*This article is a Japanese translation of a manuscript (in English) written by aiESG's ESG research team and edited into three parts for publication. The English-language manuscript isthis way (direction close to the speaker or towards the speaker)Available from.
Please see the original article in English. HERE..

Table of contents:
　Introduction.
　Importance of supply chain impacts on the environment and society.
　Conclusion.

Introduction.

Figure 1: Map image showing the supply chain impact of producing a certain product

Supply chains are becoming increasingly important in modern society. Supply chains link all the people, organisations, resources, activities and technologies involved in the transformation of resources and energy into products and services through a number of processes, including extraction, transport, production and sales. Needless to say, in today's highly globalised world, producers and service providers, whether multinationals or SMEs, are the hub of extensive and highly complex supply chains spanning many countries and involving numerous suppliers.

Thus, a company's operations have global and local impacts on the environment (e.g. resource use, water use, energy consumption waste, carbon emissions) and society (e.g. employment practices, worker safety, community relations) through its supply chain. This means that companies are responsible for potential impacts on the planet and its people through their supply chains, even if they are unaware of these impacts or would normally regard them as outside their scope of responsibility. Traditionally, companies have only been concerned with improving efficiency and controlling costs in their supply chain management, but recent trends show that this paradigm is rapidly changing. Companies are now aware of the potential ESG risks inherent in their supply chains¹to understand and report, but also to take proactive steps to mitigate their risks and improve the ESG performance of their supply chain, and to work closely with their suppliers.

*¹Risk of damage to the company due to environmental (e.g. climate change, resource depletion, pollution, loss of biodiversity), social (human rights violations, labour and community impacts) and governance (corruption, unethical behaviour) impacts.


This three-part series, entitled 'Sustainable ESG-oriented supply chains: a strategic imperative for modern business', will cover the following topics

first
Environmental and social impacts of the supply chain.
Supply chain risk case studies from companies and UN findings.

second
... what are the potential benefits and opportunities that motivate companies to build a sustainable and resilient supply chain?
...on the risks of doing nothing.

3rd.
... about the steps needed and the challenges.
... how technology can help companies understand and improve the ESG performance of their supply chains
About aiESG's cutting-edge solutions
On near-future trends in the supply chain

In this first article, we will review the importance of supply chain impacts on the environment and society.

Importance of supply chain impacts on the environment and society.

Supply chains have a significant impact on both the environment and society. For example, when it comes to greenhouse gas (GHG) emissions, supply chains areMore than 601 TP3T of global emissionsand accounts forLargest source of GHGsIt is. In many cases, the majority of an organisation's carbon footprint is attributable to Scope 3 emissions from the supply chain (upstream emissions) and from the use and utilisation of products (downstream emissions). In some industries, more than 80-90% of the overall carbon footprint is derived from Scope 3. As a result, companies are now required to take action to measure and reduce their Scope 3 emissions and to disclose and report their progress in line with various guidelines and regulations such as SBTi, CDP, GRI, TCFD and ISSB.

Figure 2 Overview of the scope of the GHG Protocol and emissions across the value chain

Supply chains are not only the biggest source of emissions, but also the biggest victims of climate change. Extreme weather events such as heatwaves, droughts, hurricanes and torrential rainfall are increasing in frequency and magnitude due to climate change, causing health hazards to vulnerable workers and communities in resource extraction and production sites and disruption to supply chains.Recent surveys.found that one in two CEOs suffers from supply chain disruption due to climate change, with 25% of CEOs saying this is one of their biggest business risks.

As well as their impact on climate change, supply chains also have significant impacts on the wider environment, including pollution, resource depletion and loss of biodiversity.According to the UN.Many industries are noted to have a far greater impact on the environment through their supply chain operations than through their direct business activities. For example, in the financial services, food and beverage and banking industries, 98% of environmental impacts are attributed to the supply chain, with only 2% coming from direct company operations.

It is therefore not enough for companies to claim that their operations are green; they need to address the 'unmissable issue' of supply chain management. In recognition of this, new initiatives such as the TNFD and SBTN have emerged, which require companies to disclose information and set targets for nature-related risks (biodiversity loss, ecosystem degradation, resource depletion) in their operations, including upstream and downstream in the value chain.

Similarly, on the social front, supply chains have huge social responsibilities, employing an estimated 450 million people a year (seeILO Data.(See below). Supply chains present significant human rights risks that many companies have overlooked. The deeper the supply chain, the less visibility there is, especially at deeper levels, the greater the potential for violations and the more likely it is that significant environmental and social impacts are overlooked. Limited supply chain visibility increases the risk of human rights violations, especially in emerging markets, where companies are often unaware of negative impacts on workers and wider society. Vulnerable groups such as women, migrants and children are particularly at risk.


Human Rights Watch on a number of unethical labour practices and human rights violations in the deep supply chain.Reporting on.For example, in the apparel industry,Rana Plaza garment factory collapse in Bangladesh.catastrophes that claimed the lives of 1,138 workers. In the jewellery industry, there are well-known 'blood diamond' cases, referring to human rights violations related to diamond mining in conflict zones such as Zimbabwe and Angola. In the technology and manufacturing industry, scandals related to 'conflict minerals' such as tantalum, tungsten, gold, lithium and cobalt mined in conflict zones in the Democratic Republic of Congo and neighbouring countries are widespread. Global car manufacturers on the use of aluminium sourced from the Xinjiang Uygur Autonomous Region,The Uyghurs have been accused of issues including the risk of forced labour.。According to the ILO.An estimated 28 million people worldwide are affected by forced labour.

Human rights risks in global supply chains:

Forced or compulsory labour

human trafficking

toil and labour

Freedom of association and restrictions on the right to collective bargaining

Poor, unsanitary or hazardous working conditions

Illegal child labour

overtime

Human rights risks in dealing with suppliers (e.g. in the financial sector).

Risk of suppliers not paying sufficient wages and not being paid by the stipulated date.

Risk of inducing long working hours at suppliers through business dealings with them.

Risk of facilitating forced labour through dealings with suppliers, e.g. through threats of punishment.

Risk of companies in the supply chain discriminating or disadvantaging without reasonable grounds on the grounds of race, gender, language, age, etc., in recruitment, promotion, advancement, wages, etc.

The majority of risks associated with human rights violations and environmental degradation occur deep in the supply chain. Many companies are unaware that they may be unknowingly complicit in these violations without the necessary information on managing their value chains. That information includes insight into the ethics of suppliers' business practices and a detailed understanding of the product lifecycle (geographical origin of resources, transport routes to that company and associated ESG risks). Until recently, companies had little incentive or expertise to address these issues. However, this is rapidly changing.

Conclusion.

In the first part, the importance of the impact of supply chains on the environment and society was presented with examples from companies and the results of a UN study. In the second part, the factors that drive companies to promote sustainable supply chains, the benefits and opportunities that can be gained by promoting them, and the risks of inaction.

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aiESG supports ESG analysis at the product and service level, tracing back through the supply chain. We also provide support on everything from basic ESG-related frameworks to the actual disclosure of non-financial information.

Enquiry:https://aiesg.co.jp/contact/


*Related articles*.
Part 2: Sustainable ESG-oriented supply chains: a strategic imperative for modern business.
Part 3: Sustainable ESG-oriented supply chains: a strategic imperative for modern business.
~ Steps, responses and trends ~.
[Explanation] What is the TNFD? A new bridge between finance and the natural environment
[Commentary] TNFD early adopters and their characteristics.
[Commentary] SBTs for Nature - science-based nature-related targets.
Commentary] IWI (New National Wealth Index: Inclusive Wealth Index) - a new indicator to measure wellbeing.
[Commentary] Nature Positive : Creating a society that can live in harmony with nature - about OECM and nature symbiosis sites.
[Commentary] Deliberations of the SSBJ (Sustainability Standards Board) - Scope 3 disclosure standards in Japan.
[Commentary] ISSB latest developments - Biodiversity and human capital are now under consideration.
[Commentary] TISFD: Task Force on Inequality and Social-related Financial Disclosure.
[Commentary] Future course of action of the Task Force on Inequality and Social-related Financial Disclosures (TISFD).
[Commentary on paper] The impact of climate change on conflict - a systematic review of the vulnerability conditions of society.