The Importance of Conducting an ESG Diagnostic on the Supply Chain

In many companies, sustainability and Environment, Social and Governance (ESG) management are often seen as secondary or complicated issues. However, there’s one aspect that can’t be ignored: the ESG assessment of the supply chain.

Why is it Important?

Conducting an ESG diagnostic on the supply chain not only helps to promote and align the sustainability programs of our suppliers to achieve joint ESG goals. It is also essential to obtain a uniform evaluation of the suppliers and understand the ESG risks that could arise. A supplier that does not meet certain standards can pose a significant risk to the company, both in terms of reputation and operation.

Ignorance is No Excuse

It is common for some companies to avoid exploring into these issues, perhaps due to their complexity or fear of what they might find. However, being unaware of the ESG situation of your suppliers does not exempt you from the problems that may arise. An ESG diagnostic can reveal questionable labor practices, negative environmental impacts, or governance issues that, if not properly managed, can severely affect the company.

Some cases:

1. Nike: In the 1990s, Nike faced a significant reputation crisis due to poor labor conditions in its supplier factories in Asia. The company suffered a severe blow to its image and had to implement drastic changes in its supply chain and sustainability policies to recover.
2. Apple: Apple has also been criticized for labor conditions in its supplier factories in China. Reports of excessive working hours and poor labor conditions led the company to improve its standards and conduct more rigorous audits.
3. Grupo Bimbo: In Mexico, Grupo Bimbo has worked hard to ensure that its supply chain meets its strict sustainability standards. They implemented an audit system for their suppliers that includes ESG criteria, ensuring that their entire value chain is aligned with their sustainability goals.

Impact on the Bottom Line

Ignoring these issues not only affects a company’s reputation but also its financial value. Shares can drop, and customers may choose to support more responsible brands.

Companies that source from suppliers around the world like China or India, where regulations may be laxer, need to be particularly careful. Problems discovered in the supply chain can lead to significant financial losses as consumers and investors increasingly demand transparency and responsibility.

Conducting an ESG diagnostic on your supply chain is not optional in the current environment. It is a necessity to mitigate risks, ensure compliance with standards, and maintain the company’s reputation. At ESG Positive Impact, we help companies implement these diagnostics and work closely with their suppliers to achieve joint sustainability goals. 

Don’t let a lack of information put you at risk; take control and ensure that your entire value chain aligns with your ESG principles.