PARIS – As companies around the world face growing pressure to demonstrate their ethical and environmental practices, a new industry has emerged to verify these claims. Corporate Social Responsibility (CSR) has become a crucial aspect of financial reporting for many businesses, requiring them to assess their social and environmental impacts alongside economic profits.
In January 2023, the European Union introduced the Corporate Sustainability Reporting Directive, which mandates that large companies report on the effects of their operations on people and the environment. Similarly, the United States and the International Sustainability Standards Board (ISSB) are developing stricter regulatory frameworks and standards for climate-related financial disclosure.
Sylvain Guyoton, the Director of Evaluations and Methods at sustainability ratings group EcoVadis, describes a “regulatory wave” in this field. EcoVadis is one of the companies working to verify ethical claims and has thus far assessed over 120,000 companies.
Various tools exist to assess sustainability, such as the Higg Index, which evaluates the sustainability of the value chain by examining water usage, carbon emissions, and labor conditions, among other factors. American company Worldly utilizes artificial intelligence (AI) to authenticate corporate claims, particularly in the apparel and textile industries. John Armstrong, the Chief Technology Officer at Worldly, explains that AI enables them to determine the validity of subcontractors’ information and detect anomalies related to human rights issues.
Armstrong notes that an increasing number of companies are turning to technology to validate their corporate claims, stating, “Everyone is looking to leverage AI, and there is competition.”
Two years ago, Australian firm Givvable entered this niche field, focusing on companies with many subcontractors and complex supply chains. According to Givvable co-founder Frances Atkins, surveys and questionnaires sent to companies for self-assessment are deemed inefficient and ineffective. Instead, Givvable aims to take responsibility for self-assessment away from the companies themselves, primarily working with mid-cap to large-cap businesses.
French company Tilkal, established in 2019, also employs AI to verify CSR claims. Tilkal has developed a blockchain network dedicated to the supply chain and its impact, working in sectors such as textiles, cosmetics, honey, milk, and cocoa. Co-founder Matthieu Hug explains that most companies are unaware of their subcontractors’ subcontractors, posing potential risks. Tilkal collects data within the supply chain, identifies inconsistencies, and alerts clients to areas that require further scrutiny.
Hug acknowledges that data is often missing, particularly when dealing with factories and suppliers thousands of kilometers away. However, he emphasizes that having some information is better than having none at all.
While the methodologies used to measure CSR ratings can be questioned, experts believe that new regulations will help address issues of divergent ratings to some extent. Sylvain Guyoton asserts that although ratings can highlight risks and guide necessary actions, they are not a complete solution.
The growing demand for transparency and accountability in corporate practices has given rise to a thriving industry focused on verifying ethical and environmental claims. With the introduction of regulatory frameworks and the incorporation of technology, businesses are taking steps to ensure they meet the increasing expectations of consumers and stakeholders.
More detail via The Star here… ( Image via The Star )