A new report looks at companies' need to address ESG risks and obligations, which has become even more essential for business sustainability
This year there has been a profound shift towards a new reality marked by increased unpredictability. The global landscape has been shaped by a series of impactful events, including the continuing challenges posed by the waning pandemic, Russia’s war in Ukraine, the recently inflamed Israeli – Palestinian conflict, ever-evolving economic sanctions and regulations, and extreme climate-related occurrences.
These developments have had societal repercussions across numerous domains including supply chains, trade, workforce, security, and more. Addressing environmental, social & governance (ESG) risks is becoming increasingly essential for businesses to foster resilience and ensure long-term sustainability.
To better understand how businesses are exploring ESG initiatives, the Thomson Reuters Institute has published The 2023 State of Corporate ESG, a report based on qualitative interviews and surveys conducted with C-Suite and functional leaders across a variety of roles, industries, and geographies.
Businesses accelerating ESG strategies
The report indicates that businesses are accelerating their proactive measures and are seeking to invest and integrate third-party solutions that, in part, help businesses stay abreast of international regulatory requirements and keep up to date with ESG global news. Mitigating supply chain risks and learning more about vendors’ and suppliers’ information have also been a critical highlight in the report in which data management and analysis play a key role. Indeed, concerns around gaps in data collection along with transparency from vendors were top concerns for businesses as they prepare for reporting mandates, according to respondents to the survey.
The report also discusses forthcoming opportunities, one of which revolves around artificial intelligence (AI) and how it can connect disparate data and yield better ESG analysis and insights, in particular for greenhouse gas (GHG) emissions tracking. AI can be leveraged to automate the reporting of emissions data including Scope 3 carbon accounting, ensuring compliance with regulatory requirements and sustainability reporting standards, reducing the administrative burden of managing emissions data.
Another use case in which AI has the potential to improve processes is by parsing through ESG reports and offering suggestions for possible actions. This scalable effort greatly expedites the analysis process and promotes faster decision-making.
Moving beyond ESG reporting
ESG commitments, however, are not solely driven by reporting, but are now closely intertwined with the business’s financial performance and long-term financial success, including mitigating economic risks and seizing investment opportunities. Supply chain disruptions can cost companies between 6% and 20% in revenue loss, according to recent research by IBM.
A notable instance of financial loss was the economic blow estimated between $4 billion and $8 billion that fell on Apple. The tech giant company announced earlier in the year its plan to de-risk its supply chains and implement a decentralized production plan, expanding 25% of its operation in India by 2025.
Another example of financial risks for companies that do not adhere to ethical and responsible business practices are in response to human rights violations. South Korean automaker Hyundai Motors divested its subsidiary factory in Alabama following allegations of child labor concerns, according to Reuters. Notably in the U.S., there have been 117 sanctions imposed on companies accused of using forced labor practices involving Uyghurs populations, resulting in 2,325 shipments denied and 988 pending for a total value of $826 million, according to the U.S. Customs and Border Protection.
Assessing new vendors’ financial health, their response to the climate crisis, and working conditions across various regions are part of risk-management strategies that companies should consider monitoring to mitigate financial risks, while at the same time ensuring compliance with ESG. With military conflicts and natural disasters leading to humanitarian crises, ESG is embraced as a contribution to the overall agenda of managing risks and improving business resilience.
On the horizon
Amid the challenges faced globally in 2023 and the complexity likely to continue in 2024, businesses are increasingly recognizing the imperative to build sustainable, resilient models. Thomson Reuters research indicates that 71% of C-Suite and functional leaders anticipate the growing significance of ESG in corporate performance. In fact, there are three pivotal factors shaping this evolution:
- AI advancements bridging the data gaps and analysis;
- evolving global regulations impacting diverse sectors; and
- maturing digital solutions providing fresh insights in the ESG realm.
By embracing these elements, companies and their suppliers can transform ESG from a mere obligation into a catalyst for informed decision-making and financial growth. Successful ESG management is the key to thriving and prospering in this new era of more complexity and less certainty.
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