The significant shifts over the past year have brought us to a new era characterized by increased uncertainty. Various notable events have influenced the global landscape, such as the persisting repercussions of the pandemic’s decline, Russia’s war in Ukraine, the recent conflict between Israel and Palestine, continuous economic sanctions and regulations, and extreme weather occurrences.
Addressing risks related to the environment, society, and governance is becoming more crucial for businesses to enhance resilience and secure long-term sustainability, as evident from the effects of the events described earlier on various sectors such as supply chains, trade, workforce, and security.
The Thomson Reuters Institute released a report titled The 2023 State of Corporate ESG, which examines how companies have investigated ESG initiatives through interviews and surveys with C-Suite executives and leaders in different areas.
Companies are speeding up their ESG strategies.
Companies are increasing their efforts to be proactive by investing in third-party solutions to stay compliant with global ESG regulations. The report emphasizes the importance of managing supply chain risks and gathering information about suppliers, with data analysis and management being crucial. Concerns about data collection gaps and supplier transparency are top priorities for companies as they get ready for reporting requirements.
The report explores potential future prospects, including utilizing artificial intelligence to enhance data connectivity and improve analyses in the realm of ESG, specifically for greenhouse gas emissions screening. AI has the capability to streamline emission data transmission, such as Scope 3 carbon accounting, to meet regulatory obligations and sustainability reporting standards, thereby lessening the administrative workload associated with emission data management.
AI can enhance processes by analyzing ESG reports and providing recommendations, which speeds up analysis and decision-making.
ESG reports are also included.
ESG commitments are now tied to a company’s financial success, including managing economic risks and seizing investment opportunities, in addition to being driven by communication. Supply chain disruptions can lead to revenue losses ranging from 6% to 20%, as per a recent IBM study.
Apple experienced a significant financial setback, with estimated losses ranging from $4 billion to $8 billion. This was due to the company’s decision to enhance supply chain security and transition to a decentralized production model, with a goal of increasing its operations in India by 25% by 2025.
Companies face financial risks when they fail to follow ethical and responsible business practices, such as human rights violations. Hyundai Motors, a South Korean automaker, had to close its subsidiary plant in Alabama due to child labor allegations. U.S. Customs and Border Protection reported that companies faced sanctions for forced labor practices, involving Uighur populations, leading to significant financial consequences.
Monitoring the financial status of new suppliers, their stance on the climate crisis, and labor conditions in different areas are essential elements of risk management strategies for companies to address financial risks and uphold ESG standards. ESG is viewed as a means to enhance business resilience and align with global risk management priorities in the face of military conflicts and natural calamities triggering humanitarian emergencies.
On the horizon.
Companies are realizing the importance of developing sustainable and resilient models in light of ongoing global challenges. According to Thomson Reuters research, 71% of C-Suite and functional leaders expect ESG to play a more significant role in corporate performance, highlighting three key factors driving this shift.
- AI progress through identifying deficiencies and analyzing data.
- Global regulations that affect different industries are changing over time.
- Advanced digital solutions that offer fresh perspectives on the ESG sector.
Companies and their suppliers can turn ESG into a driver for informed decision-making and financial growth by adopting these components. Effective ESG management is crucial for success in today’s unpredictable and intricate environment.
Serena Dibra is the Associate Manager of Product Marketing / Risk and Fraud at Thomson Reuters, according to a blog post titled “The 2023 State of Corporate ESG: How companies are adopting ESG for resilience and growth.”