[Investment Monitor] How to solve the supply chain problems created by ESG legislation
“ESG-related legislation is doing more harm than good in Western countries, with supply chains under threat from well-meaning but heavy-handed rules.
With 8.3 billion people on the planet, all striving to live a Western-style resource- and energy-heavy lifestyle, there is no doubt that we urgently need to decarbonise the way we do things. Through the UN Millennium Goals, which were succeeded by the organisation’s Sustainable Development Goals (SDGs), came a focus on improving the lives of the poorest people on the planet (through targets such as the provision of better health and education, and clean water).
These two developments are the fundamental drivers for the current debate on environment, social and governance, or ESG. The ESG framework is becoming more and more important for companies, but current hastened legislation by some governments is arguably doing more harm than good.
It therefore helps to take a step back, think about what we want to achieve, and try to chart a way forward based on those objectives rather than on the ideological lines of argument. Given Earth’s finite resources, we need to operate a system that is not overshooting planetary constraints, while still allowing for economic growth. In order to integrate emerging markets and the least-developed countries into global value chains, we need resilient supply chains that keep the flow of goods going. We also want a fairer global economy. It is therefore imperative that we find a workable compromise between these diverging interests.”
Sourcemap mentioned as a tool to help with ESG goals which includes the need for supply chain monitoring.
“There are a number of data tools that can help with the practical implementation of supply chain laws, such as Moody’s ESG ratings and Altana‘s supplier tracking. Both tools can help improve practical implementation for companies with the data and insights needed to complete the required risk assessments.
Apart from Altana’s supplier tracking tool, there are other solutions such as Sourcemap, a similar supply chain mapping platform. Combined with platforms for ESG ratings, companies can identify high-risk suppliers. Moody’s ESG ratings show a supplier’s risk of child labour or environmental violations. Similar solutions are offered by Sustainalytics or EcoVadis. With this information, companies can take steps to mitigate ESG-related risks. Given that nation states are simply shedding the responsibility for ESG compliance to companies, it might not be unreasonable to suggest the provision of some basic version of these tools, as they can help companies comply with supply chain laws and promote ethical and sustainable supply chain management, as a free-of-charge base version.”