Environmental, social and governance (ESG) are factors that provide a comprehensive view of a company’s sustainability and societal impact. There has been a notable shift by companies towards ESG tracking and reporting with 80% of companies worldwide now reporting on sustainability metrics. The shift is driven not only by regulation, but also by the increased emphasis placed on ESG by investors evaluating the financial performance and value of an organization.
When an organization implements ESG practices and reporting they send a signal to customers and investors that they can effectively mitigate risks and subsequently generate long-term financial returns.
Contractor Impact on ESG Goals
Outsourced work to contractors and suppliers continues to be an essential component of many organizations’ operations. In a recent survey of more than 200 ISN Hiring Clients in capital-intensive industries, 41% expected outsourcing to increase over the next 1-2 years. This continued partnership highlights the need to include contractor performance when working towards ESG goals.
The International Finance Corporation considers contractors to be under the direct control of the clients in which they invest and requires the client to ensure their contractors comply from a sustainability perspective. There are challenges with this approach as contractors and suppliers are often perceived as separate entities making it difficult to track the implementation of ESG measures.
To combat these challenges, it is necessary to implement a contractor management program that takes ESG into account. By reviewing organizational data available from the program, a Hiring Client can identify contractors that are in alignment with their expectations and practice sustainable sourcing.
ESG and Supply Chain
In an increasingly global economy, supply chains can be highly complex and may expose companies to hidden risks associated with ESG, such as climate change, corruption and human rights violations. Public awareness of supply chain issues has also increased. If these risks are not addressed, companies may fall under scrutiny and experience damage to their reputation, operations and/or financial performance.
Incorporating ESG into supply chain management can also provide benefits, including enhanced business continuity, development of trusted partnerships with suppliers, cost savings through reduced energy and water consumption, prevention of fines and litigation, and minimization of disruptions in the supply chain.
Get Started
As the global focus continues to prioritize ESG tracking and reporting, companies may be understandably daunted by the task and unsure of where to begin. Consider the following actions to start addressing sustainability:
Organize internally and evaluate the business case for ESG. Internal alignment is key. ESG practices impact the organization as a whole and are linked with company performance. Development of a strong business case will aid in this alignment.
Consider the internal and external requirements. While determining the internal ESG goals of the organization, take time to ensure these goals also meet any requirements stemming from regional legislation, investors or stakeholder expectations.
Identify the risks, including high-risk internal departments and contractor organizations. Just as it is crucial to manage risks related to health and safety, managing risk related to ESG should also be prioritized. Begin an analysis with the departments that pose the greatest level of overall risk to the organization.
Increase the level of transparency and understanding throughout your supply chain. Oversight of the supply chain must extend beyond primary suppliers. Ensure the organization has adequate visibility into the operations and risks associated with secondary and tertiary suppliers.
Collect and review ESG information on contractor companies. Encourage contractors to join in on the journey to improve ESG related metrics and KPIs. Incorporation of contractors and their subcontractors can help ensure progress made towards the organization’s goals are not being offset.
Let ISN Help
ISN’s global platform, ISNetworld, supports an extensive network of more than 650 Hiring Clients and 75,000 active contractors, allowing Hiring Clients to leverage tools and data to capture and review ESG information on contractor and supplier performance.
Register for the upcoming Sustainability Roundtable March 31, 2021, to hear from sustainability leaders across multiple industries.
If you are a current ISN Hiring Client subscriber, contact your account representative about incorporating ESG into your contractor management program.
If you are a Hiring Client interested in learning more about ISN’s contractor management system to help you reach your contractor management goals from a sustainability perspective, request a demo of ISNetworld.