Supply chain ESG risks surge in Western markets

Nearly half of the world's sourcing countries are categorised as at high risk of supply chain ESG violations. The UK, Germany, Portugal and Italy all feature in the list of countries ranked as at high risk from the most critical infractions – including child labour, forced labour, freedom of association and wage-related violations. And, although supply chain managers are increasingly decoupling from China, the risk management frameworks built into navigating new sourcing markets, such as Mexico and Vietnam, are often inadequate.

This is amongst the findings of global assurance specialist, LRQA's, bi-annual Supply Chain ESG Risk Ratings Report, which compiles data annually from 20,000 global supplier audits.

The report suggests that the US states of Texas, Florida and New York now have a higher degree of exposure to forced labour risk than Pakistan, India, Thailand and Indonesia. This, the LRQA believes, may be due in part to a rise in the exploitation of foreign migrant workers.

The findings also reflect a general decline in audit transparency worldwide. Vietnam, Thailand, Indonesia, India, China and even Italy have all become less transparent since the pandemic, according to the data, with auditors being unable to access accurate information and make conclusions from site visits. The decline in transparency relative to pre-pandemic levels has complicated the ability companies to govern higher risk levels, with suppliers in 50 sourcing geographies less transparent than in the previous year.

The report, compiled by LRQA's sustainability division, ELEVATE, collects information from over 45 million data points derived from on-the-ground site visits collated in ELEVATE’s data analytics solution, EiQ.

Commenting on the findiings, managing director of advisory at ELEVATE, Kevin Franklin, said: "The current geopolitical, economic and legislative climate has made it increasingly difficult for businesses across the globe to be confident about ESG risk in their supply chains. Even historically lower risk Western markets have started to slip. It is now clear that simply homeshoring or nearshoring manufacturing in countries previously thought to be ‘safe’ from egregious ESG risks is not enough.

“Systematic and proactive supply chain risk assessment, monitoring and management should be applied in all sourcing locations to avoid negative business impacts and trade disruption.”

For more on this topic, see our cover story in this quarter's CIR Magazine.

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