Assessing Nature Risk in the Supply Chain with the Data You Already Have

You don’t need perfect data to assess nature risk in the supply chain. You just need sufficient data to uncover material risks and confidently take action to protect nature and grow your business.

Firms don’t have the same level of control over their suppliers' operations as they do with direct operations, so the primary ways to manage risk are through engaging, diversifying, or switching suppliers. This means the data required to take the right actions doesn’t necessarily need to be as in-depth as the data that would be collected for direct operations.

For example, if a company operates a factory emitting pollution into a highly intact ecosystem near a legally protected area, the company should implement the AR3T mitigation framework to make investments in addressing the risk and stopping the pollution. However, if the emitting factory is in the supply chain, the company must rely on the supplier to take mitigation steps. 

So what level of information is actually needed to understand which suppliers might have these material risks? The answer is, you can successfully work with whatever information you have.

If the operation location information is available, it can be instantly assessed in the Dunya Analytics platform. Mark it as a supplier location and tag it with the supplier name, value chain, tier, or other reference information you use to group your suppliers.

If supplier location information is not available, simply upload the supplier with its main office location for the risk assessment. While the location part of the assessment will not provide relevant results, the impact and dependency information can provide valuable insights. A heatmap showing supply chain impact and dependency materiality makes it easy to identify where in the value chain risks may be hiding. This information can be used to implement the Supplier Risk Mitigation Framework for these risks:

Supplier Risk Mitigation Framework

Engage

The first step is to engage the supplier to assess their understanding of nature risks and governance mechanisms to manage nature risks. If they are already conducting nature risk assessments and being transparent about risks and action plans, you should be able to get the information you need to manage risk from your side.

Support

If the supplier isn’t yet assessing or managing nature risk, you can encourage them to do so through asking questions, providing resources, and offering to collaborate on how to mitigate risks as they are uncovered. Addressing nature risks in partnership with suppliers is a win-win for their business and yours.

Diversify

If risks can’t be fully addressed directly with the supplier (for example, if the supplier has a geography-specific exposure that is inherent to where they operate), then expanding your supplier base to suppliers with a different, uncorrelated risk profile may be a good approach. You can still source from your current supplier while building resilience for your own business by providing another supply option.

Discontinue

Discontinuing your relationship with a supplier may be necessary to protect your business should the supplier be unwilling to address risk concerns, but this is a step of last resort. It is far better to lead your suppliers in the transition to a sustainable value chain than to leave them behind.

While it would be ideal if a company could identify all of its interfaces with nature throughout the entire supply chain, this is impractical in many cases, especially for large companies with numerous product lines that source from deep supply chains. Also, many suppliers keep their operations locations confidential for legitimate reasons, to protect proprietary information and maintain a competitive advantage. 

Through Dunya Analytics’ Supplier Engagement Program, companies can request their suppliers to conduct their own affordable location-based assessments on the Dunya Analytics platform (and even offer a subsidy). Conducting their own assessment indicates the supplier is serious about understanding and addressing potential risks for their company and their customers.

You can look across the landscape to understand which of their suppliers are transparent with risks and practicing good governance, and which are not. You can address the most concerning areas first by engaging the suppliers that need the most help

A note on partial data: In some cases, the company may know the source countries of a purchased input. Country-level tools such as Commodity Footprints (which maps environmental impacts by commodity and country of origin) or Orbae (which provides nature-related risk data at the country and sector level) can help estimate impact and further inform supplier engagement prioritization, but the strategic response is still the Supplier Risk Mitigation Framework. In its Guidance on Value Chains, the TNFD states that you can begin with assessing upstream impacts using country- or regional-level data when individual supplier locations are not available.

If you would like to see how this works in practice, schedule a demo to see how easy it is to assess nature risk in the supply chain with the Dunya Analytics platform.