The term ESG was first used in 2005 in a landmark study initiated by former UN Secretary General Kofi Annan entitled ‘Who Cares Wins’. A subsequent report concluded that embedding environmental, social and governance factors in capital markets made good business sense, improved market sustainability and lead to better outcomes for societies.
Today, integration of ESG factors into investment processes and decision-making underpins responsible investing. Investors recognise that ESG information is invaluable to help understand an organisation’s corporate purpose, strategy and management quality. Demand for ESG reporting and metrics has reached the mainstream. For stakeholders and investors, ESG reports, disclosures and ratings take some of the complexity out of evaluating a company's ESG activities.
Environmental, social and governance [ESG] issues have become top of mind for business leaders in all sectors and momentum is growing rapidly as organisations prioritise their ESG agendas.
Organisations are developing and refining their ESG strategies and policies aligned to their industry, stakeholders and business objectives. Generic examples of the areas covered under the three elements of an ESG policy may include:
- Corporate use of pollutants, chemicals and renewable energy sources
- Carbon and sustainability reporting
- Increasing sustainability in the supply chain
- Inclusion and diversity
- Pay and rewards policies
- Community impact
- Board diversity
- Mitigating supply chain risks
- Transparency around corporate reporting
- Documenting, monitoring and reporting on governance, risk and compliance strategies
The macro-economic cycle, together with some “black swans” (e.g. pandemic, war) have further accelerated the ESG conversation, sharpening regulatory focus and scrutiny. Consumers, industry participants, civil society, regulators and the media are all increasingly questioning the integrity of some of the ‘green’ claims made by companies and financial firms.
By improving ESG performance throughout the supply chain, companies can enhance processes, reduce costs, increase productivity, innovate, differentiate and improve outcomes for the communities within which they operate.
Corporate supply chains have become increasingly complex and ESG issues in the supply chain carry significant operational and reputational risk. Organisations must ensure that their ESG principles are consistent throughout their supply chain and wider ecosystem. Supply chain vulnerability can expose companies to hidden and uncontrollable risks that negatively impact ESG. For most global brands, their greatest exposure to undermining their ESG efforts and falling out of ESG compliance can occur in their supply chain.
The financial sector can create value through “sustainable finance”, supporting credit policies, commercial strategies, supply chain selection, risk management and funding.
Responding directly to customer demand and recognising market need, CRIF has drawn on its experience and methodology as a global credit rating bureau and invested in research and development to design a new solution enabling clients to mitigate risk by validating the ESG information provided by their supply chain companies.
The ESG score developed by CRIF, applicable to all business sectors, validates and scores the supplier against five key areas: business, environmental, social, governance and industry.
Country specific procedures mean the solution can service clients with a global supply chain. In order to achieve an ESG score, suppliers are required to complete a detailed online self-assessment questionnaire, uploading documents and data via CRIF’s ESG digital platform.