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The Consequences of ESG Risk Exposure

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The Consequences of ESG Risk Exposure

Last week, news emerged linking an electronics company to the transport and employment of labor in Xinjiang, an autonomous region in northwest China with documented occurrences of widespread human rights violations. This is the latest in a series of reports and white papers investigating supply chain connections to this region and the forced labor on its inhabitants. These reports not only expose the atrocities and human suffering in the region but also reveal significant supply chain risks that may not even be on an organization’s radar. With more than half of companies lacking supply chain visibility across their extended ecosystem, organizations are at a growing risk of both environmental, social, and governance (ESG) reputational risks, as well as regulatory risks as governments across the globe ban supply chain exposure to these human rights violations.

Nth-tier Supply Chain Risks

Lacking visibility across the supply chain leaves companies susceptible to blind spots and risks of which they may not be aware. For instance, inspired by this news, we identified almost one hundred companies with direct relationships to the company highlighted in their article, a number that significantly expands when looking beyond the first-tier. Thanks to the hyper-specialization and opacity of supply chains, many companies may not be aware that they risk potential exposure to human rights violations in Xinjiang.

Below is a breakdown, by industry, of companies with direct connections to Universal Electronics Inc. (UEI). While the software industry intuitively comprises a quarter of the companies, other industries such as machinery, media, or entertainment may initially assume minimal exposure. At a time when every company is a tech company, few companies are immune to these kinds of connections.

Global Focus

These recent revelations build on a growing governmental emphasis on prohibiting forced labor from supply chains. In July, the United States government issued a joint advisory pertaining to the heightened risks for businesses with supply chain and investment links to Xinjiang. Released by the U.S. Department of State, U.S Department of Treasury, U.S Department of Commerce, the Office of the U.S. Trade Representative, and the U.S. Department of Labor, the “Xinjiang Supply Chain Business Advisory” highlighted the range of risks to which companies may be exposed when conducting business in that region. As the advisory notes, these include exposure to regulatory risks, surveillance, and human rights abuses.

This advisory reflects the growing focus on ESG supply chain risks as well as the regulatory risks related to the inclusion of prohibited and restricted companies within a supply chain. In the U.S. the Department of Commerce continues to expand various restrictions lists due to human rights violations, banning solar panels companies to numerous tech companies for their connection.

In the European Union, the Global Human Rights Sanctions Regime introduced restrictive measures of entities connected to human rights violations. This is part of a broader emphasis across the ESG spectrum, including the Sustainable Finance Disclosure Regulation as well as mandatory due diligence for human rights, environmental, and governance issues.

Further, as ESG concerns spread worldwide, so does the country coverage for impacted companies. Below is a map denoting the geolocations for the companies which are supplied by Universal Electronics. It is worth noting that, while the US and the EU have issued restrictions and guidelines in this regard, nearly 50% of UEI’s consumers are located in these regions.

Gaining Visibility Across Supply Chain Risks

The Joint Advisory notes, “Given the severity and extent of these abuses, businesses and individuals that do not exit supply chains, ventures, and/or investments connected to Xinjiang could run a high risk of violating U.S. law.” Based on both market forces as well as regulatory shifts, it is increasingly essential to maintain visibility across your extended supply chain and proactively eliminate potential exposure to ESG reputational and regulatory risks.

While we quickly identified almost one hundred companies with potential ESG exposure, we only referenced direct suppliers. By looking at the second, third, fourth tier, and beyond, these numbers exponentially grow and illustrate the complex web and risks that extend throughout supply chain ecosystems.

The complexity of these networks and the growing consequences for failing to address ESG risk in the supply chain highlights the clear need for organizations to reexamine how they identify and monitor their extended business relationships.

To learn more about extended supply chain risk and the consequences of ESG risk exposure, visit interos.ai.

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Andrea Little Limbago is the Vice President of Research and Analysis at Interos  

Truckers Against Trafficking

Transportation Intermediaries Association (TIA) donates $10,000 to Truckers Against Trafficking (TAT) in Efforts to Eradicate Human Trafficking

Transportation Intermediaries Association, TIA, announced on May 12, 2021, that they partnered and donated $10,000 to the Truckers Against Trafficking, TAT, in efforts to combat human trafficking in the transportation Industry. The donation will go towards the TAT’s Shipper Partner Program that specializes in educating suppliers on the impact of human trafficking, how to become proactive against it, and eradicating human trafficking.

As the voice of the third-party logistics industry, TIA announced during day two the Opening Session of the TIA 2021 Capital Idea Conference in front of a virtual audience of 300 participants across the 3PL and freight brokerage industry. Anne Reinke, President, and CEO of TIA, Michael Riccio, TIA Board Chair, Kendis Paris, TAT Executive Director, and Cofounder, to discuss how members of the transportation industry can collaborate to endeavor prevention towards human trafficking on America’s roadways.

“We are thrilled to be partnering with Truckers Against Trafficking as part of TIA’s recent efforts to engage its members, the transportation industry, and the general public in raising awareness in identifying instances of human trafficking and preventing it from taking place in communities across America,” noted TIA President & CEO Anne Reinke. “TAT is an organization that has shown a passion about and commitment to this issue for more than a decade, and we’re honored to be the latest industry partner to join in supporting the amazing programs and services TAT provides.”

TAT has three main goals to saturate trucking, bus, and energy industries with information and materials; to partner with law enforcement and government agencies to facilitate the investigation of human trafficking; and to marshal the resources of our partners to combat this crime. TAT has a superior track record on delivering the goals with more than 87% of every dollar donates goes directly to their human trafficking programs and services.

“The transportation industry and, more specifically, truck drivers, play a critical role in combating human trafficking,” said Michael Riccio, CTB, Chief Marketing Officer of Leonard’s Express and TIA’s Incoming Board Chairman. “It is critical that we continue to educate, train, and engage with law enforcement and others in our industry to stop this horrible crime, and partnering with Kendis and Truckers Against Trafficking will help position TIA to do just that.”

TIA’s partnership with TAT follows the Association formally signing the U.S. Department of Transportation’s Transportation Leaders Against Human Trafficking initiative during Day 1 of the conference.

“Using their points of intersection, 3PLs play a critical role in helping to educate and activate their logistics partners to address the realities of human trafficking through TAT partnerships,” noted Kendis Paris, TAT Executive Director & Co-Founder. “TIA’s support will specifically help bolster our Shipping Partners program, which last year alone, led to over 300 new carrier relationships for our organization. We applaud the Association’s efforts in marshaling their resources in the fight to end human trafficking.”

To learn more about Truckers Against Trafficking, the TAT Shipper Partner Program, or how you can get involved in supporting the organization and its programs and services, please visit www.truckersagainsttrafficking.org.