Supply chains are a key factor of impact: EU & US regulations call for more traceability and more accountability of actors against greenwashing.
You can only control what you measure: without a speed counter, odds are pretty high that you won’t respect speed limits. Yet most of the time corporate communication on ESG doesn’t rely on a measure of what happens in reality.
Carbon footprint is a good example: Scope 3 (suppliers’ emissions) are evaluated to 11x more than Scope 1 (direct emissions) , according to a 2022 report from Carbon Disclosure Project and Boston Consulting Group (BCG). However the report evaluates that 91% of entreprise are unable to measure their Scope 3. In short, 91% of enterprise carbon footprint reporting is underestimated by a factor of 11x.
The same applies to forced labor and child labor : 150 millions children (half under 11) are engaged into forced labour, 45 millions adults are engaged into modern slavery . They are at the source of cobalt, cotton, wool, cocoa, nuts, etc, etc, etc. However it’s outsourced far enough to be deeply buried in the supply chain, deep enough to be invisible from S&P 500 ESG reporting. In short supply chain is the blind spot of ESG.
Obviously tracing the supply chain and its impacts is somewhat complex: the focus over the last 20 years has hence been on the speed of commerce rather than the measure and control of supply chains. But over the last few years, regulations are evolving, with an increased focus on responsibility.
The European Commission is calling for the end of the game on green washing with the Green Taxonomy; with the Digital Services Act the EU calls for putting an end to the astonishing volume of fraudulous products sold through major e-commerce platforms. In the US the focus is on forced labour with the Forced Labor Prevention Act; same focus in the Commonwealth.
There are two key changes: 1) inversion of the burden of proof: on key ethical subjects, corporates must prove their compliance, otherwise they can be deemed “guilty” (of forced labor for instance); 2) end-to-end responsibility: there is a global strengthening of the duty of vigilance, where corporates are deemed responsible end-to-end, including of what happens deep into their supply chain.
In short, end-to-end and auditable traceability is becoming a de facto “licence to operate” for industries. Corporates we are working with not only build a strategic capability: they also simply demonstrate that it’s possible. By Matthieu Hug, cofounder & CEO @Tilkal
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