Supply Chain Digital Show: ESG in procurement & supply chain

Paul Butcher, CEO of global assurance specialist LRQA, warns that ongoing supply disruption means firms must be on guard against ESG supply violations

On the most recent Supply Chain Digital Show on LinkedIn, we spoke with Paul Butcher, CEO of LRQA, one of the world's leading global assurance providers. Below is an edited version of that interview.

  • The Supply Chain Digital Show is available on demand. The next show will be held on Thursday, 9 June at 2pm GMT, and every other Thursday at the same time thereafter.  

What does LRQA do?

Our core business is helping our clients manage risk in an increasingly complex landscape. Our focus is how we help organisations manage their global supply chains and the risks that are inherent in those. We support our customers in running their business better, safer, cleaner, more resilient, and more ethically. 

We were originally part of Lloyd's register. LRQA was launched as an independent business in July 2021. We bring decades of experience in the area of brand assurance, certification, cybersecurity inspection and and training. 

We operate in 160 companies around the world, and the top accreditation bodies in the world recognise us and the services we provide. Most importantly, over half of the world's top 200 companies trust us to help them with their brand assurance needs.

Which element of ESG is most damaging to a brand, when transgressed?

To me, it's very clear that all three of those matter. Wherever a business is at any one time, one of those elements of ESG will probably have greater or lesser significance. That's the nature of the changing environment our clients are operating in. Businesses don’t have the option of ignoring any one of them. They’re crucial,  

Take greenwashing as an example. I was reading today how Elon Musk is upset that Tesla had been bumped out of the top 10 ESG ratings but that six oil companies are ranked in the top 10. This comes to one of the challenges we have around the whole question of, of greenwashing. Can we truly rely on the claims organisations are making about their green and environmental credentials? For us, the key to this is data; those claims need to be verified.  

Another challenge we see is around the area of forced labour, and organisations making sure that they are addressing this issue in their supply chain, right down to their suppliers’ suppliers. 

ESG risks increase during times of supply disruption because businesses are more likely to be changing suppliers, and without visibility across the value chain this can mean they don't really know what’s happening in your supply chain. This is even more true now, with the war in Ukraine.

The challenge we see for organisations is not just whether consumers will buy your product if they feel you are not ESG compliant, but also whether other companies will partner with you or not. 

And then there is the battle for talent, and recruitment. People are making very deliberate choices about the organisations they're willing to work for. They want to work for an organisation that's focused on ESG, and that wants to do the right thing. 

Then there’s the risk from legislative change. The German Supply Chain Due Diligence Act comes into effect next year, and it's going to force organisations doing business in Germany to manage their social and environmental issues. And in US, the Uyghurs Forced Labour Prevention Act comes into effect on June 21 (2022). Shipments will be seized if companies are not able to demonstrate that they're ensuring products are not coming from Xinjiang in China. 

So there is real pressure on organisations to make sure they're managing all these risks across every aspect of their supply chain.

That's where we play a crucial role, in terms of helping them not only put in place the policies and procedures, but also being able to independently verify what is happening on the ground. We go in, we verify it and we give them the comfort that what a company is claiming it is doing around ESG is actually happening.

Where do you see supply chain ESG risk being in 5 years?

There’s two things on this. One thing that gives me a sense of optimism is that I am already seeing businesses step up to the challenge. With the pandemic and now Ukraine, we have an existential threat to the world. We know we need to act. Inevitably, politicians and governments have been slow to act, but businesses are stepping into the breach because they want to do the right thing .

So I see business playing a leading role in helping address more of these challenges. We will continue to see disruption and with it, the importance of organisations having the necessary levels of agility and innovation to respond to these challenges. What we will see is an even greater role for digital, a process accelerated by the global pandemic. 

We're already seeing new ways in which data is used to monitor what's going on in real time - to identify potential issues before they arise - a process of audit, inspection and intervention. Going forward, we're going to see much more of this, and it will be of a better quality, and richer.

Do we need global ESG laws, rather than regional? 

A multi-layered approach is what’s important. It's great to see governments taking action because that helps. Our business has grown up on the back of international standards and regulations facilitating global trade and we are a great believer in standards as a way of driving consistency of performance. It's not just about legislation. It needs also to be about the adoption and use of standards - and of course also independent verification, which companies like LRQA bring to the table. 

Ultimately, it's a combination of all these factors and also organisations doing the right thing, by putting pressure on suppliers to behave in a particular way, to align to their brand standards.

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