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"Analysing ESG risks in the supply chain" - How ESG risks in the supply chain are relevant to investors - How these risks can be analysen - Examples of good practice & bad practice related to different industries TBLI CONFERENCE™ NORDIC 2014 Our first ESG & Impact Investing conference in the Nordic region, hosted by the BI Norwegian Business School in Oslo. For 2 days, the conference offered a platform to learn about current trends in sustainable investing and CSR in the Nordic region – and ample opportunity to find new business partners. Unique to this event, selected entrepreneurs have been invited to present their innovative green technology and climate change related projects to the investor community.
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SustainalyticsA Global Leader in Sustainability Analysis
Oslo, September 2014
About Sustainalytics
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We help clients turn vast quantities of environmental, social and
governance information into insightful, value-added analysis to
enable more informed investment decisions
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Sustainalytics: What We Do
Offices in Amsterdam (HQ), Boston, Frankfurt, London, New York City, Paris, Singapore, Timisoara, and Toronto
Representation in Bogota, Brussels, Bucharest, and Copenhagen
Over 180 staff (100+ analysts)
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Sustainalytics: Where We Are
Research
Company ESG research & Ratings
Sector reports
Thematic research
Alert services
Country Risk Monitor
Controversial Weapons Radar
Global Compact Compliance
Advisory & Services
UNPRI support services
Engagement support
ESG integration training
Portfolio reviews & screening
Portfolio analytics
Sustainable Bonds service
Bespoke ESG research
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Our Research & Services
Research Approach
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Assessment of E,S,G controversies
e.g Operations controversies, Environmental supply chain controversies
Qualitative performance
Targets and quantitative commitments, performance metrics
e.g. Water Intensity, Environmental Fines and Penalties, Employee Turnover Rate
Quantitative performance
Disclosure of key ESG issues as part of industry initiatives
e.g Scope of GHG Reporting, Tax Transparency per country Disclosure
Management systems and policies
e.g Health and Safety Programmes, Programmes/targets for Hazardous Waste Generation
Preparedness
Company ESG Assessment Framework
We assess company performance based on a broad set of indicators:
Review of company reporting: annual reports, CSR reports, publicly available policies, etc.
Review of external sources (Newspapers, NGOs, publications, etc.)
Analysis by experienced analyst
Structural peer review
Company feedback always included in the research process
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Company Research Process
Risk
Appetite
NGO Reports
Media and News DataAnalysis
Stress &
Scenario
Testing
Research Process
CompanyData
Quality and Peer Review
Company Feedback
Sustainalytics’ Outlook
OutlookESG impact
Business Impact
Reputational Risks
Regulatory Risks
Preparedness
Company Response
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ESG Risks in the supply chain
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About supply chains
Strong supply chains can be the difference between a competitive advantage and a competitive disadvantage
Supply chain dynamics vary per sector, risks vary per sector
Where you are in the supply chain matters
Supply chains are increasingly global. Country-specific factors, such as local regulatory frameworks and socio-political environment, can have disruptive effects
Advantages of extending supply chain to low-cost countries are real, but so are the challenges
Race to the bottom (on cost) has number of side effects, for countries, sectors, and companies (and therefore investors)
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Supply chain risks
Largely speaking three types of risk sources: Environmental, Social, and Political (governance)
Associated risks to society– Social unrest
– Negative impact on workers: forced labour, physical and psychological injuries, fatalities
– Environmental pollution
– Shock to local/national economies in case of business failures
Associated risks to corporates– Reputational
– Business risk
– Regulatory
Associated risks to investors– Impact on risk-adjusted returns
– Reputation risk
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Example: Food Retailing
Cost competitive environment
Consumer demand driven
High concentration of market share among few players
Complex supply chains
High impact on stakeholders, including customers, employees and suppliers
Intensive use of energy and producer of waste
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Example: Bangladesh Factory Collapse
April 2013 incident resulted in over 1,000 fatalities and 2,500 injuries
80% of the Bangladesh revenues derived from garment manufacturing
25% of factories considered ‘unsafe’ due to recurring health & safety incidents
Company programs inadequately address factory integrity
Limited traction of collaborative supply chain initiatives
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Examples of Best Practices
Defining clear supply chain standards which combine quality assurance, health & safety, working conditions and environmental impact
Conducting and disclosing risk assessments
Sourcing locally and/or implementing strong tracking systems for global sourcing
‘Know the supplier’ via regular audits/monitoring
Stimulating and participating in industry-wide and multi-stakeholder collaborative actions
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Recommendations for Investors
Map supply chain risks by industry and relate them to the individual companies
Assess companies’ preparedness, as well as actual performance and management response
Discuss outcomes of supplier risk assessments with companies and encourage regular reporting on progress
Stimulate company disclosure of information about supplier locations and traceability systems
Inquire how companies mitigate risks (clear time bound action plans)
Encourage leaders to share best practices and engage industry peers and other stakeholders
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Amsterdam | Bogotá | Boston | Brussels | Bucharest | Copenhagen | Frankfurt | London | New York City | Paris | San Francisco | Singapore | Timisoara | Toronto
For more information please contact:
Tal UllmannAssociate DirectorPhone: +31 20 205 00 [email protected]
Karin BjörkAssociate Responsible Investment AdviserPhone: +31 20 205 00 [email protected]
