Environmental, social, and corporate governance (or ‘ESG’) is the framework designed to be embedded into an organization’s strategy. Many firms use this approach to consider the needs and ways in which to generate value for all organizational stakeholders.
While the environmental branch of ESG has always garnered attention due to the urgency of climate change, more attention is now being given to the social and governance aspects of the term.
This is according to Rick Dorsett, Director – HSE Review and Verification & ESG at ISN. Dorsett tells Digital Journal that he expects to see improvements in labour and human rights practices in the supply chain across the next twelve months.
Dorsett states: “Heading into 2023, I anticipate increased regulation and emphasis on improving global supply chain labour and human rights practices. In terms of mandatory human rights due diligence laws, I foresee an increased focus on industries related to conflict minerals, rare-earth minerals, and lithium.”
Taking an example from the business technology field, Dorsett finds: “As electric vehicle (EV) production rises along with the integration of microchips, this means using more lithium. I’m curious to see if legislators will allow it in countries where mining was previously banned. In the case of the US, will we remain reliant on China (sources 90 percent of world’s lithium), which will bring more focus on the human rights aspect of ESG. That being said, I expect global reporting initiatives requiring human rights disclosures to become more prevalent.”
In the U.S., the Securities and Exchange Commission (SEC) has a proposal of public disclosure of climate emissions ongoing and more regulations. Dorsett anticipates that more organizations throughout supply chains to be accountable for their ESG metrics, as well as increased usage of technology to report.
Dorsett advises: “In 2023, I anticipate a stronger emphasis on reducing greenwashing, with global reporting standards and audits becoming critical components. As regulations for ESG disclosures go into effect, formal reporting exercises and strategies will become more widespread and the need to streamline data collection will be in high demand.”
Dorsett adds further: “These changes will also have a larger impact down the supply chain to smaller organizations. As education continues, it will no longer be acceptable for smaller organizations to not have any ESG information.”
Digitalization plays a key role in making these changes possible. Dorsett notes: “In terms of technology supporting increased ESG initiatives, I foresee more consolidation and integration of climate/ESG tools with larger, enterprise reporting platforms, as well as more intersection of ESG and environmental, health, and safety (EHS) strategies and reporting structures.”
Furthermore, Dorsett predicts: “I also expect the larger role of the CFO and traditional enterprise functions in ESG to move out of the sustainability department into core corporate functions (finance, Risk, BoD oversight, operations) and for companies to increase hiring of executives appointed solely for ESG/Sustainability to help support this.”
