As consumers become more focused on the environmental and societal impacts of the products they are purchasing, enterprises of all sizes continue to explore the implementation of Environmental, Social, and Governance (ESG) practices throughout their supply chains. ESG as a term was first coined by the UN Global Impact initiative, in a 2004 study titled Who Cares Wins. It has since gained immense traction across numerous industries and is a key factor companies use when evaluating the viability of their supply chains. Today, it is not a matter of whether an organization has ESG goals in place, it is only a question of how much progress they have made toward those goals. Consumers are holding them accountable.
Environmental considerations — the “E” in ESG — revolve around the overall impacts a business’s operations have on the environment. This is especially important throughout the supply chain, which encompasses the most significant portion of an enterprise’s environmental footprint. To reduce carbon emissions throughout the supply chain, many organizations have long been implementing sustainable practices that include reusable packaging, zero-emission fleets, and waste reduction measures.
The social aspect of ESG involves an organization’s relationship with its internal and external stakeholders. Businesses have a responsibility to ensure that their operations, as well as the operations of any third-party suppliers with which they partner, comply with appropriate labor and workers’ rights standards and that they otherwise behave as socially responsible corporate citizens. This is especially important when determining the social impacts of manufacturing and logistics operations within the supply chains. This element of ESG also takes into consideration whether a company maintains a culture that embraces diversity, equity, and inclusion.
The governance component of ESG is in place to ensure that companies behave in ways that are transparent, accountable, and ethical throughout their leadership and their supply chain operations. These best practices establish guidelines for the supply chain that ensure compliance across the gamut of industry and government regulations.
Benefits of ESG in the Supply Chain
Along with making sure that supply chain processes are environmentally and ethically sound, ESG practices can bring other key business benefits:
- Increased efficiency – The more sustainable the operations, the more efficient they will likely be. Sustainable operations consume less fuel and have safer workers.
- Enhanced visibility – Evaluating the supply chain for ESG measures can give a company increased insight into operational issues that may need improvements – these pain points may have gone untreated, had ESG factors not been properly assessed.
- Improved customer relationships – Consumers increasingly care about the sustainability and ethics of the companies they purchase from. Prioritizing ESG practices shows customers that a business cares about them, the environment, and their workforce.
ESG plays an integral role in helping companies prioritize the environment, socially responsible practices, and good governance throughout their supply chains. By prioritizing these best practices, organizations are setting themselves up for success in an ever-changing environment.
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