Engaging on ESG risk in the supply chain: what's next?

Risks presented by ESG factors in supply chains are constantly emerging.

Left unmanaged, they can harm the reputations, operations and financial performance of businesses and assets owned by investors. This can ultimately reflect on investor reputation and investment performance.

Investors should engage with investee companies to ensure that both a framework is in place that effectively identifies and assesses ESG risks in the supply chain with their direct suppliers; and to ensure this framework is implemented throughout supply chain tiers. Effective engagement will include a variety of internal stakeholders from various levels and departments of the investee company, as well as a range of external organisations. The management of ESG supply chain risks is an ongoing process and requires continual improvement from investors and investee companies to achieve a developed approach to better understand and manage exposure in a rapidly-changing world.

Next steps

While the PRI has attempted to futureproof this framework to the extent possible, inevitably it will need to be adapted with the support of investors engaging on this issue as new demands and trends emerge.

The PRI is seeking feedback to develop this guide and would be very grateful for your support. Following the launch of the paper, the PRI will invite a number of signatories to pilot the toolkit and give practical examples demonstrating how it fits into their overall investment process.

We ask readers of the report to:

use it as a pilot or part of your formal procedures and apply it to existing investment entities;

provide the PRI with feedback on its effectiveness; and

share relevant case studies highlighted in your application of it.

Beyond this, if there is sufficient demand from investors, the PRI will also consider the development of a second tool to help investors consider the materiality of specific ESG issues across different sectors within their supply chain. Please send all feedback, case studies and other information to [email protected].