By Atul Vashistha, Chairman of Supply Wisdom
In light of recent worker shortages and social justice movements, the power shift from employer to employee has begun. Treating employees – especially frontline and lower-wage workers – as interchangeable commodities is an unacceptable and short-sighted approach. While leading enterprises are revising their practices accordingly, unfortunately, there are still many who need to get on board. The fact is, every enterprise can benefit by prioritising their most valuable asset – human capital.
With proposed new disclosure requirements from the US Securities and Exchange Commission (SEC) making it harder for public companies to hide their workforce-related shortcomings, boards should proactively lead the drive to change. Proposed human capital disclosures on diversity, staff compensation, employee turnover and more, will not only shine a light on corporate strategy and governance issues, but could indicate a company’s go-forward resilience and profitability.
According to Morgan Stanley, 88 per cent of studies found companies that adhered to social or environmental standards showed better operational performance. With 80 per cent also showing a positive affect on stock performance, more and more shareholders are getting on board. With sustainability and CSR performance proven to attract and retain more millennial and Gen-Z talent, it’s no wonder company leadership is paying attention to the shift as well.
It’s been two years since 181 top CEOs from well-known organisations, such as Coca-Cola and Amazon, vowed to prioritise sustainability, stewardship and people alongside profit. But proclaimed shifts to stakeholder capitalism are risky for enterprises who are all talk and no action. Accusations of greenwashing are on the rise with the financial sector in particular already sustaining a substantial blow.
Consider that while 72 per cent of companies mention Sustainable Development Goals (SDGs), in their reporting, only 27 per cent include them in their business strategy. As for top-level leadership – only 19 per cent of CEO or chair statements mention the SDGs in the context of their business strategy, performance, or outlook. Clearly, enterprises that are slow to put social responsibility goals into practices are taking on considerable risk. Most companies don’t have a good handle on the application of their DEI policies across their enterprise. It’s not enough to have policies in place, you need visibility into how well they are being implemented and a clear analysis of the results. “Ignorance leaves enterprises unable to effectively mitigate risks. As with other business-critical initiatives, it’s important for boards to push for the changes needed to modernise ESG risk management”
“Ignorance leaves enterprises unable to effectively mitigate risks. As with other business-critical initiatives, it’s important for boards to push for the changes needed to modernise ESG risk management”
But adherence to high human capital standards within your business’s four walls is not enough. An organisation’s reputation risks extend beyond their four walls to their complex web of third-party relationships – suppliers, partners, etc. Unfortunately, the majority of companies have even less transparency into their supply chain when trying to assess whether good policies are being followed.
Identifying the risks – beyond your organisation
Reputation risks involving health and safety, diversity and inclusion, pay equality, unacceptable labour practices and more are often hidden deep within the supply chain. The more global and complex the supply chain, the more difficult it is to know and monitor supplier adherence with an enterprise’s policies.
While visibility is critical to understanding and managing risk, it’s no small challenge for enterprises to obtain a clear and accurate view of their supply chain’s actual practices.
To understand their supplier’s practices, many enterprises rely on legacy processes involving periodic supplier completed self-assessment questionnaires. Unfortunately, reliance on such practices leaves enterprises extremely vulnerable to reputational damage. In today’s rapidly evolving ESG risk landscape, data collected during point-in-time assessments is rapidly stale, not to mention that relying on supplier self-reported assessments is in itself inherently risky to the enterprise.
It’s becoming more clearly recognised that such assessments are no longer acceptable as their shortcomings increase vulnerability to reputational damage and negatively impact organisational resilience. Ignorance leaves enterprises unable to effectively mitigate risks. As with other business-critical initiatives, it’s important for boards to push for the changes needed to modernise ESG risk management.
The right approach for your people - and your suppliers’ people
Ensuring your enterprise and your entire supply chain are aligned with your human capital policies – and prepared for upcoming disclosure mandates – requires a modern and proactive approach that moves beyond point-in-time assessments. Today, enterprises need a real-time and continuous picture of what’s happening in their environment and in their supply chain.
Risk programmes need continuous ‘always-on’ monitoring for real-time risk human capital and other ESG intelligence. While in the past, this would have been too labour intensive to be practical, today you can leverage solutions that utilise the latest automation, AI and machine learning to continuously monitor your entire ESG risk landscape, starting at the enterprise level and going deep into your supply chain. Real-time alerts act as an early indicator of trouble, enabling proactive mitigation steps before issues become a negative reputation event.
For example, let’s look at the growing attention8 to human rights violations in the Xinjian region of China where many cotton plantations9 are located. An enterprise that has modern ESG risk management practices would have the visibility needed to shift its supply chain away from this region and avoid reputational damage. Not only would a modern approach provide early warning of trouble, but it would also be invaluable in finding alternative locations and suppliers with acceptable ESG profiles.
Going forward: beyond reporting to making a difference
A good practice going forward starts with adopting internationally recognised ESG standards across the enterprise, such as GRI Standards, ILO Labor Standards, WEF Stakeholder Metrics, Financial Stability Board TCFD, UN Global Compact & Sustainable Development Goals, and ISO 26000 Social Responsibility Goals.
Next, it’s critical to always have current visibility into not only how your enterprise measures its own progress against this framework, but also how your supply chain measures up. Lastly, you need the ability to make disclosures not only to comply with regulations, but also to reap the benefits that good human capital practices provide. This includes greater ability to recruit and retain the best talent, as adherence to good human capital practices not only significantly diminishes your risks, but it can also uplift your reputation in the market.
Upcoming disclosure requirements help to strengthen the growing direct correlation between good ESG practices and profit, creating the potential for a win-win scenario for enterprises and their people. By being proactive and ensuring adherence to these practices across the supply chain, the board enables an exponentially greater win for people across the globe.
About The Author:
Atul Vashistha is recognised globally as a leading expert on supply chain risk and global business services. He has authored three best-selling books: The Offshore Nation, Globalisation Wisdom and Outsourcing Wisdom. Atul is the Founder and Chairman of Supply Wisdom. Founded in 2017 as an early warning service for business disruption risk, Supply Wisdom is today the market-leading patented continuous risk intelligence, monitoring and risk actions automation solution. Atul serves on boards on IAOP, NEA and Shared Assessments. He has also recently served as vice chair for the US Department of Defence Business Board.