Evaluate Risk

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.^⁴

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.

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 disruptions⁶. Where appropriate, consider diversifying your supplier base or bolstering your logistics infrastructure.^{⁷ ⁸ ⁹} 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.¹⁰ ¹¹ 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.¹²

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 guidelines¹³. 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.