Evaluate Risk

Description

Identify and evaluate your key environmental, social, and governance risks and opportunities in your value chain and the corresponding options to address them.

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Evaluating risk is foundational to ensuring a resilient and sustainable value chain, helping to navigate challenges and capitalise on opportunities.

Identify and evaluate key environmental, social and governance risks

Start by mapping out potential risks, such as potential for human rights violations, potential environmental impacts, supplier reliability, transport logistics, political instability, and natural disasters. To compile a comprehensive risk list, engage relevant departments, including procurement, supply chain management, sustainability, legal, and compliance. Depending on the risk, involve suppliers, customers, and regulatory bodies for a more holistic view. Once compiled, assess each risk's severity and likelihood and your organisation's ability to mitigate it. For instance, if modern slavery is a potential risk, form a dedicated group to investigate it further. Use tools like sustainability audits and environmental and social assessments to gather data, always considering the possibility of sudden changes.¹ ² ³

EXAMPLE: Co-op Group’s high-risk area identification

Co-op combines stakeholder input with public human rights data to identify labour rights risk hotspots in its supply chain.

EXAMPLE: Mars recognises farmer livelihoods as a key business risk

The agri-food company Mars Inc. found that many rice, cocoa, and vanilla farmers at the base of its supply chain were giving up farming. Mars recognised this trend as a strategic business risk due to its impact on the quality and availability of essential raw materials inputs. Further investigation helped the company identify poverty as the key factor driving farmers to seek better livelihoods in urban areas.⁵

EXAMPLE: Risk assessment tool for public procurement in Sweden

Swedish organisation Adda designed a sustainable public procurement (SPP) risk assessment tool to identify sustainability risks, evaluate suppliers, and prioritise based on risk and performance. The adaptable tool offers proactive SPP solutions tailored to different product categories, exemplified in a report on China's state-imposed labour risks in ICT supply chains.

EXAMPLE: Supplier due diligence at Schneider Electric

In response to the introduction of the Duty of Vigilance in France, Schneider Electric leveraged the Responsible Business Alliance methodology and organisational intel to identify suppliers with the highest human rights and environment risks. Schneider Electric conducted on-site audits to determine non-compliance and collaborated to create action plans for correction where needed.⁶

Identify risk mitigation options for reducing impacts and managing uncertainty

After risk identification and assessment, begin to devise mitigation strategies. This could involve designing contingency plans for potential disruptions or forming partnerships with suppliers (and brands) for joint risk management and mitigation. Buffering strategies can mitigate potential disruptions⁷. Where appropriate, consider diversifying your supplier base or bolstering your logistics infrastructure.⁸ ⁹ ¹⁰ Establish clear roles, timelines, and objectives for your risk management planning. Regular communication with suppliers and other stakeholders is crucial. Remember to incorporate bridging strategies, focusing on quick response and recovery after a disruption.¹¹ ¹² Regularly review your risk management plan to keep it up-to-date and effective.

EXAMPLE: General Motors' risk-notification system

GM's risk-notification system combines its value chain mapping efforts with geographic risk data. In cases where disruptive events occur, GM can quickly identify and contact suppliers in the area that may be affected.¹³

EXAMPLE: Risk Mitigation in BMW Group's Supply Chain

BMW Group employs a three-phase approach to mitigate human rights risks in its supply chain, aligning with OECD guidelines¹⁴. It integrates due diligence in procurement, standardises supplier assessments, and prioritises high-risk raw materials for detailed audits. The company aims for complete transparency in sourcing conflict minerals by 2022.

Resources
Break Even Action Guides: BE04 – Procurement  cover

Break Even Action Guides: BE04 – Procurement

This resource, developed by Future-Fit, provides practical guidance on performing supply chain hotspot assessments, specifically in sections 2 and 3. It includes a list of common hotspot issues, a matrix for categorising hotspots based on intensity, and progress indicators.

Responsible Sourcing Tool: Explore Risk cover

Responsible Sourcing Tool: Explore Risk

The Responsible Sourcing Tool’s “Explore Risk” section has two parts. Part one outlines key labour rights risk factors categorised by sector and geography to help you understand how risk enters the supply chain. Part two provides a geographic map with country risk profile summaries to help you visualise where labour rights violations are most likely.

CIPS Risk and Resilience Self-Assessment Tool cover

CIPS Risk and Resilience Self-Assessment Tool

This non-sector-specific self-assessment from the Chartered Institute of Procurement & Supply will help you assess your value chain’s resilience and guide you on mitigating key risks. It takes approximately 15 minutes to complete.

Social Risk Mapping [PAY TO USE] cover

Social Risk Mapping [PAY TO USE]

This online risk mapping tool from the Social Hotspots Database helps you assess sector-specific social risks in your supply chain. It is designed to identify both risk location and significance. The comprehensive tool covers 30 social risk sub-categories and 132 risk indicators and can be integrated into LCA software tools.

CSR Risk Check Tool cover

CSR Risk Check Tool

This risk assessment tool by MVO Nederland will help you quickly assess value chain sustainability risks related to a specific product or service. It will also provide suggestions on how to manage them.

Integrated Biodiversity Assessment Tool [FREEMIUM] cover

Integrated Biodiversity Assessment Tool [FREEMIUM]

This biodiversity risk assessment tool by the IBAT Alliance describes itself as your source of “the world's most authoritative biodiversity data for your world-shaping decisions.” It will support early-stage screening of biodiversity risks at a site level using three public data sets: the World Database on Protected Areas, IUCN red list species, and Key Biodiversity Areas.

Building Resilience in Global Supply Chains cover

Building Resilience in Global Supply Chains

This resource by WBCSD uses two case studies to demonstrate how to build resilience throughout your supply network. It emphasises mutual dependence between businesses as well as between Business and society.

ESG Risk Analysis Tool cover

ESG Risk Analysis Tool

This free tool by Responsibly offers a materiality analysis to identify risks associated with sourcing countries and supplier industries. This can help you prioritise areas of high risk to align efforts with your ESG objectives and assess suppliers on sustainability criteria. Beyond the risk analysis, the platform offers additional pay to use options to view progress in risk mitigation, engage suppliers, and set goals within your procurement process.

Practical Guide to Responsible Sourcing of Goods and Services cover

Practical Guide to Responsible Sourcing of Goods and Services

This guide by the Responsible Business Alliance offers practical guidance for responsible sourcing of goods and services. Manage Performance (SPM): Step Four (pages 11-15) covers contract management, including guidance on performance monitoring, supplier reporting, corrective action and remediation, and closure audits.

Evaluate Risk: The guide provides an overview of responsible procurement due diligence, ranging practical advice on managing risk throughout your procurement process.