The Theme of the Report
Supply chain management and its processes have been an inevitable challenge in most economies. A variety of managers involved in this process have already noticed that the quality of the production chain, in its most diverse points of contact, is directly associated with the speed with which the company can grow (Antunes et al., 2021). The issues that could become subject to a supply chain compliance requirement are broad (Antunes et al., 2018). Some of these issues could be conveniently grouped under the environmental, social, and governance (ESG) umbrella: environment, social, and governance aspects (Brown and Lee, 2019).
Problem That the Report Aims to Explain
Most businesses across all sectors are becoming subject to more compliance requirements. These can arise from specific legislative requirements or the increasing drive for businesses to operate ethically and regarding their impact on the environment and broader society (Cassim et al. 2020). There is a growing recognition that efforts to ensure effective compliance cannot be confined to the internal workings of an organization (Chen et al., 2021). Customer organizations are increasingly pushing compliance requirements into their supply chain.
About 90% of the business operations globally are small and medium-sized. Hence, small- and medium-sized enterprises (SMEs) are undoubtedly the backbone of every economy, which assist in driving innovation and powering global supply chains (Eikon, 2021). However, low levels of SME reporting can create challenges for investors and large companies when making investment and supplier decisions (El Madani, 2018). The objective of this project is to create a framework for SMEs to apply ESG, dedicating its particular attention to the supply chain. Additionally, the document offers an overview of how companies and SMEs integrate ESG policies into their supply chain in some selected countries such as the United Kingdom, Germany, Portugal, Switzerland, and the United States of America.
Supply Chain Compliance in Selected Countries
Supply chain management has become a key factor determining a business’s success or failure. Supply chain management is based on various compliances that a business organization must meet to be effective in its operations (European Commission, 2022). The vital supply chain compliance risk areas include the following: firstly, the workforce issues (such as human rights and modern slavery), security of data and systems, environmental issues, and anti-bribery (Fenwick et al. 2022). Secondly, the issues related to good governance, information and cyber security and data protection, environmental commitments, and assessing prospective suppliers in the pre-contract phase (Ferreira and Franco, 2019). Lastly, matters dealing with compliance issues in the contract, compliance breaches, business continuity issues, and facilitating compliance throughout the contract lifecycle.
Supply Chain Compliance in the United Kingdom
The United Kingdom is a developed country with a stable economy. The United Kingdom’s economy is significantly influenced by SMEs that dominate the production and manufacturing sectors in the country (Fredrickson et al., 2018). Due to the high number of SMEs in the United Kingdom, ESG is essential in ensuring effective operations in the business world (Raut et al., 2021). The United Kingdom has numerous legislative requirements that guide businesses to structure and implement effective workforce policies such as human rights enhancement, data protection, and critical systems (Zopounidis et al., 2020). For instance, employees are protected from inhumane treatments, forced labor, protection of their privacy, and the provision of essential amenities, among others (Kirchoff and Falasca, 2022). In the context of supply chain compliance, the mentioned policies guarantee the prevention of issues with workforce and data leaks, which is critical for sustaining trade. Thus, the supply chain in the United Kingdom is less vulnerable to such events as workers’ strikes and acute data loss.
The United Kingdom also prohibits operations that endanger the environment hence showing their environmental commitments (Redondo Alamillos and De Mariz, 2022). For instance, the United Kingdom bans manufacturing mercury-added products since they release hazardous environmental emissions (Zhang et al. 2017). The environmental commitment of the country ensures procurement, operations, distribution, and integration of the goods without accidental human-made disasters. Therefore, the three categories of supply chain compliance do not present any issues that might contaminate the process.
Based on governance elements, most supply chains in the United Kingdom are characterized by transparency and adherence to ethical operations (Kitali et al., 2018). The supply chains in the United Kingdom ensure effective communication among all the stakeholders involved in the supply chain protocol; the suppliers, distributors, and customers (Yang et al., 2021). Despite well-stipulated supply chain compliance guidelines, the United Kingdom has suffered a significant backlash on its supply chains (Reis, 2022). The HGV driver shortage affected almost every sector in the country because lack of fuel paralyzed most operations and business organizations (Yu et al., 2021). This problem might signify issues in workforce or governance elements, which prevent the process of hiring the needed staff. Thus, the United Kingdom cannot sustain the totality of its managerial and organizational processes in due order, and additional research is necessary to discover the issue’s roots.
Supply Chain Compliance in the United States
In the U.S., SMEs hold a massive chunk of the American market. Small Business Administration estimates that SMEs account for 99.9% of all enterprises in the country and employ around 60.6 million people, or 47.1% of the private labor force (Kohler et al., 2021). There are about 28 million SMEs in the United States, and women own 39% of them (Sakun et al., 2020). Compared to larger services companies, SMEs are less likely to engage in trade (Kumar et al., 2020).
In August 2021, US manufacturing activity unexpectedly increased due to a significant rise in orders. However, due to a projected labor shortage, manufacturing employment decreased to a nine-month low. The newest wave of COVID-19 infections, which predominantly affected Southeast Asia and clogged ports in China, has made it more challenging to get enough raw materials (Mutikani, 2022). Manufacturing employment shrank and reached its lowest point since November. Although the CCPA lacks a federal counterpart, it remains a de facto national norm. This is because most businesses across the nation will have to abide by the restrictions due to the number of Californians. According to the
Lancet Commission on pollution and health, pollution was the leading environmental risk factor for disease and early death globally in 2015, causing 9 million preventable deaths (Mutikani, 2022). We have revised this estimate using information from the 2019 Global Burden of Diseases, Injuries, and Risk Factors Study. We discover that pollution continues to be the cause of almost 9 million fatalities annually. American governance is another important topic. The SEC is responsible for enforcing securities rules and regulations, and it also examines and comments on crucial business disclosure filings (such as proxy statements and securities registration statements). The Department of Justice criminally prosecutes federal securities laws and SEC guidelines.
Since the effects of climate change on the environment have been apparent, ESG policy has gained attention (Sani et al., 2018). Managing climate change risks, human capital management, particularly racial and gender diversity and inclusion in the workplace, concerns corporate purpose (Yan et al. 2020). The climate issues signify that some US supply chains might be disrupted or delayed due to fluctuations in the availability of seasonal goods and transportation methods. The workforce issue in the US is linked with insufficient equality and presents threatens the everyday operations of the country’s suppliers. Moreover, these issues prevent the companies’ staff from effective collaboration. Early ESG policy in the USA was primarily concerned with the environment. Still, in recent years, the policy has included workforce issues, environmental commitments, and good governance (Loof et al., 2021).
The social and governance policies cover all of the elements that go into making a company that does sound rather than damage, including but not limited to workers’ safety, environmental preservation, open government, and accountability (Wisetsri et al., 2021). The U.S. has adopted an ESG policy driven by the market and will likely receive legislative support in the coming years (Saygili et al., 2021). These changes also address information and cyber security, ensuring that US supply chains are not disturbed by cyber criminals and ineffective use of data.
The Environmental Protection Agency (EPA), which Congress has given jurisdiction to execute environmental policies in the U.S., is primarily in charge of managing environmental issues in that country (Lopes et al., 2021). In the U.S., environmental laws must be followed by both public and private businesses (Sani et al., 2018). EPA sets federal ecological regulations; however, particular states can have more stringent environmental requirements (Rajesh and Rajendran, 2020). Because the EPA’s rules are so detailed, companies should contact the EPA to ascertain the scope of coverage for specific organizations (Tseng et al., 2021). Thus, the environmental issue might be resolved and less dangerous to the supply chains.
Supply Chain Compliance in Portugal
In Portugal, SMEs accounted for 99.7% of businesses in 2019, employed 71.8% of the workforce, and generated 57.7% of revenue and 82.8% of investment volumes. Venture capital trends have been inconsistent. Venture capital investments have been steadily declining since 2007; however, there have been hints of recovery since 2012 (Magerakis and Habib, 2021). In 2011, venture capital investments increased by 312% to Euros 107 million in 2014. However, in 2016 venture capital investments decreased once again to Euros 18 million, down 82% from 2015; however, they recovered during the following four years (Thorlakson et al. 2018). Thus, the economic capacity of Portugal has decreased.
Most businesses in Portugal have been compelled by ESG legal requirements to adhere to new protocols and standards such as integration of workforce issues, governance, information, cyber security, and environmental commitments in their operational procedures (Manita et al. 2018). Regarding workforce issues, labor shortages are cited as a barrier to conducting business by industrial and construction firms (Why is there a lack of workers in Portugal? 2022). The lack of opportunities in industries such as transport and warehousing, as well as lodging and cafes, has an influence on supply chains. It is consequently critical to increase employees’ employability by tailoring educational and technical instruction to the job market demands. Portugal has the world’s second-largest proportion of single users who are victims of phishing emails and spam (Safe Communities Portugal, 2022). This means that the information security issue is prominent in the country and might affect the logistical capacity of its supply chains.
Portugal has violated all environmental pollution restrictions, including greenhouse gas emissions in the atmosphere. The preceding years’ economic activity and lack of ecological awareness resulted in unprecedented magnitude and urgency of sustainability concerns. As a result, risks to commodities production caused by man-made hazards may result in regional and even national incapacity to manage and provide supplies. The second issue is the inability to governance. Portugal performed poorly in a variety of categories linked to governance capability during the recent and previous evaluation periods. Issues in these areas will inevitably impact the accuracy of policies, both in respect of formulation and execution. It might be claimed that SMBs lack trust in their projects because of this governance competence.
Supply Chain Compliance in Germany
The German economy is characterized by various SMEs, innumerable independent contractors, and freelancers, despite several worldwide giants and significant flagship companies (Marx et al. 2020). More than 99% of the businesses fall into the SME category, which comprises businesses with less than 500 workers and yearly revenues of under 50 million euros (Melo et al., 2019; Wan et al., 2021). Since more than 800,000 people in Germany with immigrant backgrounds own a business, immigrants play a significant economic role in the country.
The Germany Supply Chain Due Diligence Act calls for companies to check supply chains for strict adherence to ESG policy. This act prohibits infringements of human rights, adherence to environmental concerns, good governance, information, and security, and it will be affected in January 2023 (Menon and Ravi, 2021). There have previously been supplying chain laws whose main objective was to ensure that businesses upheld specific ESG performance factors (Mishra et al. 2018). Thus, the issue of governance, information, workforce, and environment are prevented by successful policies which are already implemented.
A coalition of traffic lights wants super-fast internet across the nation to open the door for a digital revolution in public services like healthcare and welfare. While implementation has been excruciatingly slow, German network operators have been delivering fiber internet to clients in some places for some years. Finding talent to bridge the gap in national capabilities will be a primary concern for the next administration due to the aging population and decreased migration over the previous several years (Goodman, 2022). On a broad scale, the act mandates that businesses ensure human rights compliance (Shashi et al., 2020). Moreover, they guarantee the prevention of environmental degradation within their direct activities and throughout their entire supply chain.
Supply Chain Compliance in the Netherlands
SME value added in the “non-financial business economy” of the Netherlands is 62.3%, which is higher than the E.U. average of 56.4%. The value added of Dutch SMEs increased by 23.6% between 2014 and 2018, slightly more than the 20.7% growth of large businesses (Moshood et al., 2021; Paltinieri et al., 2020; Pan et al., 2021). With the integration of ESG into the SME’s supply chain and mainly focusing on contracts and workforce issues, the value added is anticipated to increase by an average of 3% between 2018 and 2020 (Soriannidis et al., 2021). The development of human capital and access to financing are critical aspects of the Dutch SME policymaking on environmental commitments, good governance, workforce issues, information, cyber security, and also protection of contractors’ rights. The result of these policies is a good work-life balance for employees, high pay, transparent bureaucracy and absence of environmental hazards. Therefore, the issues that might arise are prevented and has not been affecting the supply chain recently.
Supply Chain Compliance in Switzerland
The role of small and medium-sized firms in the Switzerland economy. The vast majority of companies in the country are SMEs, which account for two-thirds of all jobs created in the nation, from the little bakery to the bustling Internet start-up or the machine maker (Norton and Dowd 2018; Oluwafemi et al. 2020; Silva and Figueredo 2020). The general non-financial reporting requirements, including ESG reporting, under the counter-proposal to the Responsible Business Initiative, as included in the Swiss Code of Obligations, requires all SMEs in Switzerland to adhere to the ESG guidelines issued by the European Union (Simoes et al., 2019). The recent reforms in most of the supply chain processes in Switzerland include employee issues such as protection against slavery and human rights, good governance, information and data protection, suppliers and contract agreements, and environmental commitment in their operational activities. However, there are staff shortages issues that sometimes arise in the logistics process in the country. These problems indicate that the policies that sustain the workers’ rights are no longer sufficient for effective supply chain.
Summary of Main Ideas
ESG is a term that has been used broadly to represent environmental, social, and governance issues. Previously, this term was mainly used in the financial sector as a set of criteria against which investors assess the entity’s behaviors which they consider for investment purposes (Shrestha, 2020). However, the term is currently gaining usage in the supply chain discipline. Due to the high number of SMEs and their integration of supply chain processes in most European Union countries, strict adherence to the ESG policies is essential (Shi and Geng, 2021). The United Kingdom, the United States, and Germany have the best correspondence with ESG guidelines concerning the SMEs in their countries. The supply chains used by the SMEs in these countries adhere to the environmental conservation measures set by the governments.
Reference List
Antunes, M. G., Quiros, J. T. and Justino, M. D. (2018) ‘Role of management control systems in quality, innovation and organizational performance in Portugal companies.’ International Journal of Innovation and Technology Management, Volume 15(2), pp. 185-204.
Antunes, M., Maximiano, M., Gomes, R. and Pinto, D. (2021) ‘Information security and cybersecurity management: a case study with SMEs in Portugal.’ Journal of Cybersecurity and Privacy, Volume 1(2), pp. 219-238.
Baid, V. and Jayaraman, V. (2022) ‘Amplifying and promoting the “S” in ESG investing: The case for social responsibility in supply chain financing.’ Managerial Finance.
Brown, R. and Lee, N. (2019) ‘Strapped for cash? Funding for U.K. high-growth SMEs since the global financial crisis.’ Journal of Business Research, Volume 99, pp. 37-45.
CaixaBank Research. (2022) Why is there a lack of workers in Portugal?. Web.
Cassim, Z., Handjiski, B., Schubert, J. and Zouaoui, Y. (2020) ‘The $10 trillion rescue: How governments can deliver impact.’ McKinsey & Company.
Chen, L. et al. (2021) Fulfilling ESG responsibilities and firm performance: A zero-sum game or mutually beneficial.’ Sustainability, Volume 13(19), p. 10954.
Eikon, R. (2021) ‘Environmental, social and governance (ESG).’ Scores from Refinitiv.
El Madani, A. (2018) ‘SME policy: Comparative analysis of SME definitions.’ International Journal of Academic Research in Business and Social Sciences, Volume 8(8), pp. 103-114.
European Commission, (2022) Annex to the proposal for a directive of the European parliament and the council on corporate sustainability due diligence and amending Directive (E.U.) 2019/1937, Brussels: E.U.
Goodman, I., 2022. Five challenges facing Germany’s new government. [online] Web.
Fenwick, M., Joubert, T., Van Wyk, S. and Vermeulen, E. P. (2022) ESG as a business model for SMEs. SSRN.
Ferreira, A. and Franco, M. (2019) ‘The influence of strategic alliances on human capital development: A study applied to technology-based SMEs.’ EuroMed Journal of Business.
Fredrickson, L. et al. (2018) ‘History of U.S. presidential assaults on modern environmental health protection.’ American journal of public health, Volume 108(2), pp. 95-103.
Kirchoff, J. F. and Falasca, M. (2022) ‘Environmental differentiation from a supply chain practice perspective.’ International Journal of Production Economics, Volume 244, pp. 108-365.
Kitali, A. E. et al. (2018) ‘Likelihood estimation of secondary crashes using the bayesian complementary log-log model.’ Accident Analysis & Prevention, Volume 119, pp. 58-67.
Kohler, P. N., Matthias, A., Muller, J. P. and Allgower, F. (2021) ‘Distributed economic model predictive control for cooperative supply chain management using customer forecast information.’ IFAC Journal of Systems and Control, Volume 15, pp. 100-125.
Kumar, A. et al. (2020) ‘Behavioral factors on adopting sustainable supply chain practices.’ Resources, Conservation and Recycling.
Landis, C. and Skouras, S. (2021) ‘Guidelines for asset pricing research using international equity data from Thomson Reuters datastream.’ Journal of Banking and Finance, Volume 130, p. 8.
Loof, H., Sahamkhadam, M., and Stephan, A. (2021) ‘Is corporate social responsibility investing a free lunch? The relationship between ESG, tail risk, and upside potential of stocks before and during the COVID-19 crisis.’ Finance Research Letters, pp. 102-499.
Lopes, J. M., Oliveira, M., Lopes, J. and Zaman, U. (2021) ‘Networks, innovation and knowledge transfer in the tourism industry: An empirical study of SMEs in Portugal.’ Social Sciences, Volume 10(5), p. 159.
Magerakis, E. and Habib, A. (2021) ‘Business strategy and environmental inefficiency.’ Journal of Cleaner Production.
Manita, R., Bruna, M. G. and Houanti, L. H. (2018) ‘Board gender diversity and ESG disclosure: evidence from the USA.’ Journal of Applied Accounting Research.
Marx, H., Forin, S. and Finkbeiner, M. (2020) ‘Organizational life cycle assessment of a service providing SME for renewable energy projects (P.V. and wind) in the United Kingdom.’ Sustainability, Volume 12(11), p. 4475.
Melo, J., Quevedo, C., Graca, A. and Quintas, C. (2019) ‘Hygienic quality of dry aromatic herbs marketed in southern Portugal.’ AIMS Agriculture and Food, Volume 5(1), pp. 46-53.
Menon, R. R., and Ravi, V. (2021) ‘Analysis of enablers of sustainable supply chain management in electronics industries: The Indian context.’ Cleaner Engineering and Technology, Volume 5, pp. 100-302.
Mishra, D., Gunasekaran, A., Papadopoulos, T., and Childe, S. J. (2018) ‘Big data and supply chain management: A review and bibliometric analysis.’ Annals of Operations Research, Volume 270(1-2), pp. 313-336.
Moshood, T. et al. (2021) ‘Green and low carbon matters: A systematic review of the past, today, and future on sustainable supply chain management practices among manufacturing industry.’ Cleaner Engineering and Technology.
Mutikani, L., (2022) U.S. manufacturing activity rises; shortages linger. Web.
Norton, E. C., and Dowd, B. E. (2018) ‘Log odds and the interpretation of logit models.’ Health Services Research, Volume 53(2), p. 859.
Oluwafemi, T. B., Mitchelmore, S. and Nikolopolous, K. (2020) ‘Leading innovation: Empirical evidence for ambidextrous leadership from U.K. high-tech SMEs.’ Journal of Business Research, Volume 119, pp. 195-208.
Paltinieri, A., Dreassi, A., Migliavacca, M. and Pisera, S. (2020) ‘Islamic finance development and banking ESG scores: Evidence from a cross-country analysis.’ Research in International Business and Finance, Volume 51, pp. 18-25.
Pan, Y. et al. (2021) ‘Cost-effectiveness evaluation of pavement maintenance treatments using multiple regression and lifecycle cost analysis.’ Construction and Building Materials, Volume 292.
Prasad, D. S. et al. (2020) ‘Critical success factors of sustainable supply chain management and organizational performance: An exploratory study.’ Transportation Research Procedia, Volume 48, pp. 327-344.
Rajesh, R. and Rajendran, C. (2020) ‘Relating environmental, social, and governance scores and sustainability performances of firms: An empirical analysis.’ Business Strategy and the Environment, Volume 29(3), pp. 1247-1267.
Raut, R. D. et al. (2021) ‘Big data analytics as a mediator in lean, agile, resilient, and green (LARG). practices effects on sustainable supply chains.’ Transportation Research Part E: Logistics and Transportation Review.
Redondo Alamillos, R. and De Mariz, F. (2022) ‘How can European regulation on ESG impact business globally?.’ Journal of Risk and Financial Management, Volume 15(7), p. 291.
Reis, L. (2022) ‘How can compliance steer companies to deliver on ESG goals?.’ The Palgrave Handbook of ESG and Corporate Governance. Palgrave Macmillan, Cham, pp. 305-326.
Roy, V., Schenherr, T. and Charan, P. (2020) ‘Toward an organizational understanding of the transformation needed for sustainable supply chain management: the concepts of force-field and differential efforts.’ Journal of Purchasing and Supply Management, Volume 26(3).
Safe Communities Portugal. (2022) Portugal is the 2nd country in the world most affected by spam and phishing. Web.
Sakun, A., Hilorme, T., Perevozova, I. and Reznik, O. (2020) ‘Accounting model of human capital assessment within the information space of the enterprise.’ Academy of Accounting and Financial Studies Journal, Volume 24(3).
Sani, H., Nohd-Khan, S. J. and Zamzuri Noor, M. S. (2018) ‘Microfinance training and the number of loans received by SMEs. Empirical evidence from an emerging economy.’ Business and Economic Horizons (BEH), 14, 326-341.
Saygili, E., Arslan, S. and Birkan, A. O. (2021) ‘ESG practices and corporate financial performance: Evidence from Borsa Istanbul.’ Borsa Istanbul Review.
Shashi, P., Centobelli, R. and Ertz, M. (2020) ‘Agile supply chain management: where did it come from and where will it go in the digital transformation era?.’ Industrial Marketing Management, Volume 90, pp. 324-345.
Shi, C. and Geng, W. (2021) ‘To introduce a store brand or not: roles of market information in supply chains.’ Transportation Research Part E: Logistics and Transportation Review, Volume 150, pp. 8-20.
Shrestha, N. (2020) ‘Detecting multicollinearity in regression analysis.’ American Journal of Applied Mathematics and Statistics, Volume 8(2), pp. 39-42.
Silva, M. E. and Figueredo, M. D. (2020) ‘Practicing sustainability for responsible business in supply chains.’ Journal of Cleaner Production, Volume 251, pp. 40-55.
Simoes, A. et al. (2019) ‘Environmental factors influencing the adoption of digitalization technologies in automotive supply chains. In 2019 IEEE international conference on engineering, technology, and innovation (ICE/ITMC).’ IEEE, pp. 1-7.
Soriannidis, N., Ragazou, K., Passas, L. and Garefalakis, A. (2021) ‘The Next “G” on ESG: The strategic thinking of businesses towards supply chain fraud.’ Research Square.
Thomas, R. S. et al. (2019) ‘The next-generation blueprint of computational toxicology at the u.s. protection agency.’ Toxicological Sciences, Volume 169(2), pp. 317-332.
Thorlakson, T., Hainmueller, J. and Lambin, E. F. (2018) ‘Improving environmental practices in agricultural supply chains: the role of company-led standards.’ Global Environmental Change, Volume 48, pp. 32-42.
Tseng, M., Lang, T., Bui, D. and Lim, M. K. (2021) ‘Resource utilization model for sustainable solid waste management in Vietnam: A crisis response hierarchical structure.’ Resources, Conservation and Recycling, p. 171.
Wan, M., Mohammad, W. and Wasiuzzaman, S. (2021) ‘Environmental, social and governance (ESG) disclosure, competitive advantage and performance of firms in Malaysia.’ Cleaner Environmental Systems, Volume 2, pp. 100-115.
Wisetsri, W. et al. (2021) ‘An investigation on the impact of the digital revolution and machine learning in supply chain management.’ Materials Today: Proceedings.
Yang, M., Fu, M. and Zihan, Z. (2021) ‘The adoption of digital technologies in supply chains: drivers, process and impact.’ Technological Forecasting and Social Change.
Yan, J. et al. (2020) ‘Food fraud: assessing fraud vulnerability in the extra virgin olive oil supply chain.’ Food Control.
Yu, E., Yi, P., and Van Luu, B. (2021) ‘International Variations in ESG disclosure – do cross-listed companies care more?.’ International Review of Financial Analysis, Volume 75, pp. 16-24.
Zhang, Q., Chen, J. and Chen, B.(2021) ‘Information strategy in a supply chain under asymmetric customer returns information.’ Transportation Research Part E: Logistics and Transportation Review, Volume 155, pp. 78-109.
Zhang, Y. et al. (2017) ‘Can environmental innovation facilitate carbon emissions reduction? Evidence from China.’ Energy Policy, Volume 100, pp. 18-28.
Zopounidis, C., Garefalakis, A. and Lemonakis, C. (2020) ‘Environmental, social and corporate governance framework for corporate disclosure: A multicriteria dimension analysis approach.’ Management Decision, Volume 58(11), pp. 2473-2496.