Much has been made in the public square of the importance of ‘ESG’. But what does it mean? Reto Fuhrer, CEO of RF Supply Chain Expertise, interviews Circular Supply Chain Advisory’s Brendan O’Keeffe to find out.
One of the buzzwords you hear a lot around industry these days is ‘ESG’, which stands for ‘environmental, social, and governance’ considerations. In my experience, most of the discussion around ESG comes from larger firms who tout their ESG initiatives as a way of marketing their social responsibility bona fides. No doubt, much of what these firms do is positive, but there’s still a lot of uncertainty – especially among smaller- and medium-sized enterprises – as to what precisely ESG is and what should be done about it.
To help me get a better grip on ESG, I recently interviewed Brendan O’Keeffe, who runs Circular Supply Chain Advisory.
Brendan runs Circular Supply Chain Advisory, a consulting group aimed at offering circularity services, including recruitment and consulting. Brendan’s mission is to support organisations with a strong mandate around their sustainability objectives, helping them become more sustainable across their value chain. Through his advisory services, he guides organisations that have a mission to become more sustainable but may not know where to start, providing valuable insights and direction in their journey toward sustainability.
“Though often simplified and used as a catch-all term, ‘ESG’ covers a wide range of environmental, social, and governance factors,” Brendan explains. “To give these factors real meaning and focus within a business context, organisations that take ESG and sustainability seriously often align their objectives with the United Nations Sustainable Development Goals (SDGs). These 17 goals are well-defined, allowing companies to select a few that are most relevant to their operations and report on them with clear metrics – including environmental sustainability but also social sustainability considerations like hunger, human rights, and quality of life.
“Climate action, for example, is one SDG that every organisation should consider. Under this goal, companies might focus on increasing renewable energy usage or improving efficiencies to reduce consumption. By tying their operations to these specific objectives, companies demonstrate responsibility and commitment to sustainability.”
WHAT ARE ESG STANDARDS? WHAT DO I NEED TO DO?
The ‘governance’ part of ESG is a bit harder to define, Brendan tells me, as there is no one global standard or jurisdiction that companies can follow. Consequently, reporting requirements for listed companies may vary depending on their location.
“Large companies are increasingly pushing sustainability responsibilities onto their suppliers, requiring them to report against certain sustainability metrics,” he says. “While large companies must be transparent about their sustainability efforts due to shareholder requirements, smaller non-listed companies are not currently held to the same standards. However, many small and medium-sized businesses recognise the need to be proactive in addressing sustainability to grow their business and meet the expectations of their customers.”
Brendan suggests that if a company is looking to get started with ESG, they should first listen to what their customers are asking of them. As awareness and discussions around ESG and sustainability increase, businesses should strive to understand their value chain better – from sourcing raw materials to manufacturing or importing products, and from distribution to end-of-life considerations.
For companies dealing with recyclable materials, a lifecycle assessment of their materials can help identify potential recovery opportunities. Companies that focus on import and distribution should consider driving efficiencies by reducing costs and overheads, as this will naturally lead to more sustainable practices.
“Economic considerations are essential: businesses need to ensure that their sustainability efforts are cost-effective and not just feel-good investments,” Brendan says. “One approach is to optimise existing supply chains and collaborate with customers and suppliers to find shared solutions. Sharing expertise and best practices with partners can lead to increased benefits and adoption of sustainable strategies throughout the supply chain.”
WHY NOW?
While some businesses may not currently feel the urgency to improve their ESG performance – especially smaller companies not subject to investor pressures – it’s crucial to recognise the potential consequences of inaction. Brendan points out that consumer attitudes are changing, and they are increasingly looking at companies’ sustainability practices when making purchasing decisions. Consequently, businesses that fail to adapt may find themselves at a disadvantage compared to competitors who prioritise ESG.
“As companies become more concerned with sustainability, they may require their suppliers to meet certain standards or provide ESG-related reporting. Those that are unprepared or unwilling to adapt may find themselves excluded from major contracts or relegated to the bottom of procurement lists. This underscores the importance of businesses proactively engaging with ESG practices and working collaboratively with supply chain partners to improve sustainability performance.”
With a commitment to finding solutions to individual client challenges, RF Supply Chain Expertise is partnering with Brendan and Circular Supply Chain Advisory. To learn more about RF Supply Chain Expertise, click here.