The European Commission’s recently proposed Due Diligence Law will make businesses accountable for any environmental human rights violations or exploitations that occur anywhere along their extended supply chain. Similarly, the UK government uses Environmental, Social, and Governance (ESG) principles as a framework to evaluate procurement bids, with a mandatory requirement for at least 10% of every procurement decision to be based on the social value scoring attached to the bid.

Additionally, changing consumer behaviour is already encouraging ethical practices. SAP research shows that 83% of consumers would be willing to compromise for ethically sourced products. So it’s no surprise that ESG has become a strategic consideration for modern businesses. There is a clear strategic advantage to be gained from prioritising ESG standards.

A recent Opinium survey of 450 UK business leaders found that 50% identified improving their ESG credentials as the top reason for their search when looking for a new supplier. Clearly then, more businesses are turning their attention to social value. In fact, twice as many leaders identify this as the reason to change suppliers compared to regulatory requirements (25%). Whilst regulations do help usher change, it is clear that companies are seeing the importance of ethical suppliers on their own. So, with companies becoming responsible for how their suppliers’ ESG and social value credentials stack up, how can they ensure social value across the supply chain?

Focus on visibility and transparency

Understanding the activities of suppliers, what they are doing well and where they are falling short, is vitally important when considering the social value of any supply chain. Unlocking these insights can only be achieved with visibility and transparency across the partner ecosystem. These allow companies to accurately determine the suppliers that are on board with the ESG commitments and, more importantly, those that are not. In instances when trading partners are not performing to the required standard, a transparent supply chain ensures they can be identified and replaced quickly.

The implementation of intelligent sourcing solutions, including business networks, into the procurement function can enhance transparency across the supply chain. These solutions enable businesses to distinguish between suppliers that are ethically and environmentally driven, and those that are not. As a result, enterprises can manage and optimise their entire sourcing and contracting with greater agility.

Establish codes of conduct

It is commonplace for organisations to establish internal codes of conduct to enforce ethical practices, inform employees about how they are expected to act, and fortify the brand’s reputation. Therefore, it is perfectly reasonable to enforce this same code of conduct for all suppliers along the supply chain. In fact, it is encouraged.

To remain part of the supply chain, trading partners must understand the exact standards they are expected to work towards and the values they must represent. The code of conduct for suppliers should lay out the requirements for ethical practices, compliance laws and regulation, human rights and working conditions, and the environment, among other factors.

With the actions of suppliers now contributing directly to your company’s reputation, they must be completely committed to make a positive contribution to their partners and the communities they serve. Trading partners must review and agree to the code of conduct and be willing to undergo continuous auditing to ensure standards are maintained.

Source everything ethically

Selecting suppliers purely to make cost savings should no longer be the sole target of the procurement function. There is value in supporting social enterprises and diverse suppliers that back meaningful environmental and social causes. By implementing policies that encourage increased investment in these enterprises, you become part of the solution to the world’s most pressing social and environmental problems, and you make a positive impact on wider society.

Collaborate with complementary companies

The work in creating a more ethical supply chain doesn’t stop with your own suppliers and partners. Collaborating for sustainable solutions and forging alliances with like-minded organisations can drive a positive effect far greater than if companies acted alone.

For example, along with Accenture, and in partnership with the United Nations Global Compact, we launched the Sustainable Development Goals Ambition Guidance. The programme supports business leaders and their partners in measuring and managing sustainability performance through business technology systems and enterprise software solutions. Another example is the COVID Response Alliance for Social Entrepreneurs, launched in 2020 by 60 leading social sector organisations. The alliance supports over 50,000 social entrepreneurs who, in turn, have an impact on the lives of nearly one billion people by providing access to employment, food, affordable energy and other critical services. If they were to be created by a single standalone organisation, these initiatives would be far more difficult to implement, especially on such a scale.

The time has long since passed when organisations could think of ESG and ethical practices only within the context of their own four walls. Today, they need to look at the entire supply chain as an extension of the business, bringing with it positive and negative impacts on their brands. This requires visibility and transparency into the actions of all suppliers, making it possible to act quickly to remove any that are not completely aligned.