Jan Westphal
Our latest Expert Talk unpacks the role of business intelligence as part of wider environmental, social and governance (ESG) evaluations of third parties.
- Business intelligence can provide context and additional insights into the potential risks that third parties can introduce into supply networks.
- Insights can highlight risk or shine a positive light that reinforces existing relationships.
- Looking ahead, it is those companies that commit to the principles of sustainability – and ensure that their third parties do so as well – that will reap financial, operational and reputational rewards.
Business intelligence is key
Third-party networks can be vast, spanning multiple countries and including suppliers, vendors, contractors and more. These relationships are often crucial to your operations, but in an increasingly inter-connected world, such associations can introduce potential risk.
As ESG considerations continue to move to global centre stage, organisations are under increasing pressure from stakeholders – including customers, investors, regulators and the general public – to ensure not only that they operate in a way that fosters sustainable growth, but that their third parties do so as well.
The ESG risks that third parties can potentially introduce can be significant, with examples ranging from human rights abuses to environmental violations and beyond. If any third party within your network is failing to uphold sound ESG principles, there could be financial, operational, reputational and other consequences for your company.
For this reason, thorough due diligence – including that relating to ESG – is non-negotiable, but our Expert Talk highlights that published ESG reports may not be telling the whole story – and that additional business intelligence may be needed.
Business intelligence, which includes in-depth interviews, can provide context, verify data already supplied, and deliver critical insights into the true nature of the ESG efforts being undertaken by third parties.
When to use business intelligence
Business intelligence adds value by uncovering previously hidden risks that could affect your business. Once these potential risks are known, you are better placed to assess them - for example, choose to remediate them to mitigate the risk or terminate the relationship.
Equally, this additional intelligence can shine a positive light that reinforces the relationship with the third party in question.
Some specific cases where business intelligence can add immediate value include:
- When the third party is a strategic partner or is critical in terms of your broader business.
- If the third party has a limited online presence and accessing data is difficult.
- In cases where there is evidence of a poor reputation and/or negative media.
- If the information disclosed is insufficient.
- Where warning signs are evident within the ESG report.
- When ESG reports are too positive, and could lack authenticity.
Targeted help when you need it
When evaluating third-party risk, thorough due diligence – where necessary augmented by targeted business intelligence – will help you to unpack any areas of concern and identify ESG-related risks, such as those relating to environmental degradation; labour and employment issues; diversity, equity and inclusion; human rights abuses and more.
The LSEG Due Diligence Centre is our supply chain and third-party risk management solution delivering hands-on help. We offer a range of due diligence reports that offer valuable insights – including background checks, financial data and reputational standing – for both individuals and entities. Reports can be tailored to suit your individual business needs, and our enhanced due diligence (EDD) incorporates business intelligence as a key feature.
As ESG considerations become increasingly important on a global scale, it is crucial for companies to incorporate ESG risk management as a fundamental component of their third-party risk management programs. Additionally, companies should consider utilising business intelligence as a valuable tool to gain a comprehensive understanding of the commitment of their third parties to ESG principles.
Those companies that uphold the principles of sustainability – and ensure that their third parties do so as well – will be the ones to reap financial, operational and reputational rewards.
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