The divide in consumer and business perception:
is enough being done in assessing ESG risks?

By Fathia Murphy, ESG Product Specialist, NAVEX

July 5 2022 - Across the globe, social unrest, the increased frequency of climate hazards, and unprecedented biodiversity loss are sparking conversations around what needs to and can be done.

A global survey by NAVEX - which surveyed 1,250 managers and senior executives on environmental, social and governance (ESG) practices at companies across the U.S., U.K., France and Germany, released in March 2022 - found that ESG is a growing concern for businesses. When breaking down the elements of ESG, the most important factor from UK respondents remains Environment.

Encouragingly, 51% of UK respondents from the global survey say their company plans to increase spending on ESG factors this year. But, do we believe action is really happening?

While talks of ESG issues might be dominating the headlines, it’s evident more can be done.

To activate real change, businesses need to assess ESG risks inherent to their company all the way through their supply chain. The responsibility doesn’t just lie with executives’ teams; compliance teams need to make sure the right controls and governance are in place, human resources must make sure they promote equal opportunities for every employee, and quality managers need to ensure product safety and liability. This does not stop here, understanding what their supply is doing is paramount, specifically with industries such as manufacturing or transportation where roughly 75% is out of their own control.

Lacking confidence and trust in ethical and sustainable practices - from both consumers and businesses.

Research commissioned by NAVEX at the end of 2021, amongst 2,000 consumers and more than 500 consumer business decision makers in the UK, reveals that confidence and trust are lacking in ethical and sustainable practices, for both business and consumer audiences. 74% of consumers and 85% of consumer businesses agree that most businesses could do significantly more on their efforts to be ethical and sustainable. Only a quarter (25%) of consumers believe businesses are primarily motivated to undertake environmental, social and governance (ESG) initiatives to make a positive difference to the world.

The reality is that consumers are willing to leave a brand, merely due to ethical and sustainability concerns. At the core, confidence and trust are lacking.

On the topic of Climate risks, according to NAVEX’s survey, a third (34%) of consumers say they don’t think any industry is tackling climate change well. Similarly, only 17% of all businesses surveyed were completely confident that the businesses they partner with or outsource to operate ethically and sustainably, despite 45% saying they personally research companies they work with. Not only do consumers lack trust in the brands they buy from, but businesses themselves do, too.

To move forward, businesses need to have a robust ESG strategy and consumers need to trust that businesses are playing their part in mitigating ESG risks.

Earning and building on consumer trust, driven by ethics and sustainability

In order to see the ripple effects in the coming years, it all starts with businesses taking ownership.

NAVEX found that half of businesses (50%) think that their own organisations are responsible for ensuring ethical and sustainable practices are upheld within their organisation and throughout their supply chain. Businesses that are driven by ethics and sustainability, rather than the bottom line, will engage with customers more authentically and build trust where it’s lacking.

One vital way to prove this drive is to become fully transparent to what your business is doing today and what steps and measures you are taking to mitigate risks.

Going one step further, organisations need to identify environmental, social and governance risks within their supply chain and support those businesses with appropriate corrective actions.

In this context, we are seeing an increased realisation that despite solid principles such as the Guiding Principle for Business and Human rights under the UN Global Compact or the OECD due diligence guidelines; not enough is being done to prevent human rights violations.

To that end, over the last years, national regulators and governments have been working at pace to produce effective and binding regulation that complement those existing instruments; for example; back in 2017, France adopted the "Vigilance act" and more recently in Germany’s Federal parliament passed the upcoming German Supply chain act that will be taking effect next year.

Additionally , in February this year, the European Commission issued its long-awaited proposal for a Directive on Corporate Sustainability Due Diligence to tackle human rights and environmental impacts across global value chains with the goal of have one overarching regulation for environmental risks, fighting human trafficking , child labour and poor working conditions.

All of these texts highlight the urgent need to identify, assess, mitigate and remediate risks across your entire value chain. To be successful in doing so, organisations must prioritise two main things:

A continued engagement with both internal and external stakeholders and a solid tool to automate and streamline the process.

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