Measuring extra-financial factors in the supply chain

Responsible management of any supply chain is essential to the sustainable development of a business. Managing suppliers and subcontractors is particularly effective in addressing the still numerous business risks, both social and environmental.

Everyone remembers the collapse of Rana Plaza in Bangladesh in 2013, which galvanized the textile sector, or more recently, the scandal of contaminated milk in France. Compliance within the supply chain includes the establishment of environmental and social clauses in contracts with suppliers and their subcontractors.

La Financière Responsable discusses this topic when selecting portfolio holdings, by interviewing them within the framework of the ESG questionnaire sent each year to companies included in the Ecosocial Footprint (Empreinte Ecosociale®) universe.

Of the companies in LFR Euro Développement Durable's portfolio, 87% report having environmental clauses in contracts with their suppliers, and 86.4% state that they have implemented social clauses. These responsible initiatives are increasing since in 2010 the percentages were 64.3% and 58.3% respectively.

La Financière Responsable also examines companies’ annual reports for risks of non-respect of Human Rights by suppliers and subcontractors. Nearly 80% of the companies in LFR Euro Développement Durable's portfolio make reference to this factor.

Worker accidents at suppliers are another theme addressed by La Financière Responsable in the Ecosocial Footprint (Empreinte Ecosociale®) process. Response rates are still low, with only 13.3% of portfolio companies disclosing the workplace accident frequency rate for suppliers and subcontractors, and 3.3% reporting the severity rate.

The recent legal and regulatory requirements, particularly in France with the duty of vigilance, are innovative evolutions for the improvement of the social as well as the environmental policies of the companies in relation to their suppliers and their subcontractors. La Financière Responsable will continue to follow the evolution of these two indicators, which are key to a dynamic social policy.

La Financière Responsable is a specialist ESG asset manager with an award-winning approach to integrating financial and extra financial analysis. Investors and analysts are sometimes unsure as to what constitutes extra financial information, and how it should be interpreted. Drawing from its Ecosocial Footprint (Empreinte Ecosociale®) database, LFR is publishing a series of Blogs showing how selected ESG indicators are defined, what they represent and how they are interpreted. LFR is also ready to engage with interested parties on any aspect of this analysis.