The importance of renewing focus on the ‘S’ in ESG

13 September 2023 6 min. read
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Business strategy has predominantly focused on the ‘E’ in Environmental, Social and Governance policy; but fostering good growth requires a renewed emphasis on the importance of the ‘S’ pillar, according to Xynteo Managing Partner Jonah Grunsell. He explains how this can help to create socially consciousness, inclusive and profitable supply chains.

In today's dynamic business landscape, the integration of social consciousness and inclusivity within supply chains is crucial. Enterprises that prioritise these principles not only contribute to a fairer and more equitable world but also gain a competitive edge through the fostering of stronger relationships with diverse stakeholders. So, what can businesses do to embed social consciousness and inclusivity within their supply chains at every step?

The 2022 Global Sustainability Study shows that 66% of consumers rank sustainability as one of the top five drivers behind a purchase decision; meaning that transparent communication in supply chain practices plays a pivotal role in establishing trust with consumers, investors, and stakeholders. Businesses must strive for openness regarding their sourcing, labour practices, and social and environmental initiatives. Research by Label Insight showed a staggering 94% of consumers are likely to remain loyal to a brand that offers complete transparency about its supply chain, underscoring the growing importance of supply chain visibility in understanding a business's impact.

The importance of renewing focus on the ‘S’ in ESG

Yet, transparency in supply chains goes beyond consumers, with investors, suppliers and other stakeholders also seeking clarity and openness.PwC revealed that 83% of investors believe that non-financial disclosures, such as supply chain information, are essential when making investment decisions. Enhancing communication with consumers, NGOs, and industry partners is also a vital element in creating a positive impact through supply chain practices. According to a study by the Harvard Business Review, 65% of consumers want to buy purpose-driven brands that advocate sustainability.

In the quest for responsible supply chain practices, reporting and certification play a crucial role in demonstrating a company's commitment to transparency and accountability. Sustainability reports provide comprehensive insights into an ESG performance, showcasing their efforts to minimise environmental impacts, promote social welfare, and ensure ethical business practices.

While, environmental management certifications, such as ISO 14001, demonstrate a company's dedication to reducing its environmental footprint and fairtrade certification guarantees that products meet strict standards, ensuring fair wages and better working conditions for farmers and workers. According to a study by the Global Reporting Initiative (GRI), 96% of the world's 250 largest companies now disclose their sustainability performance through these reports.

A good example from the technology world is Apple, which has taken great strides both on reporting on its sustainability efforts as well as acting on the insights generated by increased transparency and tracking. This level of transparency instils trust among consumers, investors, and partners, encouraging them to support and collaborate with socially and environmentally responsible companies.

Embracing diverse and ethical strategies

True inclusivity requires forging partnerships with a diverse supplier base, particularly those within underrepresented groups such as women, minorities, and social enterprises. Businesses can support local communities, create economic opportunities and promote social mobility by actively seeking out and collaborating with these suppliers.  A study by the Harvard Business Review indicates that actively embracing a supplier diversity programme can foster innovation and increase the bottom line. A procurement strategy that prioritises inclusivity expands the range of potential suppliers and fosters healthy competition within the supply base, leading to enhanced product quality and cost reduction.

One fundamental aspect of improving supply chains is ensuring fair labour practices and ethical sourcing. Businesses can take proactive steps to verify that their suppliers adhere to responsible labour standards, treat workers fairly, and provide safe working conditions. This includes regular audits, transparent supplier relationships, and collaboration with industry initiatives promoting ethical practices. By sourcing ethically, businesses can contribute to the well-being of workers, reduce social inequalities, and enhance the reputation of their brands.

Prioritising ethical sourcing practices involves scrutinising suppliers' labour conditions, environmental impact, and compliance with human rights standards. Partnering with suppliers who align with these values ensures that products and services are not tainted by exploitation or harm to communities.

Providing suppliers with training, resources, and support can significantly enhance their operational efficiency, product quality, and compliance with ethical and environmental standards. This not only improves the overall supply chain's performance but also promotes sustainable practices and responsible behaviour. Businesses also can make a positive impact on communities by investing in social programmes and projects that tackle pressing challenges such as education, healthcare, and infrastructure.

Prioritising local suppliers and supporting small businesses within the community can stimulate economic growth, create job opportunities, and promote entrepreneurship. Embracing local sourcing strengthens community ties, boosts regional development, bolsters community resilience, enhances quality of life, and contributes to societal progress, generating a broader positive influence beyond the business itself. The good news is that ethical business practices make commercial sense when you consider that, for example, 70% of American consumers think either “somewhat” or “very important” for companies to make the world a better place; while a huge 93% of employees believe companies must be led by purpose.

Unilever, for example, has set ambitious social targets under its ‘Sustainable Living Plan’, including empowering 5 million women through its value chain by 2020 and enhancing economic growth in local communities. Their ‘Partner with Purpose’ strategy aims to drive mutual growth that’s consistent, competitive, profitable and responsible, and influence the people they buy from to, in turn, buy from diverse suppliers, leading to the transformation of their value chain.

Nurture responsibility

Businesses must play a pivotal role in encouraging responsible consumption by engaging consumers and raising awareness about the social and environmental impacts of their products. A study by Nielsen reveals that sustainability is more important to 69% of global consumers than it was two years ago. Providing transparent information about sourcing and ethical considerations empowers consumers to make informed choices aligned with their values. By actively involving consumers in the journey towards a more socially conscious supply chain, businesses can build trust, loyalty, and a positive brand image.

Integrating social consciousness and inclusivity into supply chains enables businesses to create positive societal impact while ensuring long-term sustainability. Ethical sourcing practices, diverse partnerships, sustainable logistics, and responsible consumption are essential steps in achieving these goals.

Xynteo encourages businesses to take a proactive stance, transforming their supply chains into vehicles for change that promote fairness, equality, and environmental stewardship. Through collective efforts, we can build a more just and inclusive world, one supply chain at a time.