65% of business leaders cannot assess if their supply chains are meeting ESG standards

In spite of growing demands for ESG performance data, most business leaders cannot accurately assess if ESG standards are being met within their supply chains, creating a major blind spot for companies’ performance.

There is mounting regulatory pressure on businesses to disclose their ESG impacts within the supply chain. In 2022 alone, several countries already have ramped up legislation on supply chain and ESG transparency. The EU, for instance, published in February a proposed Directive on corporate sustainability due diligence, with a goal to foster “sustainable and responsible” corporate action throughout the supply chain. One month later, the U.S. Securities and Exchange Commission proposed rules to mandate climate-related disclosures for publicly traded companies. Included in the proposal is a requirement for registrants to provide information about Scope 3 – either GHG emissions and intensity or whether Scope 3 emissions are included in the registrant’s emissions targets. Registrants may also be required to disclose potential climate-related impacts on the supply chain.

The supply chain is particularly important to manage, as this is where the majority of ESG impacts are located. For example, Scope 3 emissions may constitute as much as 90% of a company’s total emissions, according to the Carbon Trust. Companies must be able to track, identify, and address ESG-related impacts – such as Scope 3 emissions – within their supply chains in order to meet their own objectives and satisfy new regulations.

Unfortunately, many companies have not – or cannot – accurately measure the impacts of their supply chains. A new study on mitigating ESG risks in the supply chain revealed that 65% of business leaders admit they are unable to assess whether their closest supply chain partners are meeting any ESG standards. Furthermore, over half (57%) say they have not put in place an effective risk management system to verify ESG integrity of their supply chains. This uncovers a significant blind spot in ESG performance tracking. That most business leaders are unable to assess the majority of their end-to-end ESG impacts impedes the ability of these companies to meet their goals and keep up with regulatory changes.

Still, there is a silver lining: the concentration of ESG impacts within the supply chain presents an opportunity for companies to improve their overall ESG performance via enhanced supply chain management. Companies can begin with supply chain mapping—a methodology to gather information about suppliers to document where, when, and by whom materials and services are produced. From here, business leaders can identify weaknesses within their supply chains and mitigate risks by fostering accountability.

Insufficient knowledge of ESG performance within the supply chain can be resolved with improvements to supply chain design and management tools. Companies will only reach their ESG goals and keep up with new regulations if they can accurately track end-to-end processes, identify risks, and hold suppliers accountable for meeting ESG standards.

 

44% of US workers won’t accept a job from a company that doesn’t align with their ESG values

Amid the flurry of studies, analysis, and guidance on how companies should navigate the Great Resignation, a recent survey by HR consulting group Randstad found that 44% of US respondents said they wouldn’t accept a job with a company that wasn’t aligned with their social and environmental beliefs. 34% of survey participants from the US said they wouldn’t accept a job from a company that wasn’t making efforts to become more sustainable. Gen Z respondents were even more discerning: over half said they wouldn’t accept a job offer from companies that aren’t engaged in sustainability efforts.

We have to acknowledge that this was a survey, and these exact percentages are theoretical; it isn’t certain that each of these respondents would act accordingly when a job offer hit their desk. But it does have some interesting implications for business leaders who are – or even worse, aren’t – engaging in ESG programs. And these findings do track with other recent reports. An analysis of Fortune’s 2019 “100 Best Companies to Work For” found that employers with the highest employee satisfaction had ESG scores 14% higher than average, and employers who were most attractive to young professionals and students had ESG scores 25% higher than the average. If employees act in accordance with these stats, these findings have some serious consequences.

Recruiting isn’t cheap, and the longer that a company’s HR department has to search for employees who aren’t impressed by their ESG actions, the more expenses the company incurs. This isn’t including the productivity or value lost by unfilled positions. One recent estimate from Deloitte HR expert Josh Bersin reported that replacing a lost employee could cost as much as 1.5 to 2x their annual salary (with costs accumulating from onboarding, training, lost productivity, lost engagement, and negative impact to company culture).

The list of reasons to get serious on ESG is long enough, with clear benefits like accessing lower-cost capital, maintaining positive consumer reputation, and increasing operational efficiency (we’ve talked about some of these in past blog posts – read posts like this one for more). While HR has been largely excluded from discussions around environmental responsibility, underestimating the returns from an ESG-aligned recruiting strategy means that companies are underinvesting in their ESG efforts. By ensuring that top talent will join, stay, and maintain engagement with their work, companies will win big.

Our work at The Climate Board focuses on how company leaders can position their company for maximum climate action while gaining real benefits in all aspects of their business. Reach out to us if you’re interested in learning more about our work.

Earth Day 2022: Eight Steps Your Company Can Take to Invest in Our Planet

Today – April 22, 2022 – marks the 52nd anniversary of Earth Day, a day to celebrate the planet and promote environmental protection. The theme of Earth Day 2022, “Invest in Our Planet,” highlights the need for businesses, governments, and citizens to “act boldly, innovate broadly, and implement equitably.” Notably, it calls for a partnership to alter the business climate.

So, what can companies do to act on climate? We present eight steps that businesses can implement in order to set and advance their climate goals. These actions not only help protect our planet’s health, but also, they create opportunities for business growth through operational efficiency, reduced costs, and reputation enhancement.

  1. Set a science-based target. Science-based targets (SBTs) have become the standard for measuring and reducing emissions to limit global warming to 1.5 degrees Celsius. Typically, two tiers of targets are set – short-term targets to decrease emissions by a given percentage (e.g., 30% reduction of Scope 1 and 2 emissions by 2030) and a longer-term target to reach net-zero emissions, often by 2050. Setting both goals can help ensure that progress is made immediately to meet the first goal, with sustained efforts to lower all emissions to zero by the middle of the century. Joining the ranks of organizations with SBTi-verified (Science Based Target Initiative) goals can be a decisive first step toward leading a climate-friendly business that is better insulated from future risks.

  2. Select suppliers who have made commitments to reduce carbon emissions. The reduction of scope 3 emissions – indirect emissions within the value chain not controlled by the reporting organization – is an essential ingredient to lowering a company’s overall carbon impact. Scope 3 often makes up the majority of a sector’s footprint; for instance, of infrastructure companies with SBT commitments, scope 3 constitutes 89% of total emissions. As such, engaging with suppliers who are committed to climate action is key to meeting emissions reductions targets.

  3. Leverage the roles of financial leaders. Financial leaders, particularly the CFO, play a key role in a company’s climate success. The CFO role is evolving into a sustainability role, as climate is recognized as financial risk. Financial teams can help direct resources to drive emissions reduction efforts, improve risk monitoring, invest in energy-efficient technology, and more. The involvement of financial leaders in the climate space yields numerous benefits, including enhanced environmental performance, investor base diversification, and reduced physical risk.

  4. Incorporate sustainability across the companies. As C-suites begin hiring Chief Sustainability Officers and building teams of ESG experts, business leaders must also ensure that this knowledge and motivation doesn’t remain siloed within ESG or sustainability divisions. Embedding climate champions across functional areas, convening sustainability steering committees of leaders with distinct responsibilities, and introducing ESG key performance indicators (KPIs) can work to engage the entire organization in action. Progress will only accelerate when business areas and individuals at all levels of the organization are working toward, not against, sustainability and emissions-reduction goals.

  5. Engage with local communities. Supporting local communities can reduce a business’s carbon footprint. By sourcing locally, companies reduce the emissions associated with the transportation of goods. Buying locally may also help reduce waste – particularly food waste – as products are less likely to damage across the supply chain. In addition to emissions reduction benefits, engaging with local communities supports the local workforce, land, and wildlife, while cutting down on transportation and material costs.

  6. Push for broader public sector action. While operational and strategic tactics for sustainability will have the most immediate impacts, companies can also leverage their influence and voice to promote action by governments and utilities. Scope 2 emissions profiles hinge on the origin of electricity that a company uses and engaging with the industry and utilities to accelerate use of renewable energy sources. For companies that lack the scope to develop or directly purchase solar and wind energy from farms, leaders can still call on utility companies and the public sector to move away from coal, oil, and natural gas. Companies can also make statements in favor of regulatory and policy changes (e.g., the SEC climate disclosure mandates) that encourage more transparent and environmentally-responsible business practices.

  7. Build workplace culture around sustainability. Beyond comprehensive emissions reduction targets, smaller-scale shifts toward sustainability can also contribute meaningfully to a more sustainable company. Factoring environmental responsibility into procurement, office management, and culture decisions can raise the day-to-day visibility of an organization’s commitment to sustainability. Younger employees are increasingly motivated to work at companies that prioritize the environment. Steps to lower waste, increase recycling rates, incentivize lower-impact commuting, etc. will foster a more environmentally conscious workplace and have positive spillovers into the business.

  8. Become a member of The Climate Board! As our most recent Stat of the Week post points out, most business leaders know that they need help if they’re going to make more progress on their sustainability goals. The Climate Board exists to help those leaders accelerate their efforts. We’re proud to help companies identify and implement practical steps that support climate goals while building important connections within and across industries. To learn more about our work and how our distinctive membership model could support your climate strategy, contact us at info@theclimateboard.com.

65% of executives say they don’t know how to advance sustainability efforts—and that’s good news

Happy Earth Day, Climate Board readers! We’ve been publishing our “Stats of the Week” for almost two months now, and we’d love to know what you think of them. Are there topics you’d like to see us cover? Corners of the climate space you wish someone would shine new light into? Let us know by reaching out at info@theclimateboard.com.

A recent Harris Poll conducted for Google Cloud paints a two-sided picture of executive attitudes toward sustainability. While the survey results are stuffed full of plausibly good news—96% of companies have at least one program in place to advance sustainability, 86% of executives “feel empowered to make change that evolves their organization’s climate posture,” and so forth—there’s quite a lot to spark concern as well.

One finding just makes me shake my head: 80% of executives give their company an “above average” grade on sustainability. Now, I’m a math guy, and while it’s technically possible for a big majority to be above average if a few outliers way at the bottom are dragging things down, I doubt that these survey respondents are really thinking in terms of the mathematical mean. (What is the metric we’re averaging, anyway?) If my conversations with leaders in a range of industries are any indication, nobody really has much idea what their peers and competitors are actually up to. So it’s easy to look at one’s own efforts and feel like they must have put the company a step ahead.

But comparison to average performance, even if we could define it, doesn’t really matter. What matters is whether companies’ own sustainability efforts are delivering meaningful results. It seems that executives are clear-eyed on this question, and the picture isn’t great.

  • 58% of executives say their company is guilty of greenwashing.

  • 66% question whether their initiatives are genuine.

  • 64% lack measurement tools to quantify sustainability, and of the 36% that have the tools, only half are using them to optimize performance.

As someone who speaks all the time with the individual humans who make up those statistics, I actually see a ray of hope in all that dour data. Executives have largely reached two critical thresholds: First, there’s near-universal acknowledgment that sustainability warrants executive attention. Second, executives now know enough about the problem to know that they don’t know enough. 65% of executives say they want to do more, but they don’t know how. That’s a big thing to realize and to admit. Our current situation—patchworks of token efforts, underfunded mandates, emphasis on appearances rather than results—is the product of a phase in which leaders thought there might be an “easy button.” That illusion is now gone. As more leaders recognize their continued obligation to learn more in order to do more, we’ll see the capacity for real sustainability grow.

The Climate Board exists because of that 65% who want to know how to do more. There are effective approaches out there. There are ways to pursue sustainability without compromising the core business. And there are pathways for leaders to translate their own personal concern into deeply embedded organizational change. There are also dozens of missteps, distractions, and mirages to avoid. If you’re in that 65%, we can help you sort it all out. Check out our upcoming research agenda, and get in touch if you’d like to know more about how we work with our members.

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