The effects of COVID-19 have devastated lives across the globe for months—and the Western Hemisphere is just now feeling the brunt of it. For many companies, the epidemic has also led to the cancellation of supplier on-site audits of social and environmental practices. The cancellations, while necessary, are leading to concerns that the disruption will threaten sustainability practices and create blind spots in safety and labor conditions.
But businesses don't need to completely compromise supply chain visibility and control during these trying times. To ensure ethical and sustainable business continuity in the supply chain, companies first need to understand the risk and impact of canceling audits and then find helpful alternatives. Third-party supplier sustainability ratings are one alternative that can help provide resilience through the crisis.
The impact of canceling audits
It's understandable that audit companies or the internal auditors themselves have had to cancel on-site audits during the peak of coronavirus due to the travel restrictions and other government orders put in place to minimize exposure to the virus. However, this precautionary measure will have an immense short-term impact on companies' supply chain visibility into the sustainability issues previously uncovered by audits, as well as their due diligence programs to address these issues.
The audit cancellations expose companies to great risks and blind spots during a time period where brands can't afford more volatility. It opens the supply chain to environmental, labor and human rights, and ethics threats that could profoundly harm the overall business. For example, many companies are being forced to consolidate supply onto fewer suppliers, which is pushing overcapacity at those few suppliers, leading to excessive hours for employees or quick mass hiring. These circumstances could lead to abuse, modern-day slavery, unethical working conditions, and more.
Many companies rely on on-site sustainability audits to measure and/or monitor supplier practices such as working conditions. Shut off that flow of information, and there's no way to know if the supply chain is complying with codes of conduct and, ultimately, your brand values. If your suppliers or partners decide to take away their focus on reducing energy or water consumption, not only is your brand reputation at risk from a sustainability point of view but also your costs will increase. And worse, the lack of audits opens the supply chain to the risk of dangerous working conditions, forced labor, discrimination, and more.
Lack of on-site audits will also cause delays in reporting on ESG (environmental, social, and governance) disclosures—an important action for securing investments and growth opportunities, as exemplified most recently by global investment management company BlackRock's decision to focus on sustainable investing. Hundreds of studies have shown that sustainable equities outperform in a bull market and are also more resilient in a bear market. Reporting on ESG is crucial for ensuring long-term success, and companies should try to maintain their disclosure and progress as best as possible.
Plan B: Turn to sustainability ratings
"Flying blind" due to canceled on-site audits is not your only option in the midst of COVID-19. To maintain visibility and control, sustainability ratings are available to enable remote desktop assessments on corporate social responsibility (CSR) issues within the supply chain—especially in quarantined regions.
Sustainability ratings assess a company and its suppliers' sustainability performance in environment, labor and human rights, ethics and sustainable procurement based on international sustainability standards. Ratings that cover the breadth and depth of issues in a typical supply chain—both of purchasing categories and countries, as well as the full range of sustainability criteria—can provide a level of visibility by exposing threats deep in the global supply chain that can help brands prevail until the outbreak is controlled. For example, ratings can indicate whether a supplier in Asia is following labor laws and working restrictions posed by COVID-19. They can show if a partner in Europe is maintaining their commitment to cutting water usage and gas emissions.
Ratings are remote, not impacted by travel restrictions, and are a good alternative to have in your pocket in an ever-changing, globalized world filled with natural disasters, outbreaks, and political turmoil. In this case, results from rating assessments can be used to hone audit strategy once conditions have returned to normal and travel bans are lifted, which will be useful as a surge in audits and possible backlog delays are expected. For example, buyers could prioritize which of their suppliers to audit based rating results. They would know to pay close attention to suppliers with low scores, suppliers that refused to engage in corrective actions, those that do not improve scores over time, and those that simply refused to participate in a rating assessment.
Aside from ratings, there are also industry-specific solutions to maintain visibility across a focused set of categories—such as the Higg index from the Sustainable Apparel Coalition, or the Responsible Business Alliance self-assessment for the electronics industry.
In times like these, it's important to put your people first without jeopardizing your business and supply chain. Risks around the environment, human rights, ethics, and more are extremely detrimental to brand reputation and business longevity, and constant monitoring and assessment is critical. In the wake of a crisis where businesses are forced to cancel on-site audits, don't give up control just yet. Remember that sustainability ratings can help your brand mitigate risk during all types of compromising situations.