Today, organizations are facing a growing need to evaluate their third parties' environmental, social, and governance (ESG) performance. The drive behind this shift is the need to comply with evolving reporting requirements and guidelines for ESG. However, the lack of visibility into vendor and portfolio companies' ESG scores poses significant compliance and regulatory risks, threatening organizational sustainability efforts.
ESG regulations organizations need to comply with include:
Germany's Supply Chain Due Diligence Act
Canada's Forced Labour and Supply Chain Reporting Law
United States Uyghur Forced Labor Prevention Act
European Commission's Mandatory Corporate Human Rights and Environmental Due Diligence draft
Organizations must understand their vendors' commitment to ESG to overcome critical challenges. Environmental impact is a consideration as it directly affects an organization's overall environmental performance. Ensuring supply chain responsibility is essential to uphold social commitments and human rights, avoiding any adverse effects on the organization due to unethical sourcing or labor conditions by suppliers. Managing reputation risk is critical to prevent association with unethical practices that could hurt an organization's reputation. Data security and privacy concerns need to be considered, given the potential risks posed by third parties. Fostering innovation and collaboration with third parties can positively impact an organization's ESG performance.
To overcome these challenges, organizations must clearly understand their vendors' commitment to ESG. Gaining insights into the ESG performance of vendors allows organizations to reinforce the resilience of their supply chains and proactively identify and prevent potential risks that could disrupt operations. Informed decisions about vendor selection, risk mitigation, and meeting regulatory requirements have become essential for organizations seeking to achieve their sustainability goals.
Assessing the ESG practices of third parties enables organizations to mitigate ESG-related risks and ensures alignment with their ESG values. This proactive approach safeguards against potential liabilities and nurtures a culture of responsible business practices within the organization.
In response to the growing need for comprehensive ESG insight, Archer has introduced Archer ESG Score Connect. Archer ESG Score Connect provides visibility into an organization's third-party ESG scores, facilitating a better understanding of their ESG performance to mitigate risks associated with ESG-related concerns.
Contact us to speak to an Archer expert about how you can mitigate ESG risks by gaining insight into your organization's third-party ESG scores.