Bernadette Bulacan, chief evangelist with Icertis, talks about what’s needed today for companies to comply with environmental, social and governance (ESG) requirements in collaboration with their supply chain partners.

In a time of VUCA — Volatile, Uncertain, Chaotic and Ambiguous — the notion of trust among buyers, sellers, consumers and workers is critical, Bulacan says. She defines “trust” as “performance over time,” a key metric in a period of pandemic, inflation and geopolitical unrest. It’s equally important, she says, that these trusted partners be able to pivot in response to changing conditions in the marketplace, and regulations governing ESG compliance. 

Trust is a byproduct of transparency, revealing the carbon emissions and environmental responsibility of all partners. It makes possible the disclosures that are required today by regulatory agencies and shareholders alike. The last thing a “responsible” business wants is to be accused of “greenwashing” — professing to be green while failing to follow up with action.

Of particular focus for supply chains today are Scope 3 emissions, those generated by partners over which the purchaser of parts, products and services has no direct control. Bulacan cites a recent McKinsey survey which found that 90% of a company’s environmental impact comes from its supply chain, and the great majority of that consists of Scope 3 emissions. 

ESG requirements are driving contract transformation, Bulacan says. Contracts are foundational to commerce, and the first step is to scrutinize them for who the parties are and how they’re performing under the contract terms, based on key performance indicators. After that, artificial intelligence can be employed to analyze and monitor contracts on an ongoing basis, to ensure continuing compliance, and assess what new obligations need to be addressed. The process, says Bulcan is “a virtuous circle.”