What do clean water, modern slavery and diversity in the workplace have in common? Aside from being important issues that face our society, they’re all components under the broad environmental, social and governance (ESG) umbrella. ESG issues have been gaining momentum in the world of third-party risk management (TPRM), with regulators across the globe increasing their attention on how organizations are prioritizing things like sustainability and ethical business practices.
It’s important to consider how your organization can start identifying your ESG goals and how this will impact your vendors. However, it can quickly get overwhelming to jump into vendor risk ESG integration without proper planning, so let’s begin with the basics of transparency and reporting.
5 Questions to Ask Your Vendors Related to ESG
Regulatory expectations around ESG and third-party risk management will continue to evolve, but understanding a few core concepts about your vendors can help put you on the right path. Ask your vendor the following five questions to understand the basics of ESG transparency and reporting:
- Do you have an ESG program in place? Maybe your vendor has already established its corporate social responsibility values, but doesn’t have a formal ESG program in place. You’ll want to make this determination to understand how much work may be needed to implement this vendor into your own ESG program.
- Have you documented your goals? Similar to TPRM programs, ESG programs have varying levels of maturity. A vendor may have an ESG program in place, but you’ll still want to determine whether they’ve formally documented their goals.
- Are you reporting your ESG metrics? Find out whether the vendor has a process in place to report their ESG metrics. If the vendor is already reporting on their ESG program, you’ll likely have an easier time requesting additional information.
- Do you have a modern slavery statement? This type of letter is a public statement that confirms the vendor prohibits activities like forced labor and human trafficking in their supply chains. It also describes the actions and processes in place to ensure that modern slavery or human trafficking don’t occur.
- Are you making progress with your ESG goals? Ask this question to find out where the vendor might still be struggling in their ESG program. This may further reveal if the vendor has unrealistic goals or needs to improve some of their processes.
3 Tips For ESG Vendor Engagement
When it comes time to engage your vendors in participating and complying with your ESG goals, it helps to take a sensitive approach and understand that each vendor will have different needs. While some vendors may already have a mature ESG program in place, others will need more guidance from your organization. Keep these three tips in mind:
- Communicate early – It’s essential to communicate with your vendors early on and throughout the ESG integration process. Don’t wait until the last minute to request information from your vendors that they may not be prepared to give.
- Educate your vendors – Be aware that not every vendor will have the same level of understanding on ESG issues. It helps to provide relevant information to your vendors about how and why ESG will be integrated into third-party risk management.
- Provide time frames – It’s recommended to provide your vendors with longer time frames for compliance. Usually six months to a year. Your vendors will likely be more receptive to change and additional due diligence requirements when you give them plenty of time to plan.
Integrating ESG goals into third-party risk management will be a large undertaking for many organizations, so it helps to start with the basics before moving on to larger efforts. By educating and preparing your vendors for ESG integration early on, you’ll be better prepared for emerging regulatory expectations.
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