Tim Nicolle

Real-time ESG delivers impact via the cost of finance.

ESG is a hot topic. “Environmental, Social and Governance” matters are driving share prices, the price of loans, the salaries of senior management and the diaries of politicians. And getting real-time data means that impact can be delivered – with finance terms playing a role to reward progress.

For many organisations, the supply chain is a significant source of ESG content – sometimes well over 50%. Recent changes in legislation are putting ESG compliance responsibilities onto the corporate importer for his supply chain, yet the supply chain is only indirectly under his influence.

There is plenty of ESG information around. But most information is largely based upon self-certification, is not well-calibrated to local situations and is up to a year old. Moreover, such limited amounts of data, updated infrequently, leave the large corporate importer with limited tools at his disposal to drive change – since the only lever that he really has is to withdraw his business if he sees something that he does not like.

Obtaining real-time ESG data on supply chains provides more tools to drive change. Moreover, if this kind of information can be surfaced up to consumers (ie: ordinary people) then change can start to be driven from the demand-side of the equation. This is likely the most powerful agent for change that we have – much stronger than supply-side initiatives or changes in regulations. See our very short video here to appreciate how powerful this can be: click to see real-time ESG in action.

Real-time ESG data can therefore start to solve some of the issues, although by no means all, because:

  • Insights are better as they are linked to specific shipments and specific products
  • Real-time ESG data is more difficult to greenwash, and
  • Interpretations of the data can be more easily calibrated to local conditions as they vary from time to time.

Moreover, on our platform – PrimaDollar – real-time ESG is linked directly to the cost of finance and payment terms for each shipment from a factory. This allows ESG performance improvements to be delivered through regular nudges operating continuously with almost instant feedback. This provides a much better source of leverage for the importer to drive incremental changes in his supply chains. It is real-time impact.

“Real-time ESG” data is now becoming available.

The first real-time ESG products are now emerging with systems monitoring worker conditions in factories in real-time – see PrimaDollar service video. This is done via a combination of methods but primarily based upon apps that workers download enabling them to report back whenever they want on their working conditions, whether or not they got paid, and whether anyone is forcing them to work overtime. This is real-time “S” and it is called a “factory social score”.

The social score is derived algorithmically from a wide variety of inputs, with the worker feedback contributing a large part of the outcome. This is a single number that captures the real-time status of the factory from the perspective of its human footprint. Importers (and factory owners) can then drill down into different dimensions based around seven categories of data, and into the different reporting patterns that can be observed from the workers – each of which tells us something about the state of the workforce and how they are treated.

Alongside “real-time S”, there are also “real-time E” products in the pipeline for H1 2022. These are reporting systems that break down products that are shipped (at SKU level) by reference to their source materials and components, and the environmental impacts of the same.

It is one thing to collect the data, but the key is to make the data useful for the importer by supporting what’s reported with legal attestations and formal certifications from the factories involved. This high level of traceability and accountability then enables the data to be used with consumers – for example, in the shop or online.

Delivering data to consumers is the real breakthrough with real-time ESG data. Collecting the information and then supporting it properly means it can be used demand-side, and consumer demand is the most effective lever that exists in markets today. This unparalleled level of transparency is a potential consumer revolution and can transform the way that ESG improvements are driven into businesses.

ESG and supply chains – how big?

In many businesses, most of the ESG footprint is in the supply chain. The supply chain extends out from the corporate business, often into multiple layers of suppliers and into distant lands. A retailer might be an extreme example – where perhaps even 70% or more of the environmental and social impact of a business is outside its direct control, sitting in overseas countries where products are made and generated by the transportation that is used to move the goods to the end customer.

What are typical ESG issues in supply chains?

ESG issues include:

  • Environmental:
    • Poor waste management
    • Energy or water use that does not respect the social impact
  • Social:
    • Worker conditions, and the potential for forced labour
    • Poor worker demographics, including under-age labour or misalignment of rewards and opportunities between the sexes
  • Governance:
    • Poor payment practices in the supply chain, lack of diversity in senior management, lack of policy, procedure or tools to measure and improve ESG performance.

Since most of the action is happening a long way away, it is very difficult for many companies to get a grip on what is going on and then to implement policies and procedures that can make a practical difference. Without real-time ESG, it is difficult to deliver change, even via the cost of finance as the feedback cycles are too long.

Before real-time ESG data, what do we know?

There is a huge amount of data collected and made available to us all on how supply chains are performing. But, as any investor can testify, this information is tucked away in annual reports and in lengthy supplements that companies produce from time to time. Great efforts are being made, but it is hard to tie the information that we receive to the specifics of how a business is operating day-to-day.

To be sure, not everyone has properly implemented the established systems that are available to monitor suppliers and to surface information – but many companies have excellent annual review processes, use 3rd party supplier ratings extensively in decision-making, and have their own audit teams now policing the way that their supply chains work.

Reviews are also usually comprehensive – covering the “E” of environmental solidly, capturing the essence of what matters about the “S” – and helping companies generally to get the “G” of governance right. So we start to understand the carbon footprint, the use of water, policies and procedures to ensure gender balance and fair treatment of workers – and on the sustainability of operations from a holistic point of view.

But the datasets available are problematic:

  • Typical latency is 6 to 12 months on average. We are not seeing a current picture, and it is only updated (typically) once per year.
  • The buyer (importer) has only one lever at his disposal if things appear to go in the wrong direction, and this is to withdraw his business. This is an expensive decision for any importer, as there is usually considerable investment in the relationship and processes around the supply.
  • Whilst audits and reviews are usually backed up by documentation, there are many opportunities for, so-called, “greenwashing”. Orders can be sub-contracted out to non-compliant suppliers and businesses can manage audit processes to hide realities.

In our experience, many companies are making exceptional efforts to get on top of the issues. But what’s actually needed is a step-change in the level of engagement and the nature of the touch-points between each supplier and his corporate buyer.

Our worker voice app

This is one of the first real-time ESG products with global impact – linking social scores to the price of trade finance or supply chain finance. See here for more information about our worker voice app and our social score system for workplaces. Real-time ESG delivers impact via the cost of finance.

What next with ESG?

ESG transgressions impact management, share prices and business outcomes.

By connecting buyers continuously to the ESG performance of their supply chains, buyers have much more insights and control over what is going on.

Moreover, these data flows, via the cost of finance, can be used to nudge suppliers into shape over time. This is a new operating model for green finance in banks, harnessing the power of money to drive change in corporate clients. Real-time ESG delivers impact via the cost of finance.

But the real breakthrough is how we can surface that real-time ESG data directly to individuals in the shops and online, linked to the products that they are browsing and potentially buying. This means that ESG change will finally be driven by the ultimate judge of business success – the customer.

This is what real-time ESG data can deliver – and it is important for all of us that it does.



This article was originally published in CTMFile: click here to see the original. It has been amended since its original publication.

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