to-End, What Does It Mean?

The key piece to the due diligence required of supply chain programs today is the “end-to-end visibility” factor.

The previous approach has prioritized visibility over top-tier suppliers- but what about their suppliers? And their suppliers’ suppliers? All of these pieces connect to contribute to your overall program, and what might be considered the most minute link of the chain, can still pose a large risk.

Once corporations adjust this mindset to gaining a more holistic view, or “end-to-end” through using EiQ, they can better position themselves for risk mitigation, proactive monitoring, and prioritization to more efficiently allocate resources.

EiQ Approach

We believe the resolution to the new-world order of ESG and supply chain due diligence entails a number of critical factors:

Robust Data: ELEVATE’s extensive dataset is comprised of more than 10 years of site assessments from more than 150 countries and provinces. Our team of auditors on the ground are trained to identify issues such as transparency during site audits and falsified information, ensuring a more holistic view of a site or supplier. Through this comprehensive data collection combined with analytics and artificial intelligence from EiQ,

Sentinel: Achieving Near Real-Time Monitoring: EiQ leverages a media scanning algorithm to help achieve near-real time monitoring of suppliers and risk exposure, narrowing the time lags between annual audits. Sentinel scans thousands of media channels including local news, social media, google searches and government websites to for controversies connected to sites and suppliers. The algorithm scans for a number of ESG factors including instances connected to health and safety or forced labor.

Worker Engagement and Capacity Building: Integrating worker voice is a vital approach to achieving a new level of granularity and transparency from a site. Interviewing workers without the influence of management can give insights into underlying issues of a site that may have otherwise been overlooked. Once potential risk factors are uncovered from worker surveys, capacity building measures can be deployed to contribute to overall site improvement and in turn lower risk exposure. EiQ integrates worker survey results into supplier risk scores to achieve the granularity and further the due diligence process.

The chart above indicates ELEVATE’s approach to an efficient workflow for supplier onboarding and proactive risk monitoring. This customizable, tailored approach allows for corporations to gain the knowledge needed for prioritization of higher-risk areas in their program.

Benefits of this shifting mindset

Increasing supply chain diligence and integrating EiQ into your responsible sourcing program will better place your business to achieve a number of benefits:

• Financial: By gaining visibility over more of your suppliers, you can then prioritize and simplify your program to better understand which suppliers are posing the highest risk and require the most attention. EiQ helps you segment your suppliers, allowing you to focus and allocate resources to higher-risk areas and save money by shifting away from lower-risk areas.
• Reputational: Consumer pressure has risen as global focus has shifted toward ESG issues and Corporate Social Responsibility. Brand names risk reputational damage if links to controversial practices or sites are uncovered. Tools such as Sentinel empower businesses to be proactive in risk management and can mitigate potential ties to higher-risk partners.
• Business-driven sustainability: The goal is ultimately to better the world through business-driven sustainability and work to contribute to environmental improvement and ensure human rights are being honored in the workplace. As businesses prioritize further due diligence, site improvement, end-to-end risk mitigation and capacity building through EiQ, they are empowered to make these goals a reality.

These blogs are written by ELEVATE staff members or associates and the views and opinions expressed are not necessarily those of ELEVATE.