April 17, 2024

Scoring the ESG credentials of your supply chain partner

3 min read

In today’s sustainability-conscious world, those businesses that produce unnecessary waste are living on borrowed time.

Failing to secure environmentally viable supply chains will quickly see an organisation out in the cold, such is the focus that is now placed on tackling climate change and reducing the planet’s carbon footprint.

With estimates that supply chains generate 60% of global emissions and hold 5.5 times more carbon intensity than the rest of a business, it is little wonder that environmental, social and governance (ESG) models have been placed front and centre of corporate operations.

It is imperative that businesses choose supply chain partners that meet the highest ESG standards. According to Moody’s Analytics, insufficient assessment of suppliers’ ESG risks and business practices can “impact operations, leaving orders unfulfilled, causing reputational damage to both suppliers and clients, as well as impacting sales and firm security”.

South African logistics giant Bidvest International Logistics (BIL) displays robust internal measures in terms of its ESG practices. These requirements are then relayed to its suppliers.

“While ESG has been a global hot topic, it is still in its infancy in South Africa,” says Lenushka Parannath, BIL’s head of Procurement.

“Not all ESG factors are easily quantifiable, and aspects of ESG may not directly translate into increased earnings growth or enhanced performance for companies. We see that ESG disclosure requirements are often weighted toward processes and procedures and not toward actual performance.”

Parannath points out it is estimated that 70% of ESG data points measure whether a company has a relevant policy in place, but does not measure the level of commitment toward implementing that policy.

“In an economy with a 34.5% unemployment rate, rising inflation, and where only 10% of our energy requirements are met through renewable energy, it is important to have a pragmatic approach to ESG requirements with suppliers. 

“In the short term, we are engaging with all suppliers to ensure they have adopted a code of ethical purchasing. The ethical code of purchasing covers several aspects of good governance, social commitment, and environmental controls. In the medium- to long term, as BIL evolves its reporting requirements, we are sharing our learnings and processes with strategic suppliers so that we can work toward sustainable ESG goals collaboratively.” 

BIL measures social aspects in a supplier’s BBBEE certifications that cover a wide range of social targets. These include enterprise development, socio-economic development and transformation.

Environmental aspects are measured through policies, environmental liability cover and a range of requirements to which suppliers are contractually bound. High-risk categories, such as businesses providing transport services, are audited every six months to ensure the appropriate policies are carried out.

As much as ESG programmes are relatively new in South Africa, BIL has noticed that an increasing number of companies are pursuing them, from solar farms to hybrid vehicles. The downside is that requirements often come at a higher cost to a business. “In an economy where businesses are looking to reduce costs, this can make it difficult to commit to big changes in the short term. But there are a lot of aspects that businesses can tackle without a big investment,” Parannath says.

“As a starting point, while policies don’t measure results, they do show a commitment from senior leadership in businesses to adopt ESG in day-to-day operations. Putting measurements in place is a great tool to start looking at which parts of ESG a business can focus on.”

Converting to solar power may not be a viable solution for all businesses, but using motion sensors in offices to reduce power usage could be a good first step, Parannath says. 

“The ESG landscape is vast, and there are hundreds of measures that companies can adopt. It’s important to select the ones that are realistic for your business, can be measured and will ensure your companies sustainability in the long term.” 

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