The urgency of conducting supply chain due diligence on CSR vendors

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The urgency of conducting supply chain due diligence on CSR vendors

esg due diligenceWith the growth of consumer awareness and support for ecological, environmental, and human issues, the term “sustainability” is no longer just a marketing gimmick—it has become an important corporate strategy. The main form of this strategy is the management of a company’s CSR (Corporate Social Responsibility) program.

CSR is a program that integrates social and environmental sustainability in business operations. Examples of common practices include planting trees, blood drives, the cleaning and recycling of waste, and other socio-ecological activities.

CSR is increasing in the ESG era

The CSR program is not new or unfamiliar. This program has been promoted since the 1970s in America, inspired by the declaration of the Committee for Economic Development in 1971 to harmonize business interests and social concerns.

Since then, CSR has become a program carried out by various companies, especially those that are directly related to the lives of many people. Over time, CSR has been understood as one of the dimensions to improve a company’s image.

The sustainability of CSR programs has increased since the concept of Environmental, Social, and Governance (ESG) emerged. The ESG concept itself began to be popularized in 2004.

ESG and CSR are closely related. It is easy to understand that CSR is a practical element, while ESG is a metric of the CSR programs carried out. Through ESG, investors can evaluate how well the company complies with and implements the sustainability program they have set, from the subject company to its supply chain.

The need for supply chain due diligence

Currently, several organizations that manage the ESG concept, especially the United Nations, have issued regulations such as Corporate sustainability due diligence, Supply Chain Act due diligence, and UK’s Modern Anti-Slavery Act.

These regulations require subject companies to conduct due diligence along the supply chain as a preventive or corrective measure of actual or potential risks of humanitarian and environmental violations.

Companies that do not carry out these obligations will be subject to administrative sanctions and legal obligations if in the future a violation is found in their supply chain.

The regulation also requires subject companies to conduct due diligence on third parties involved in CSR programs. It is common for a company’s CSR program to involve third parties, such as plant seed providers, distributors of basic food needs, distributors of funds for people in need, and plastic recycling companies.

Learnings from the ACT case

The case of misappropriation of funds in Aksi Cepat Tanggap (ACT) is a clear example of how important it is to conduct due diligence on third parties. ACT itself is a well-known donation fund distribution company in Indonesia.

Various media reports stated that company officials misappropriated public donation funds, including CSR funds from Boeing which were intended for victims of a plane crash in 2018.

With due diligence, such risks to third parties can be identified, assessed, and responded to by the company. A measurable CSR program will certainly provide more benefits for the company, both in the eyes of consumers and investors.

Integrity Asia, with more than two decades of experience in the compliance industry, offers you comprehensive due diligence services through Know Your Vendor. The Know Your Vendor™ platform helps companies reduce the risk of supply chain fraud by providing a consolidated panorama for third-party due diligence.

For more information on Know Your Vendor and other compliance services that can help your company, contact us today.

 


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