Economic, Weather, ESG Risks Disrupt Supply Chains

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by KnowESG
KnowESG_Economic, Weather, ESG Risks Disrupt Supply Chains
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While the COVID-19 pandemic's grip on supply chains loosened in 2023, Sphera's first-ever Supply Chain Risk Report reveals new challenges.

Companies faced a diverse range of threats, including economic pressures, extreme weather events, and environmental, social, and governance (ESG) concerns.

Sphera, a leader in ESG risk management, aims to illuminate these emerging risks through their report. The data comes from their Supply Chain Risk Management (SCRM) software, designed to identify potential disruptions and empower companies to manage and lessen them proactively.

Financial Pressures Strain Supply Chains

The report highlights a worrying trend: over one-third of financial risk notifications indicated a worsening revenue and growth outlook. Inflation in the EU and US squeezed suppliers' purchasing power, leading to a 23% increase in insolvencies and a 42% rise in bankruptcies. Additionally, site relocations or closures rose by 26%. Financial distress rarely appears overnight, so awareness of finance-related risks is crucial for companies to build resilience and navigate economic uncertainties.

Extreme Weather Events

The report also unveils a massive increase in natural hazard warnings. Tornado warnings soared by 45%, hailstorms by 26%, and tropical cyclones by 6%. Since two-thirds of the global economy relies on stable weather conditions, these events pose a significant threat, particularly to agriculture, energy, and transportation industries. Implementing solutions with 24/7 monitoring and advanced weather risk notifications can help companies prepare their supply chains and minimise potential financial losses.

ESG Concerns

The report further reveals a 6% increase in ESG-related risk indicators. Human rights notifications rose by 12%, labour practice issues by 13%, and environmental violations by 1%. Increased globalisation, evolving regulations, and growing consumer and investor demands all contribute to the heightened focus on ESG risks in supply chains. By adopting a holistic approach that integrates ESG considerations into their strategy, companies can effectively mitigate the consequences of these emerging threats.

Paul Marushka, Sphera’s CEO and president, said, “Sphera’s Supply Chain Risk Report shows that a broad range of risks, increasing ESG regulations and compliance failures can stress businesses. Risk exposure is dynamic, and constantly evolving supply chain risks cause ever-increasing market volatility. By optimising the supply chain composition and diversifying suppliers, companies can better manage the uncertainty that comes with supply chain disruptions.

"To do this, organisations need a solution that provides actionable insights for proactive risk monitoring that enables them to get ahead of disruptive events. Staying ahead of supply chain risk helps businesses reduce potential costs associated with such risk, gain competitive advantage and build transparent, agile supply chains.”

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Source: Sphera

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