PRI launches guide to address ESG risk in the supply chain for private markets investors

However, too often, investors don’t articulate their expectations for how investee companies should address and manage ESG risks and opportunities in their supply chains.

To help investors engage companies on this issue, the PRI has released guidance, Managing ESG risk in the supply chains of private companies and assets, which aims to empower private equity, infrastructure and real estate investors to improve the risk profile of their portfolios and maximise their returns by promoting effective management of ESG risks in the supply chains of their portfolio companies.

Considering ESG risk in the supply chain of investee companies can be a daunting task, particularly in private markets where company capacity to manage supply chains, transparency and disclosure may be limited. This guide provides initial steps investors can take to assess and manage supply chain risk.

Managing ESG risk in the supply chains of private companies and assets recommends that investors ensure investee companies are applying due diligence when identifying and managing ESG risks and opportunities with their direct suppliers of goods and services, and engaging their direct suppliers to engage with their own direct goods and services suppliers (i.e. second tier suppliers to the investee companies), thereby helping to develop a consistent level of ESG management across the supply chain. The guide includes questions for investors to ask investee companies before and after investment, and includes case studies of existing practice.

“Failing to consider ESG risks in the supply chain can result in reputational damage, examples of which we’ve seen time and again,” said PRI managing director Fiona Reynolds. 

“The business case for effective management of ESG risk, including in the supply chain, is clear; the only way to guarantee peace of mind on sufficient management of risk to company value is to address the topic with investee companies.”

The business case for effective management of ESG risk, including in the supply chain, is clear

Fiona Reynolds, PRI Managing Director

The guide concludes that collectively, investors have the power to push supply chain risk management, including ESG risks, up the corporate agenda.