The rapid fire and destabilising run of global events of the last three years coupled with pressure for greater sustainability and transparency have demonstrated the fragility associated with concentrated supply chains. The waters of international trade are choppy, and the era of efficiency-driven supply chain management may be ending.
Responding to these “choppy waters” by making reactive choices on alternative supply chains can expose companies and their leaders to vulnerabilities and commercial, reputational and environmental, social and governance (ESG) risks. It is therefore timely, for company boards and leaders to reconsider the way in which supply chain decisions are taken, which may impact costs but can substantially mitigate risks.
To better understand potential supply chain vulnerabilities—whether commercial, operational or reputational—requires an investigative, interrogative due diligence approach where companies challenge assumptions and statements from their suppliers rather than taking them at face value, even if it is an established relationship.
As stakeholder expectations grow and regulatory pressure rises, the need to look deeper will only increase. In Europe, for instance, various EU member states have enacted supply chain legislation, and others, including the European Commission through its proposed Corporate Sustainability Due Diligence Directive, will soon follow suit.
What does a sustainable, resilient approach look like?
Balancing the need for efficiency with sustainability in supply chains can be challenging, and answers are not always clear. However, detailed supplier due diligence will identify where more information is needed or where alternative options simply are not possible. Companies must then demonstrate to regulators and stakeholders that action is being taken to mitigate those risks on all levels.
It is a case of being proactive, rather than reactive, throughout the entire enterprise. But with a market and supply chains that change quickly, due diligence needs to be a continual monitoring process rather than a one-time fix.
However, due diligence of the supply chain is not simply a preventative measure. Those that lead this approach from the boardroom can outpace competitors by reconsidering what their supply chain aims should be.
An increased focus on ESG risks within supply chains is now a prerequisite for companies looking to stay ahead of regulation and guarantee longevity. By permeating ESG values from the board down, companies will have an opportunity to create more sustainable and considered supply chains that plan for the future and avoid disruption in the short term.
Authored by Andrew Probert
Head of EMEA ESG Advisory at Kroll, and Judge, BVCA Excellence in ESG 2022, and
Oliver Stern
Managing Director, Forensic Intelligence and Investigations practice at Kroll
This article was originally published in 2022 as part of the BVCA's Excellence in ESG Awards, and some of the content may now be out of date. Please contact the BVCA if you have any queries or need further assistance.
