Supply chains are increasingly under the focus of environmental, social, and governance policymakers. And rightly so, as they represent a large part of a company’s impact on ESG.
On average, supply chains account for about 41% of a company’s impact. However, the proportion rises to 59% in the case of a company’s adverse environmental impact, according to the study conducted by Scope, which analyzed 1,600 companies in the MSCI World index.
Popular pressure, concern among legislators and regulators, and investor demand create a virtuous circle for supply chains to be put at the front and center of any assessment of the sustainability of companies.
Find out more about the importance of ESG impact and why supply chains are so important from this point of view with the Born2Invest mobile app. Our companion app brings you the latest economic news for you to stay informed.
ESG impacts in Germany
An example of this is Germany, where the government is considering a bill that would commit medium and large enterprises to regularly monitor and report on the ESG impacts of their supply chains.
This is the latest sign of growing concern in Europe about the environmental and social impacts of companies beyond their own activities. France’s Duty of Care Act (2017) and the Netherlands’ Child Labor Due Diligence Act (2019) were the first pieces of European legislation to oblige companies to consider and report on environmental and/or social standards at suppliers. However, the impact of any new supply chain legislation on companies will be uneven for two main reasons.
Differences by sector
ESG impacts on the supply chain vary greatly across sectors. Supply chains in the food sector account for 88% of ESG impacts, compared to only a small impact on services and mining. In addition, the more complex the supply chain, the more difficult it is for the end producer to track greenhouse gas impacts through raw material suppliers.
To take, in the case of the German MSCI companies, the ESG supply chain impacts are very relevant for engineering and automotive companies like GEA Group and Volkswagen, but much less so for a service company like SAP.
The stakes for all companies are high for two reasons. First, the German bill proposes fines for non-compliance. Second, investor demand for truly sustainable investment opportunities – assets managed in funds that follow ESG criteria currently exceed $1 trillion in the US – will help companies that demonstrate sustainable, low-impact supply chains to attract new capital.
How the new ESG legislation will affect companies will vary considerably, even if only the so-called ‘bottom-up’ supply chain is considered (the way a company manufactures its products and services) which is the focus of this analysis.
Some companies get little added value from suppliers, which ensures that the ESG impact is low. Others rely heavily on products manufactured by external suppliers. Even a company that requires a limited number of inputs from external suppliers may depend on an intermediate product that is loaded with ESG risks. The complexity of the supply chain is also relevant. The more steps involved in a supply chain, the more difficult it is for the end producer to track the impact of the raw material.
DISCLAIMER: This article was written by a third party contributor and does not reflect the opinion of Born2Invest, its management, staff or its associates. Please review our disclaimer for more information.
This article may include forward-looking statements. These forward-looking statements generally are identified by the words “believe,” “project,” “estimate,” “become,” “plan,” “will,” and similar expressions. These forward-looking statements involve known and unknown risks as well as uncertainties, including those discussed in the following cautionary statements and elsewhere in this article and on this site. Although the Company may believe that its expectations are based on reasonable assumptions, the actual results that the Company may achieve may differ materially from any forward-looking statements, which reflect the opinions of the management of the Company only as of the date hereof. Additionally, please make sure to read these important disclosures.
First published in Funds&MARKETS, a third-party contributor translated and adapted the article from the original. In case of discrepancy, the original will prevail.
Although we made reasonable efforts to provide accurate translations, some parts may be incorrect. Born2Invest assumes no responsibility for errors, omissions or ambiguities in the translations provided on this website. Any person or entity relying on translated content does so at their own risk. Born2Invest is not responsible for losses caused by such reliance on the accuracy or reliability of translated information. If you wish to report an error or inaccuracy in the translation, we encourage you to contact us.
Bitcoin revolution by integration with PayPal
The integration of Bitcoin with PayPal is probably one of the most important news for the entire crypto industry in...
A system of Environmental Sustainability Certification to be created in Italy
The first goal of the experimental program is to create a system of "Environmental Sustainability Certification" that allows a project...
Why your business needs professional language translation services?
Digital marketers may spend months creating a campaign for a product launch in a foreign market, but if it’s not...
Canopy Growth expands beverage business in the USA with BioSteel
Canopy Growth has been successfully distributing cannabis-containing products for several years and has already achieved high sales figures with new...
BioNTech: First data for the COVID-19 vaccine to be soon presented
BioNTech CEO Sierk Pötting expects to be able to present the first data from the ongoing study on the efficacy...
Africa6 days ago
Fruitbox Africa: Frankfurt investor and Siemens to create jobs in Ethiopia
Featured7 days ago
HSBC survey shows investors’ interest in ESG is increasing
Business7 days ago
How much does a collection agency charge?
Africa4 days ago
Why countries in southern Africa could become leaders in the cannabis sector