In 2021, measuring supply chain sustainability is crucial. Ahead of the upcoming United Nations COP26, business leaders and organizations are facing more pressure than ever before to address sustainability issues. Unfortunately for the private sector, the majority of these issues are found in their global supply chains.
In an attempt to regulate the many interdependent components of social and environmental responsibility, EU policy makers have put in place a set of tighter, ESG reporting standards for companies with greater than 500 employees set to take effect in January 2022. However, many companies still have limited knowledge of their supply chain ESG performance and depend on the willingness of suppliers to improve in order to meet these commitments.
Addressing sustainability issues with suppliers is easier said than done. Doing so requires a high degree of visibility and insight into supplier practices, and in today’s global supply chains, that can be a challenging task.
Companies need tools to help them better understand these practices, and there are a lot of platforms on the market that promise to provide supply chain traceability and data transparency. Once companies start looking into solutions, they can quickly get overwhelmed by the wide range of nuanced technologies in the space.
There are two popular categories used for assessing sustainability today: active and passive supply chain sustainability assessment platforms.
There are some crucial differences between active and passive supplier assessment platforms. Let’s dive into them.
Passive supplier sustainability assessment platforms include ESG rating platforms, supplier databases, and static third-party data providers. Passive systems take the approach that suppliers can be assigned a universal score based on available data, or in some cases, data reported by suppliers to the overarching platform. These can be valuable assets, particularly for companies in early stages of their sustainability journey, because they provide a decent look into supplier data.
However, they have their limits. Data provided by passive assessments is usually limited to a subset of publicly traded companies, so a business might not be able to get a read on the sustainability performance of their small to medium sized suppliers. Organizations can get a standard dataset through a platform such as Verisk Maplecroft, and although useful, there is potential for some missing information.
Passive platforms tend to rely on uniform data because their scores need to be consistent across the entire system. The assigned scores may align with a standards body (such as SASB), or they may use a proprietary rating system. In either case, companies are assigned a score, then they are categorized and ranked accordingly.
By taking the passive approach, a company can get a very broad understanding of ESG compliance, which can be useful in providing a bird’s eye view of sustainability performance. However, certain standards and ESG priorities may not be included in these systems. For example, labor violations at the farm level may not be visible. As a company’s sustainability requirements grow, it’s likely that they will need to supplement these platforms with more sophisticated tools.
In contrast to passive assessments, active assessments are broader in scope and do support supplier data collection, which allows for deeper supplier engagement and more granular insights about sustainability. With active supplier sustainability assessments, you can also break into the private and small- to medium-sized enterprise spheres to understand precisely what standards suppliers are meeting. This is especially important for far-reaching multinational corporations with many tiers in their supply chain.
Often, active platforms allow companies to create tailored assessments or pick from a selection of pre-built assessments. With active platforms, you determine what data you want to gather and send your assessment to relevant suppliers in the platform. It’s efficient, though slightly more involved than passive platforms, and ensures that companies receive the exact data that they need when they need it.
In some cases, active assessment platforms offer integrations that bring some of the strengths of passive platforms into on place. For example, at SupplyShift, we can integrate Verisk Maplecroft’s sustainability risk scores by region, which helps companies prioritize and pinpoint their active assessment efforts for the highest impact.
Right now, the adoption of supplier sustainability applications for the sake of enabling responsible sourcing isn’t quite a mainstream affair. But, as we enter a new era of supply chain digitalization, it’s quickly going to become a new requirement for businesses that want to adequately address ESG issues in the supply chain.
While sustainability priorities vary from business to business, every organization can benefit from having a supplier sustainability application. They enable you to gain meaningful insights from supplier data, which can drastically improve your ability to embed sustainability within your company’s procurement process. Active sustainability assessments let you create bespoke assessments to acquire the exact data that your company needs, mitigate risk, and avoid climate-related supply threats, while passive systems give you a broader set of data with less granularity. Whichever route you choose to go, the most important thing you can do is start.
SupplyShift is primarily an active assessment platform with elements of passive rating through third party integrations. If you’re interested in exploring tools to help you manage sustainability in the supply chain, we’d love to help. Contact our team for a consultation today.