A discussion about the importance of applying environmental, social and governance (ESG) considerations to global supply chains, with Jonathon Karelse, chief executive officer, and Y Nguyen, governance and risk management practice lead, with NorthFind Management.
ESG has always mattered to the running of a business — at least in theory. But the topic is taking on a higher profile today, as companies realize that their interests extend well beyond those of shareholders. “ESG” becomes a “package” for talking about issues that affect not just corporate profits, but also workers, consumers and the planet.
ESG is a term that originated in the investment community, referring to the state of a company’s long-term health. As such, it represents a far broader definition of “sustainability,” beyond that of purely environmental considerations. In recent years, standards organizations have stepped up to create measurable benchmarks that companies can use to assess their adherence to ESG precepts.
There’s a natural intersection between ESG and everyday business operations, the latter of which have always been focused on efficiency and waste reduction, Karelse says. “In some cases, it’s just a matter of realizing that some of the activities you’re doing already fall under the ESG umbrella.” Yet too many companies assume that the issue can be addressed through appointment of a single individual or middle-management task force. ESG is really about the entire culture of the company, and therefore requires a top-down approach, from the C-suite all the way to everyday operations.
Companies seeking to adopt ESG principles face the further challenge of extending that effort through multiple tiers of the supply chain, including many partners that are outside the organization. Nguyen says that initiative should go beyond securing mere promises by suppliers to engage in fair labor or environmental practices. ESG practices must be built into contracts, with financial implications for the suppliers in question.
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