Midyear Review: Supply Chain ESG Evolution

The environmental, social, and governance (ESG) movement has caused waves throughout the supply chain over the past few years. The expectation at the beginning of the year was that as the global supply chain slowed, so would the momentum of the ESG movement.

Despite the continued backlash from pandemic-related supply chain disruptions throughout the world, the environmental movement isn’t slowing, won’t slow, and companies that ignore their ESG pledges will have the public to answer to.

That sounds intense because it is. Organizations that were once considered well-insulated are now being forced to shift their attention to the evolving regulatory landscape that surrounds ESG.

The ESG movement, in many ways, is like the supply chain itself, incredibly complex. New regulations in each region of the globe are complicating the process of manufacturing and shipping goods. Despite the complexities, there are a number of trends that are worth watching, as they will directly impact the supply chain as we look to peak season.

Simplifying the complex challenges of the supply chain begins and ends with having technology in place to improve visibility and streamline operations. Trax is a leader in transportation spend management solutions and is dedicated to helping global organizations improve their bottom line through the use of cutting-edge technology.

Top 5 2023 ESG Trends

While the ESG movement contains a number of constantly moving and evolving parts, there are a few trends that stand out as we reflect on the mid-point of 2023.

Green Energy Transition

It shouldn’t come as a surprise that the push for green energy remains at the forefront of the ESG conversation. The collective push for renewable energy sources continues to see an influx of capital from investment groups as the process of scaling up renewable energy continues to grow.

The continued push for many is a direct result of Russia’s invasion of Ukraine, leaving many oil and gas-dependent countries in Europe and Asia searching for renewable options. The need for renewable energy has sparked a number of government-backed incentive programs, such as the U.S. Inflation Reduction Act (U.S. IRA).

By earmarking over $360 billion, the U.S. opened the door for both domestic and foreign investment in green energy businesses. In response, the European Union (EU) put similar incentive programs in place to compete with the United States in the global energy market. Earlier this year, the EU rolled out the Green Deal Initiative Plan (GDIP), which aims at bolstering renewables manufacturing capacity and energy resilience through state-sponsored tax breaks.

Despite the growing number of incentives, the fact remains that we are still in a transition period. Over the course of the next four years, over 1,000 new oil and gas projects are expected to begin in North America and Europe alone.

Mounting Pressure

At the same time that government entities are incentivizing green energy, the ESG movement is receiving increased pressure, in the form of litigation, from activist groups across the globe. Government agencies are being put under the microscope for both policies that are being put in place today and for how they have approached climate change in the past.

Although the derivative suits have thus far fallen short of their goals, they are an important milestone that should serve as a word of caution for organizations as it will inevitably lead to increased governmental interference and scrutiny.

For example, the U.S. Securities and Exchange Commission (SEC) has proposed new regulations that would require detailed ESG disclosures. Currently, these proposals remain pending, the agency is placing a larger emphasis on enforcement actions challenging company’s ESG-related disclosures, initiatives, and commitments.

As a result, many organizations are seeing increased levels of ESG backlash among their stakeholders. Across the globe, activists are leveraging shareholder resolutions to drive ESG progress. Despite the growing noise, most of the resolutions proposed have failed to gain widespread support, but it certainly is a sign that change may be on the horizon.

Emphasis on Biodiversity

As we have seen with ESG over the past few years, new fronts pop up without warning. The latest impacting the supply chain and manufacturing revolves around biodiversity. In January, the UN 30X30 policy rolled out, aimed at preserving 30% of both land and marine habitats by 2030, after it was adopted by a large number of countries in late December of 2022.

Biodiversity-focused projects certainly aren’t a new concept, having risen over the last decade. However, issues are still prevalent. Most notably, scaling these projects – while still meeting the ever-evolving regulatory requirements – means that global organizations are being forced to adapt quickly while still meeting investor needs.

Accountability is the focal point, yet a reliable framework for reporting and meeting new regulations remains a hurdle. Organizations such as Taskforce on Nature-related Financial Disclosure (TNFD) and The Global Reporting Initiative (GRI) are working to put pieces in place to help streamline the process, with revised standards and best practices expected by the end of the year.

Fight Against Greenwashing

Earlier this year, the European Commission (EC) proposed new criteria aimed at curbing greenwashing and misleading environmental claims. The Green Claims Directive will provide consumers with more accurate information to choose environmentally-friendly products and services.

Under the newly proposed laws, any claims made by companies will need to be independently verified and proven before being communicated to consumers. Similar laws will be going into effect in Q3 of 2023 in the U.K. as more and more consumers demand accountability in support of the ESG movement.

U.S. ESG Backlash

Whether your business is based in the United States or abroad, there is no escaping the fact that ESG continues to be a point of contention at the local, state, and federal levels within the global superpower. Pressure for both more and less emphasis on ESG regulations has created a charged atmosphere that is forcing companies to walk a fine line as they navigate the varying approaches.

As 2024 approaches, the expectation is that ESG policies will be thrust into the forefront as the presidential race gets underway. Currently, around 100 anti-ESG pieces of legislation have been introduced in state legislatures across the country. Many of these are aimed at blocking state organizations from considering ESG factors when investing in diversity and inclusion efforts as well as energy infrastructure.

The recent U.S. Supreme Court ruling that college admissions processes that take applicants’ race into consideration are unlawful is potentially a benchmark that companies will use to reassess how they hire and promote candidates.

Trax: ESG Support for Long-Term Success

The ESG movement shows no signs of slowing down, especially as government entities around the world invest in companies that are dedicated to green business. The challenge for many global organizations rests with navigating the ever-changing regulatory landscape in each region of the global supply chain.

Having the right tools in place, such as artificial intelligence, can simplify the complex nature of ESG reform. At Trax, we offer a variety of solutions that are aimed at helping organizations streamline their data and operations for long-term ESG support and success. With systems like our Carbon Emissions Manager, our partners can remain compliant while still achieving their goals.

To learn more about Trax and our carbon emissions management tool, connect with our team.