Do Your Third Party Partners Align with Your ESG Commitments?

Environmental, social and governance (ESG) performance plays a critical role in how consumers, employees and investors are making business decisions. In fact, When Edelman released its 22^nd annual Trust Barometer this year, they found that 60% of employees and 80% of investors prefer organizations that align with their beliefs and values.

For manufacturers, ESG awareness must go beyond internal and self-reported data.  You need a global perspective that spans the entire enterprise and supply chain, including third-party vendors. But, without access to a third party’s records, it can be difficult to ensure that your partners are aligned with your ESG commitments.

That’s why it’s imperative that you do research on the companies you partner with before—and during—your partnership. By using a third-party data API, you can help you capture a more complete understanding of ESG risks and opportunities.

In this article, we’ll outline why the current ESG measurement landscape makes standardization difficult, how regulations have pressured companies to maintain ESG data and how use a third-party data API to make your research more complete.

Lack of ESG standards complicates measurement

Even as ESG initiatives become more commonplace, the absence of a single framework for disclosing ESG data—and what those metrics should entail—makes it nearly impossible to measure and verify progress.

This creates room for discrepancies as companies can set their own benchmarks—that may or may not meet their goals. It also lends to the risk of organizations being accused of “greenwashing”, which causes a rise in public and investor skepticism, putting both your reputation and long-term growth on the line. 

To account for this, an EY survey shows that 89% of investors would prefer a mandatory reporting requirement that measures ESG performance against consistent global standards. Given the risk of reputational damage that turns off consumers and investor reporting preferences, manufacturers may want to consider data analytics to support their ESG agenda.

Regulations increase the pressure to capture ESG data

Having more comprehensive data will be even more critical moving forward because ESG is influencing the regulatory landscape as well. Global legal advisory Cooley explains, “New environmental, social and governance (ESG) reporting requirements in the European Union and the US are set to fundamentally change the nonfinancial reporting landscape.”

Take the European Union, for example. On top of climate benchmarks and other ESG-related regulations already in place, pending EU legislation includes a Corporate Sustainability Reporting Directive (CSRD) and a Corporate Sustainability Due Diligence Directive (CSDDD).

Remarking on the upcoming EU reporting directive, Cooley notes that, “The new EU rules will require ESG reporting on a level never seen before and will capture a whole host of companies that previously were not subject to mandatory nonfinancial reporting requirements, including public and private non-EU companies that meet certain EU-presence thresholds.” And the EU isn’t alone. At least 29 countries have some form of mandatory ESG disclosure requirement in place—so there’s no time like the present to start monitoring both your company and your partners ESG insights.

MORE: Why ESG Risk Should be Top of Your Due Diligence Agenda

Third-party data delivers a more well-rounded ESG perspective

Absent a universal standard, data and artificial intelligence platforms can help you better evaluate ESG performance across your organization and its third-party networks. Gartner suggests several tips for gathering meaningful insights.

• Ditch the spreadsheets for aggregating data. Instead make use of bar codes, IoT, digital twins and APIs.
• Implement analytical, reporting and other applications that can “provide the necessary hindsight, insight and foresight.”
• Take advantage of ESG ratings and other third-party data to benchmark against peers, optimize supply chains for ESG performance, and track what’s being said in the industry.

What should you look for when sourcing third-party data? First and foremost, global supply chains demand global data. If you rely on local, native language sources only, expect gaps in your awareness. Here’s what else to consider:  

• Source variety and volume: You can uncover ESG data insights from a wide range of source types. News, particularly ESG and adverse news datasets, is useful for analyzing ESG mentions over time to identify trends within the industry. Similarly, negative news, such as media coverage of worker conditions, can bring to light red flags that suppliers might not directly disclose. Company and financial data, legal and regulatory data deliver value as well. For example, ingesting sanctions and watchlist data supports your own governance commitments while also helping mitigate compliance risk.
• Flexible delivery: Your data needs can vary depending on what you want to accomplish. You might want a bulk API to tap decades of historical data for training machine learning algorithms or analyzing how ESG performance evolves over time. Or you might want a search and retrieve API that allows you to pull down refined datasets at regular intervals to support ongoing ESG monitoring across your supply chain.
• Data enrichments: You can start using data much faster if it comes in already normalized, semi-structured, and enhanced with index terms, geo tags and other metadata. Otherwise, you could spend a lot of upfront effort just cleaning up the data. With enriched data, it’s easier to slice and dice the data to find the most meaningful bits.

Challenges of monitoring supply chain ESG

Organizations also recognize that the pressure to effectively manage ESG data internally and along supply chains is only going to grow in the coming years. PWC’s Digital Trends in Supply Chain Survey 2022 found that 58% of respondents point to homing in on ESG supplier risks (pollution, forced labor, corruption) is a major challenge, second only to keeping pace with ESG-related regulations at 66%.

Having the right data and technologies in place can shift some of the burden, which is exactly what Nexis® Data+ aims to do. Work with our experts to get the datasets you need, so you can protect your reputation and achieve your ESG performance goals at the same time. Want to know more? Contact our experts today.