A recent global survey of 1,250 managers and senior executives looked at environmental, social and governance (ESG) practices in companies across the U.S. and Europe. Unsurprisingly, this found ESG to be a growing concern for companies.
Within the UK, most surveyed were concerned about the environment. 51% of UK respondents say their businesses plan to increase spending on ESG this year. However, the other 49% proves that more can be done.
Conversations are happening around the world about climate risks and what can be done to tackle a vastly bleak future. For instance, the Intergovernmental Panel on Climate Change (IPCC) has found that rising temperatures from global warming are causing risks to food security. The question that’s increasingly being asked is, is enough being done?
For businesses to truly change, ESG risk assessments are needed throughout the supply chain. Businesses also need a thorough understanding of their suppliers.
Testing the trust in ethical and sustainable business practices
Late last year, NAVEX conducted research of over 2,000 consumers and business decision makers about trust in their ESG practices. This uncovered a lack of confidence and trust in ethical and sustainable practices.
74% of consumers and 85% of consumer businesses agree that most businesses could do significantly more to improve their ethical and sustainability work. Only a quarter of consumers believe that businesses practice ESG initiatives to fight issues such as climate change. It is evident that both consumers and businesses alike lack confidence in current ESG practices. More needs to be done to mitigate ESG risks.
It was recently found that nearly a third of consumers stopped buying certain brands or products due to ethical or sustainable concerns. It is more challenging than ever to retain customers when brands are continually called out for not doing enough. For instance, the exposure of greenwashing scandals are influencing the conscious consumer.
To mitigate the risk of losing customers, businesses need to act now. Deploying robust, clearly strategised ESG practices and programmes may be the way forward. With this, their consumers can make an informed choice about where to shop.
How do businesses build trust?
Businesses must take ownership of their ESG strategy. 50% believe that their organisations are responsible for meeting and reinforcing ethical and sustainable standards throughout the whole supply chain. Businesses that take pride in their ethical and sustainable practices will ultimately build greater trust from their consumers than those that cut corners.
One way to build trust is through transparency. Businesses should fully disclose their ESG goals across their supply chains and the routes they take to mitigate. For example, revealing climate risks can develop confidence from the consumers. Start by assessing the ESG risks within a supply chain and deploy corrective solutions to mitigate these risks.
National ESG regulations
There are a few governmental ESG initiatives across Europe. These provide guidelines and instruments, such as the Guiding Principle for Business and Human rights under the UN Global Compact or the Organisation for Economic Co-operation and Development (OECD). These have not yet prompted the necessary actions.
National regulators and governments are continuing to work to produce effective regulations. These build on existing guidelines to eliminate issues such as human rights violations. For instance, in 2017, France passed the “Vigilance act”. Germany are soon to deploy the “German Supply Chain act” in 2023. In February of this year, the European Commission issued a proposal for a Directive on Corporate Sustainability Due Diligence. This is designed to tackle ESG issues such as human rights and environmental issues across business supply chains. The goal is set for an overarching regulation for environmental and human rights risks.
For businesses, compliance to these upcoming regulations is paramount. To be successful in this, businesses need to develop ESG programmes that encompass the entire value chain.
Safeguarding businesses for the future
Through full transparency of ESG policies across a business supply chain, consumers develop confidence and trust. With these in mind, consumers can make accurate decisions to shop ethically and sustainably. Ultimately, though, choosing better options for the planet. For businesses, building confidence and trust mitigates ESG risks and safeguards them for the future.