How Can Z2Data Help You Put Your Suppliers Under the “ESG Microscope”?

This article is part two of a two-part series on how to analyze and assess the sustainability and ESG performance of your suppliers. 

In recent years, ESG framework has transitioned from an aspirational concept in the tradition of corporate social responsibility (CSR) and other initialized movements to the backbone of numerous regulations all over the world. The Corporate Sustainability Reporting Directive (CSRD), the Corporate Sustainability Due Diligence Directive (CSDDD), and the German Supply Chain Due Diligence Act (SCDDA), to name just a few, all draw heavily from the ESG framework’s central pillars, requiring businesses to assess the sustainability, social responsibility, and self-governance of not only their own organization but their suppliers, too. As these directives enter into force and the scope of covered companies continues to expand over the next several years, firms will be facing a growing sense of urgency to understand the ESG profiles of their manufacturers. 

In the first article in this series, we looked at how organizations could go about assessing their suppliers’ ESG compliance in areas like carbon emissions, waste management, labor standards, and self-governance. We shared a number of highly accessible strategies for beginning this exhaustive risk evaluation process, including referencing ESG ratings databases and expanding vendor questionnaires to focus on ESG-related issues. For the second part of this series on putting your suppliers under the “ESG microscope,” we’re focusing on specifically how supply chain risk management platform Z2Data can help companies analyze ESG risk along their supply chains. 

What Is Z2Data?

Z2Data is a leading supply chain risk management firm focused on providing companies with a comprehensive, out-of-the-box platform for mitigating supply chain risk, building resilience, and achieving operational excellence. Z2Data utilizes large internal databases that include over one billion components, tens of thousands of suppliers, and manufacturing sites all over the world to create an all-encompassing environment customers can use to track products and parts, assess suppliers, and investigate compliance, among other functionalities. 

The platform uses its data-driven ecosystem to give teams, leaders, and other key stakeholders a sophisticated risk management model that’s highly customizable and integrates easily across departments. Z2Data’s five-pillar process—clean data, flexible frameworks, risk sensing, in-house expertise, and real-time monitoring—ensures that the tool’s supply chain information is always effective, actionable, and closely tailored to each company’s highest priorities. 

Because the tool allows organizations to seamlessly combine internal and external data in one centralized location, teams can rely on a single, unified source of truth to inform strategic decision-making.

Z2Data’s data ecosystem extends to ESG compliance, too. The risk management software is able to meticulously assess the sustainability performance of tens of thousands of suppliers and manufacturers all over the world, offering customers substantive insights into the ESG practices and processes of their key supply chain stakeholders. 

Z2Data’s Powerful Sustainability Tool 

Z2Data’s SCRM platform includes Supplier Insights, a tool that provides customers with actionable data and risk analysis on the manufacturers that make up their supply chains. Supplier Insights features a special section, Sustainability, that can serve as a key resource for organizations seeking to evaluate their vendors’ ESG performance and corresponding risk with a high level of precision and granularity. 

The Supplier Insights Sustainability tool offers a level of visibility into suppliers’ ESG compliance that’s both comprehensive and nuanced. Drawing from the framework of the Corporate Sustainability Reporting Directive, the section looks at a company’s internal practices across a broad range of categories that fall within the environmental, social, and governance pillars, including everything from GHG emissions and biodiversity to human rights and community engagement. To assess supplier conduct within each of these categories, Z2Data utilizes a number of objective key performance indicators procured through public information-gathering and other high-accuracy research methods. All these KPIs are then combined into a total score for each of the 22 categories across the ESG pillars. (For example, a company might have a rating of “Low Risk” in human rights and “High Risk” in environmental management.)

To make gauging the sustainability of prospective suppliers even faster and easier, the platform also uses proprietary algorithms to arrive at four overarching ESG scores for each vendor: Environmental, Social, Governance, and Data Availability. Taken as a whole, Supplier Insights and its Sustainability tool gives businesses the flexibility to choose between a broad, higher-level approach to ESG risk assessments or strategies that are more finely calibrated to the specific needs of companies and their stakeholders. 

Customize ESG Analysis With “Projects Environment”

Every company’s needs are different, and not all manufacturers are going to give equal importance to all the categories in the ESG framework. To address this high variability in organizations’ priorities and preferences, Z2Data has developed a way to seamlessly customize ESG data. In a separate data environment called Projects, customers are able to pull in the KPIs for specific sustainability categories and create custom scores based only on the areas that matter to them. Users can take the customization even further, too, by comparing specific ESG practices across multiple suppliers. Finally, the Z2Data platform can then pull all the data selected by the customer together to create a tailored ESG score. 

All this optionality and customization doesn’t just exist to function as a superfluous “luxury feature,” however. The Projects Environment was conceived of and developed with highly practical use-cases in mind. By separating out the sustainability metrics that businesses care about from those that either don’t apply to their industry or are otherwise deprioritized internally, firms are able to distinguish the signal from the noise. The results are ESG datasets that actually matter to a company’s leadership and most critical stakeholders, rather than a deluge of information whose overabundance is ultimately counterproductive to decision-making. 

These filtering capabilities allow businesses to use Supplier Insights and Z2Data’s ESG risk information to choose sustainable manufacturers, restructure supply chains, and contribute to more overarching procurement strategies. 

The Difference Between Z2Data’s ESG Compliance Data and Other Sources

A SCRM platform like Z2Data isn’t the only way to access ESG information on your current and prospective suppliers. There are, to be sure, a myriad of avenues for assessing sustainability. But it’s important to remember that many of these methods suffer from one of two critical flaws: either the data and analysis is extremely broad and absent of nuance, or the information lacks objective distance and may be biased toward the supplier. 

For example, ESG ratings are available on public platforms like the Carbon Disclosure Project (CDP). While these organizations can be useful starting points for carrying out due diligence along your supply chain, they rarely offer the consistently high level of detail and specificity to serve as an all-encompassing resource. While free and objective, they paint with a narrow brush, covering only a limited portion of the total picture of a firm’s sustainability. 

Further, companies can selectively choose what information they want to disclose when reporting to these platforms, potentially making for a cherry-picked collection of data that may not be representative of their full ESG risk. And while sustainability questionnaires can be tailored to focus on the data and practices that matter most to you, they lack the credibility and trustworthiness of a third-party assessment. They’re also static sources of information: they only reflect a manufacturer’s ESG performance at a single point in time. Every time you want an update on your vendors’ policies and initiatives, you have to issue the questionnaire anew, undertaking another round of what’s often a time- and resource-intensive process. 

Z2Data’s Supplier Insights, on the other hand, circumvents both of these pitfalls. It addresses 22 ESG categories—including greenhouse gas emissions, diversity and inclusion, and human rights—by using 135 concrete, objective key performance indicators applied to tens of thousands of companies. And as a third party serving its customers, and not the interests and reputation of vendors, it’s able to procure and disclose information in a highly impartial fashion. 

Bolster Your ESG Risk Management with Supplier Insights

As ESG becomes the crystallizing force behind an increasing number of major regulations, the risks associated with overlooking sustainability in a company’s supply chain are only going to grow. These threats may vary from region to region—while reputational damage looms large in the U.S., ESG noncompliance in the EU will soon come with significant financial consequences—but their overall prevalence within the broad supply chain risk landscape is rising rapidly. 

As the stakes for maintaining sustainable supply chains become more consequential, businesses need to start evolving their ESG management strategies. SCRM platforms like Z2Data go beyond old-fashioned data-gathering techniques by embracing a dynamic approach to collecting information and assessing risk. By combining seasoned research teams with expansive databases and proprietary algorithms, Z2Data and its Supplier Insights tool gives users up-to-date, highly refined visibility into the ESG policies and practices of over 20,000 companies worldwide. To learn more about Z2Data, Supplier Insights, and the Projects Environment, schedule a free demo with one of our product experts.