It’s almost too late to be proactive – that’s how quickly environmental, social, and governance (ESG) initiatives have moved from supplemental to high-priority initiatives. Globally, rising political tensions are driving critical social justice and climate change imperatives. Locally, consumer and investor expectations portend financial consequences for companies lacking the necessary due diligence.
DHL’s Automotive Trends Report 2021 listed sustainability as one of the top eight automotive industry trends to 2030, and in November 2021, Gartner listed “expanded ESG efforts” as one of the three key business themes for the healthcare industry.
As industries embrace enhanced ESG visibility, this broadens definitions of operational risk. In response, a growing number of companies are adopting more sustainable and inclusive practices, placing ESG issues forefront in strategic decision-making and supply chain management.
Environmental fluctuations expand
It’s not news that climate change initiatives have reshaped global supply chains. Citizens and governments worldwide call for reduced emissions and air pollution while also pointing out water scarcity and extreme weather events.
Everstream recently took a deeper look at the effects of extreme weather on global supply chains, highlighting disruptive events that increase risk, including tropical storms, wildfires, floods, drought, and severe temperature fluctuations. For instance, as temperatures dip for the winter months in the northern hemisphere, rising energy prices and natural gas shortages spark concerns about demand and consumption as more companies pledge to achieve net-zero emissions.
Social issues increase
Social concerns range from privacy and data security to consumer activism and labor issues. Ethical and human rights issues have risen to the forefront of news headlines and business best practices discussions.
For example, last fall civil unrest at mining companies escalated across central and southern Peru in response to social concerns, which resulted in demonstrations, blockades, and shutdowns. In November, increasing international scrutiny about reported human rights abuses in China’s Xinjiang region brought potential bans, particularly from the U.S., that could derail global manufacturing supply chains.
Governance tensions grow
As global politics and trade grow more complex, supply chains incur increasing reputational and operational risk. For example, recent bi-lateral trade tensions between Japan and South Korea reignited over export control regulations. By late 2019, the U.S.-China trade war created considerable uncertainty for companies with global manufacturing networks.
In 2020, new ROO provisions under the USMCA indicated serious disruptions for automotive and mobility supply chains and a clash at the border between China and India triggered heightened tensions for life sciences and healthcare, automotive, and technology companies.
Proactive steps to take now
The world is watching supply chains in all industries. Human Rights Watch argues that “People working in global supply chains often suffer serious labor rights abuses, including child labor, and communities face human rights impacts from environmental damage caused by mining and industrial agriculture.”
Legislation is quick to respond: Germany’s National Action Plan (NAP) is already reviewing the extent to which companies are meeting their due diligence obligations. The NAP highlights five key elements for implementing due diligence for human rights, including risk analysis. In December 2021, the U.S. Senate took action by passing legislation to ban imports from China’s Xinjiang region over concerns about forced labor and alleged abuses against ethnic and religious minorities.
Now is the time to get ahead of public opinion, shareholder scrutiny, or regulatory ramifications. To see how Everstream Analytics can create increased visibility to your supply chain risks in the new ESG landscape, contact us for a demo.