Supplier relationships and their management are one of the six main areas of governance covered by the European Sustainability Reporting Standards (ESRS, November 2022 draft; see here for more details). In this part of our series, we focus on what businesses will be required to report under Requirement G1-2 – Management of Supplier Relationships.
Supplier Relationship Management Related to Governance
In general, a business will be required to provide information about the management of relationships with its suppliers and the related impacts to its supply chain. The objective of this requirement is to outline how a business manages its procurement process, including fair treatment of suppliers.
In doing so, businesses should pay increased attention to several key areas.
These include a description of a business’s internal policies and practices to prevent late payments to suppliers that are small or medium-sized enterprises (SMEs). This is particularly important in the context of the ability of the respective suppliers to manage their cashflows and the problems they may experience due to late payments.
In addition, under Requirement G1-2 a business shall also report:
- Information on the company’s strategy in respect to its relations with its suppliers generally and in the context of sustainability risks and supply chain risks specifically
- Information on whether or how a company takes into account social and environmental criteria in the selection of its suppliers
- A description of the company’s practices implemented to support vulnerable suppliers and improve their social and environmental performance.
The category of “vulnerable suppliers” includes suppliers that are exposed to significant economic, environmental, and/or social risks.
