MHI Solutions Improving Supply Chain Performance
BY JASON SCHENKER, PRESIDENT OF PRESTIGE ECONOMICS AND CHAIRMAN OF THE FUTURIST INSTITUTE®
There are many different ways to frame and evaluate sustainability. Sometimes it is couched as environmental, social and governance (ESG) and other times, it is focused on the United Nations’ 17 sustainable development goals (SDGs). And in some industries, like supply chain and material handling, emissions are currently the big focus above all other sustainability measures.
No matter a company’s sustainability priorities, they are usually assessed and evaluated with metrics. Over time, companies seek to improve those metrics. But before improvement can begin, the right data needs to be collected, prepared and analyzed.
ESG in public companies
According to the Center for Audit Quality (CAQ), 93% of S&P 500 companies “issued an ESG report using at least one framework or standard.” These four frameworks/standards include Sustainability Accounting Standards Board (SASB) standards, Global Reporting Initiative (GRI) standards, Task Force on Climate-Related Financial Disclosures (TCFD) recommendations and the Integrated Reporting Framework. In fact, of these 500 companies, most used at least one framework, according to the CAQ.
While most companies in the material handling industry are not in the S&P 500, they likely do business with companies that are. This is where collecting, preparing and sharing accurate ESG data will be critical across companies that are suppliers to these firms.
Scope 3 emissions require vendor and customer data transparency
As public companies are pushed to share more ESG data, greater supply chain transparency will be required of vendors. To remain a vendor in good standing, companies will need to share their emissions and other ESG data. To get that data, those companies will be required, in turn, to push their own vendors on transparency, who will need to push their own vendors all the way up the supply chain. This will be especially critical for preparing accurate Scope 3 emissions data. But it will also be essential to assess a company’s complete environmental footprint and ensure its products’ ethical provenance.
Even if you aren’t a vendor of companies in the S&P 500, your organization might well be a customer. Gathering emissions and ESG data will also be critical for customers of S&P 500 companies. ESG data isn’t just something that comes from upstream sources in supply chains because Scope 3 emissions also include emissions created in the use or disposal of products.
So even if you want your business to remain a customer in good standing, you may also be required to collect and share your downstream emissions data.
The future of data granularity For now, the granularity of emissions and environmental impact by product is less granular than it will be in the future. More significant emissions and ESG transparency will be fostered, required, mandated and even demanded as time goes on.
While ESG and emissions reporting is high for the S&P 500, recent emissions and ESG audit and assurance rates remain relatively low. However, over time, investor, creditor, vendor, customer and regulatory demands for ESG assurance are poised to increase significantly.
According to CAQ, the S&P 500 sought ESG assurance from public accounting firms and other entities. Only 15% of the assurance and verification providers were public company audit and accounting firms. The other 85% were not. This does not mean only public auditors can handle an effective ESG assurance project. Still, as these audits evolve and their importance increases, ESG assurance is likely to be increasingly provided by public accounting firms.
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