Why should I be concerned about Environmental, Social and Governance factors?

Environmental, Social and Governance (ESG) has emerged as the new standard for assessing a company’s impact on society and the environment, focusing on a company’s external impact surpassing traditional approaches such as Corporate Social Responsibility (CSR) which focused on internal initiatives.

In the past, ESG concerns were often relegated to specific departments within larger organisations, typically outside the technical domain. However, times have changed and it is crucial for businesses to recognize the importance of ESG in their operations.

By understanding ESG risks within the supply chain and leveraging ESG risk intelligence to guide actions, organisations in the food sector can proactively manage risks, enhance sustainability performance, meet customer expectations and contribute to a more sustainable and responsible food system.

ESG risks are dynamic and constantly evolving. Therefore, it is vital to regularly review and update ESG risk assessments, action plans, goals and targets to address emerging risks. If you believe that ESG falls outside the purview of technical matters, it's time to reconsider.

Impact of ESG risk intelligence

Consider the impact of ESG risk intelligence on various aspects:

1. ESG and Food Fraud Risk: By examining ESG issues, you can identify how they may increase the risk of food fraud in your supply chain. Understanding these connections enables you to take appropriate measures to mitigate potential fraud risks.
2. ESG and Food Safety: ESG factors can introduce new or changed food safety risks that must be considered. Being aware of these risks allows you to adapt and implement suitable measures to ensure food safety throughout your supply chain.
3. Engagement or Disassociation: When faced with ESG issues, you must decide whether to distance yourself from the problem or actively work towards correcting or improving the situation. This decision involves ethical considerations and requires careful evaluation of the potential consequences.

ESG factors in action

Here are some examples to illustrate the importance of considering ESG factors:

• Human Rights: Suppose there are reports of security guards in Kenya beating and killing trespassers in pineapple-growing lands. While you could choose to stop sourcing pineapples from Kenya, this action alone may not effectively address the underlying issue. It is important to assess the broader social responsibility and consider alternative sourcing options, considering the potential impact on other ESG factors.
• Animal Welfare: If you discover that monkeys are being used to harvest coconuts in Thailand, switching to sourcing coconuts from Sri Lanka might seem like a viable solution. However, the sudden shift in demand may place undue pressure on the Sri Lankan supply chain, leading to potential issues such as food fraud or human exploitation. A comprehensive assessment of the situation is required to determine the most responsible course of action.
• Climate Change: Extreme weather events and rising sea temperatures can impact crop yields, potentially causing shortages in key commodities like wheat or increasing risks related to mycotoxins or seafood contamination. It is important to consider these climate-related risks in your supply chain and take appropriate measures to mitigate them.
• Biodiversity: Loss of pollinators due to pesticide use and habitat reduction can result in food insecurity issues. This, in turn, may create opportunities for food fraud. By demanding large-scale tree planting or rewilding, you might contribute to addressing the food insecurity issue while also mitigating the potential for fraud.

Out in the real world

Real-world examples, such as the impact of the war in Ukraine on input costs and food prices, demonstrate the tangible consequences of ESG issues on supply chains. These examples underline the criticality of incorporating ESG considerations into your risk management processes.

To effectively address ESG concerns, consider the following steps:

• Incorporate ESG issues into your risk assessments to ensure comprehensive risk management.
• Evaluate whether ESG issues impact your supply decisions and identify any necessary mitigations to manage increased risks.
• Communicate the potential risk impacts of ESG issues to your procurement teams. It is crucial for them to understand the implications of their decisions on the organisation's overall risk profile.
• Document and implement mitigations based on your risk assessments. Continuously review and evaluate the effectiveness of these measures.
• Stay informed about emerging ESG issues through reliable sources, such as the Food Forensics ESG dashboard. Regularly monitoring and tracking emerging issues will enable you to respond proactively.

While it may be tempting to consider ESG matters the responsibility of another department, the reality is that in today's complex food supply chains, ESG issues directly impact the risk of fraud within those chains. Therefore, incorporating ESG considerations into your risk assessments is essential for maintaining ethical and sustainable practices.