Despite the growing importance of ESG, organisations still face roadblocks to operating in a sustainable manner. Sustainability risks are no longer simply about the environment; the affects of which can be felt across the business as a whole and can extend throughout the supply chain and pose potentially serious reputational and legal risks. Every industry is realising the importance of sustainability and while many organisations have set goals to be ‘more sustainable’ as a core business strategy, the regulatory environment is not always aligned with the goals of individual companies, resulting in delays, roadblocks and compliance issues along the way.

Lack of ecosystem transparency
One of the main roadblocks to ESG compliance is a lack of transparency with supplier approaches to sustainability. This not only limits reporting capability on supplier performance, but also impacts the credibility of a company’s own ESG initiatives if unsustainable practices are occurring in the wider ecosystem of an organization. It is also possible that suppliers may not even be aware of how their operations impact the wider ecosystems, making it difficult for contractors to truly understand the full value they provide their customers through sustainable practices.

ESG transparency issues are also caused by the disconnect between procurement departments and other departments within a single organization. For example, transparency might be limited if a company’s sustainable food procurement policy exists solely in its sustainability report, rather than being embedded in its internal and external processes or used as a criteria withing its supplier selection process. One way to address this gap is by enabling close collaboration between procurement and corporate strategy.

Lack of standardised data
While it is important to have standardised data points which enable best-practice reporting on ESG initiatives, this is not always the case. Data is often collected from various sources, each with their own structure, which makes it extremely difficult to compile and compare data between companies or even individual lines of business. The result is that it may be difficult for organisations to gain a comprehensive picture of an organisation’s ESG performance. Organizations that are serious about ESG compliance must have transparent and comparable data sets for all types of ESG indicators. At present, there is no widely accepted standard to calculate or communicate ESG ratings, which makes it difficult to access relevant data and evaluate a companies’ performance against ESG benchmarks.

Insufficient availability of ESG data
Directly linking to the lack of standardisation between providers, is the lack of availability of ESG data itself. This has been identified as one of the main barriers to wider adoption of ESG investing by fund managers. The robustness of ESG data continues to lag behind, with data providers still contending to become the established benchmark provider. This lack of ESG data standards can also be confusing for investors, who need clear and comparable information as they are trying to determine which data provider, they should use with their fund manager.

In order to improve ESG scores over time, it is important that companies make their suppliers aware of their goals and ensure that the contractors take an active role in determining how these goals can be achieved, as well as effectively communicating those goals within their organisation as a whole.

The barriers to sustainability are not new. The ones that have existed for decades still do, but there are some new challenges emerging, and with ever-changing ESG regulation, these barriers will continue to increase and evolve over time.

Sphere Compliance Management are specialists in dealing with these risks and roadblocks and are here to assist you through these challenges and uncertainties. Get in touch to find out more about how we can help remove your ESG roadblocks.