What Is ESG Risk in Supply Chains?

Environmental, social and governance (ESG) expectations are rising across investors, consumers, regulators, and financial reporting bodies. However, most programs lack ongoing ESG risk capabilities and visibility into their upstream suppliers — who pose significant risks. Survey and self-reporting information-gathering approaches are slow, quickly outdated, and provide a biased and incomplete view upon which many key risk decisions are based.

ESG risk is one of seven dimensions of risk in Exiger’s risk-scoring model for third-party relationship management (TPRM) and supply chain risk management (SCRM).

Risk exposure multiplies at each tier within your supply chain ecosystem through the unknown reliance on sub-tier suppliers who might be involved in forced labor, experience data breaches, or engage in poor environmental practices.
The first step to mitigating these risks is to:

  • Incorporate Human Rights and Environmental Due Diligence (HREDD) into your organization’s procurement, sourcing, and compliance team’s due diligence process.
  • Follow up with ongoing media monitoring to provide a current and complete risk view, which will better inform your ESG risk appetite, tolerance and decision-making to align with strategy and minimize financial costs, reputational damage as well as foster sustainable growth and build trust with stakeholders.
Exiger’s solutions addresses global third party and supply chain legislation and regulations, including:
  • German Supply Chain Due Diligence Act (SCDDA)
  • US Uyghur Forced Labor Protection Act (US UFLPA)
  • UK Modern Slavery Act 2015
  • France Duty of Vigilance Act
  • Swiss Ordinance Act
  • Norwegian Transparency Act
  • EU Duty of Vigilance Legislation
  • Australian Modern Slavery Act 2018 (Commonwealth Act)
  • The California Transparency in Supply Chains Act 2010
  • Canadian Forced and Child Labour in Supply Chains Act 2024 (due diligence reporting requirements starting in May 2024)
  • And EU’s emerging regulations” in Forced Labor
  • EU Carbon Border Adjustment Mechanism (CBAM)
Through value chain network and product mapping and overlaying unparalleled entity and product risk reviews, Exiger’s platform will compile a comprehensive set of operating locations, facilities and corporate addresses and validate that information against corporate records, which informs ESG risks based upon biographical information. The data is then assessed with a series of HREDD standards and indices to provide the entity’s risk posture.
Additionally, when assessing these risks, the entity is searched against many databases, global research and news, regulatory or government websites such as OSHA and EPA, all focused on HREDD data and risk. Exiger’s limitless data collection focuses on emerging sustainability topics like forever chemicals, greenwashing, climate change, bio diversity loss, deforestation and water scarcity or long-existing focus areas like conflict minerals and chemical spills.
Exiger includes supply chain carbon emissions in the risk scoring to give sustainability leaders full visibility into their suppliers and supply chain carbon emission impact and how to quickly identify quick wins to reduce those carbon emissions.
Having a clear picture of how your third-party supplier responds to these evolving challenges and provides valuable information for your reporting framework, including International Sustainability Standards Board (ISSB), Global Reporting Initiative (GRI), Task Force on Climate-Related Financial Disclosures (TCFD) and Sustainability Accounting Standards Board (SASB).
Risk indicators can emerge from the following categories:
  • Environmental concerns
  • Greenhouse gas/carbon emission impact
  • Pollution and waste
  • Hazardous materials management
  • Recycling and circularity
  • Animal rights and trafficking
  • Maintaining biodiversity
  • Deforestation
  • Water conservation and management
  • Air quality
  • Energy management
  • Human rights
  • Modern slavery
  • Human trafficking
  • Forced & child labor
  • Conflict minerals
  • Social discrimination
  • Worker rights
  • Fair wages
  • Product and workplace safety
  • Diversity, equity and inclusion
  • Supporting charities and social enterprises
  • Promoting employment
  • Data privacy
  • Leadership
  • C-level changes
  • Board of directors
  • Management team members
  • Management team members
  • Compliance with laws and regulations
  • Fraud, corruption and sanctions
  • Money laundering
  • Tax evasion
  • Business in high-risk locations
  • Layoffs
  • Liquidity problems
  • Supply chain oversight
  • Data breach
  • Misleading communication (greenwashing)
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