General details
EDIHs involved
Challenges
The EDIH Rheinland carried out a project with a company from the IT sector, ESG Chain, that offers its customers support in complying with due diligence obligations within the supply chain. To this end, the suppliers and upstream products supplied are examined by web crawling in order to comply with the supply chain law according to ESG criteria. These criteria are designed to ensure that environmental protection rights, social standards and corporate governance can be monitored and enforced. This is intended to ensure that producers and their suppliers comply with minimum standards for social, environmental and governance standards. ESG Chain offers its customers solutions for precisely this challenge in due diligence obligations. If organizations want to integrate ESG criteria into their operations, ESG Chain helps them to organize and manage the relevant data. Using blockchain and web crawling, publicly available data that indicates improvements or problems in the ESG area is recorded and made permanently available.
The company was faced with the challenge of being able to correctly evaluate data on potentially identified problems for its customers and make it quantifiable in risk factors. ESG Chain wanted to support its customers with the necessary due diligence when reviewing their supply chains. Before our project, the software just identified the existence of a risk in the supply chain and did not assess its severity.
-
Firstly, they needed an objective outside assessment of their software, to determine its capabilities and usability. Our assessment identified strongpoints and weaknesses. With the gathered Information we developed a roadmap with fixed work packages to further develop the usability of the software.
-
Secondly, ESG Chain was facing the struggle to further develop the risk assessment in the supply chains of their customers. The multi criteria risk assessment based on several guidelines, laws and standards required in depth scientific analysis.
Solutions
-
In an initial sub-project, EDIH Rheinland project staff conducted a study to test the functionality of ESG Chain's digital services: A multi-stage process was used to investigate how the monitoring of ESG guidelines within companies can be carried out, how incidents can be assessed and how potential impacts can be predicted. The assessment was based on the OECD Due Diligence Circle, which provides guidelines for respecting human rights and environmental protection, tracking, communication, assessment and possible redress.
-
In a second sub-project, the aim was to improve the management of potential risks that could arise for customers from suppliers in terms of social standards, the environment or operational management. Requirements and objectives from the Supply Chain Act in these areas were translated into standardized assessment procedures with measurable key figures. This made it possible to present risk management in a clearly structured scheme.
Further but not exclusively guidelines which were used to enhance the risk management: Supply Chain Due Diligence Act (LkSG) (D), Corporate Sustainability Due Diligence Directive (CSDDD) (EU) or the OECD Guidelines for Multinational Enterprises on Responsible Business Conduct (OECD).
Together with ESG Chain we provided that research and developed a multi criteria risk assessment procedure in three sub-steps: An assessment of the basic risk, i.e. the potential impact of an incident on social, environmental or societal conditions, the potential impact on the business relationship between the supplier and the customer company and the cause-related risk. This is measured by the assumed severity of the incident impact and its reversibility or contribution to causation.
The investment supported a digital solution provider, which helps businesses to improve the sustainability in their supply chains. Thereby it strengthened the economy around business models in sustainability reporting and general sustainability across industries.
Results and Benefits
In the end, all suppliers can be classified in a matrix. This presents the assessed risks in a portfolio analysis as to whether there will be a lasting impairment of the ESG guidelines. These probabilities are displayed using a color scheme so that risk mitigation measures can be initiated in good time.
-
An assessment of the usability of the software and ready-made work packages for improving several features.
-
Usability improvement: 29 Aspects for improvement identified, compiled into 4 work packages.
-
A ready-to-implement concept for multi criteria adaptive risk assessment.
-
Developed 3 categories for ESG supply chain risk assessment with 31 subcategories with a corresponding scale for assessment each.
-
Categories are: Baseline risk, case related risks and business relations.
Perceived social/economic impact
EDIH Rheinland invested €42,500 in working time to check the functionality of the existing software and, together with the ESG Chain contacts, developed a risk assessment model for classifyingESG risks.
The company's product or service was expanded so that the ESG criteria can be more easily integrated into supply chains in the manufacturing industry. In this way, supplier management and supply chains of the ESG Chain customers as a whole become more sustainable and an improvement in environmental, social and governance standards is achieved in the long term.
If the developed solution is implemented, and the solution is marketed, companies in manufacturing industries could use the ESG Chain services to identify weaknesses in their supply chains, to then use appropriate measures to increase the human rights and environmental standards in the supply chain.
The solution is more streamlined and effective than doing it without the developed tool. Therefore it provides its users the economic benefit of cost reduction to the conventional methods.
Measurable data
The project indentified 29 Aspects for improvement which were compiled into four work packages
Three categories for ESG supply chain risk assessment were developed with 31 subcategories with a corresponding scale for assessment each.
DMA score and results - Stage 0
On June 30th 2023, a DMA was conducted for ESG Chain GmbH with an overall DMA T0 score of 41%. In the areas of Digital Readiness (54%) and Data Governance (62%), the company was already in the upper half. The score of Digital Business Strategy (at 37%) , the Human-Centric Digitalisation was abit higher (at 46%), but the Automation & Artificial Intelligence was basic (at 24%) and Green Digitalisation just average (25%).
DMA score and results – Stage 1
On June 10th 2024, a T1 DMA measurement was conducted to get a quantitative picture of the impact of EDIH Rheinland investment on the digitalisation journey of ESG Chain. The overall score in Digital Maturity Level went up at 43%. The score of Digital Business Strategy increased as well (at 43%) after implementation of the Study and the Matrix. The Green Digitalisation Level added 5 points (at 30%).
Lessons learned
This digital method of automated risk management provides ESG Chain's customers with support for faster, more efficient and careful decision-making in order to avert potential damage to the customer.
Funding mechanism proved difficult for all partners. But we encourage doing a project and dealing with the challenges along the way.
During the project it was unclear, what types of documentation and public presentations of the project would have to be created to advertise the project across the EDIH network and online presentation.
DMAs were in our case a bit meaningless, since the partner company already provides a completely digital solution. Our improvement only marginally effects the score, but significantly improves the service.
Need support?
Consult our catalogue to locate the Eupopean Digital Innovation Hub nearest to you and accelerate your company's digital transformation.