Living Up to ESG Due Diligence Regulations

ESG Due Diligence Regulations

There’s no shortage of compliance regulations and restrictions to live up to and it can be exhausting to keep track of the changes and make sure you’re in line with them. As a business owner, you already have a lot on your plate so ensuring compliance is just another weight on your shoulders.

ESG compliance is something you hear people talk about a lot, but to truly meet it, a thorough understanding of it is vital. You also need to know what technology is available to help you. That’s the topic of this article, and hopefully by the end of it you will feel a lot more confidence in dealing with any issues surrounding ESG due diligence.

What is ESG Due Diligence?

First of all, let’s take a look at the term ESG. The letters ESG stand for environmental, social, and governance, and the factors involve a business’s policies and practises in each area. 

  • Environmental Factors. Environmental factors are of great importance, and only growing in importance as the coverage of global environmental issues increases. These factors include things that a company does to be sustainable and limit its environmental impact. Issues such as high carbon emissions or recyclable packaging come under this factor of compliance.
  • Social Factors. Issues revolving human rights or child labour come under this factor of due diligence and include the way that a business treats people and societies.
  • Governance Factors. This factor involves the way that a business is run and operated. Issues can range from bribery to poor accounting and often involve unethical or unfair practises.

ESG due diligence isn’t just something your business needs to live up to, but it’s something that you need ensure that your whole supply chain is compliant with. This means that you need to make wise and well informed decisions when making partnerships with other businesses, as suppliers’ failure to comply with ESG due diligence ultimately affects you and your business too.

The good news is that on the whole, many supply chains across the world are improving in their due diligence, becoming both more sustainable and more ethical. However, to ensure that you and the companies you work for won’t become a liability, it’s important to perform ESG due diligence in order to build a resilient supply chain with fewer risks for the future. How can you do that?

How Can You Perform ESG Due Diligence?

There are a few important steps that you can, actionable insights that you can follow, in order to perform ESG due diligence. Understanding these steps will help you to manage this process and see areas that need to be changed or improved. 

  • Gather information about your key performance indicators and documents. Understanding your KPIs is important for various reasons, and of great benefit when it comes to making decisions in line with ESG regulations. When you have a thorough understanding of the metrics and goals that your business needs to meet, you be better able to determine if any of these targets could pose a liability for your ESG compliance. When you take the time to gather relevant information and documents, you will have the data you need to make compliant decisions in the future.
  • Hold interviews with the stakeholders or your business. Getting to know your stakeholders involves getting acquainted with both your customers as well as third-parties such as employees, executives, or members of your board. As you get to know them, work to understand the impact they have on ESG performance. Usually, stakeholders in a position of authority understand the issues surrounding governance so as you speak to them it will help you to determine what measures your company has in place in regard to fighting corruption and bribery. Often, stakeholders will also touch on issues regarding the environmental and social practises, and you can take a record of any problems you flag while in discussion with them.
  • Run background checks on those responsible for making decisions in your business. You need to fully understand the risks involved when working with any individual, and by running background checks to look for any previous charges or convictions, you will gather the evidence you need to make good decisions about who you work with. Vet and monitor your applicants and contacts and you’ll be glad you did further down the road.
  • Review all of your accounts. Within the area of governance issues fall the problems that can occur within accounting. Gain a through and in-depth understanding of your company’s financial situation and make sure that all of the various policies in place are up to standard. Chase up any issues and investigate any anomalies.
  • Compile and complete an ESG risk assessment. Risk assessments are something you’re most likely very familiar with and they are just as important in areas of ESG due diligence than any other area. Once you have completed the steps above, you will have a well-rounded understanding of your company’s standing and any potential risks that could arise. Evaluate these risks in terms of any environmental, social or governance issues that could come up by becoming aware of the danger and planning ahead so as to know what to do in order to fight against it. It’s vital that you don’t just sit on the information you gather but turn it into actionable steps that will help you maintain your levels of compliance and make wise decisions to protect your business and your supply chain from any liability.

The Benefits of Using Technology in ESG Due Diligence

Evidently, there is a lot to do in regards to issues of ESG due diligence and the brief outline of steps as listed above could look very daunting. This is where a technological solution can come into play, providing an ESG due diligence checklist and related actions all within one easy to use platform.

Software solutions like third party risk management platforms can become valuable members of your working team, saving you time, energy and money all the while making your business a better, more compliant one.

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