ESG Clauses in Every Supplier: Commitment Number 8 of Colonial's Sustainability Decalogue
In another article on our blog, "ESG Criteria: The Key to Measuring Long-Term Sustainability of Companies," we explained how financial performance was insufficient to define a company's overall performance. For some time now, environmental responsibility, social responsibility, and governance responsibility have become crucial in measuring an organization's value. In this regard, at Colonial, we not only implement internal measures to fulfill these responsibilities but go beyond and implement measures that lead us to work exclusively with suppliers who meet these ESG criteria.
Measures Taken to Collaborate with ESG Suppliers
ESG stands for Environmental, Social, and Governance, the three dimensions that make up a company's overall responsibility to the world. It is a responsibility that is fundamental at Colonial. Therefore, one of our most important measures for working exclusively with ESG suppliers was the development of an ESG supplier qualification survey in 2019. The results of this survey generate a score on ESG issues for construction companies, maintenance companies, manufacturers, consultants, and service companies, allowing us to analyze their responsibility score and make hiring decisions.
For us, it is essential to ensure that all companies that are part of the supply chain, which allows the construction, rehabilitation, or operation of our assets, share our ethical values. Issues such as the carbon footprint of their activities, the sources of energy they rely on, their impact on natural habitats and biodiversity, their waste management efficiency, their selection of polluting or sustainable materials, their respect for labor rights, their promotion of diversity, or their efforts in corruption prevention influence our selection. We seek ethical partners.
But our efforts do not stop there. After studying the state of ESG criteria in different contracting alternatives and selecting those with the highest sustainability, social commitment, and good governance scores, we establish a set of responsibility clauses in the contracts to ensure that these chosen suppliers effectively comply with the key ESG responsibility points for us. We leave nothing to chance. We ensure that no collaborating company jeopardizes our own ESG score, which we internally oversee from start to finish and in all areas of the company.
Current State at Colonial of Collaboration with ESG Suppliers At present, the average
ESG score of the companies we collaborate with is 67 out of 100 points, according to the latest surveys conducted. What is even better is that only 14% of our suppliers score below 50 points. However, given our organization's self-demand, the positive progress is complemented by a need for improvement to achieve a much higher average score in the future. To achieve this, in addition to contractual clauses, we work on formulas that allow us to strengthen the ESG section of collaborating companies. Our role must be proactive.
In any case, the social aspect of responsibility criteria scores particularly high. According to our surveys, risks related to human rights in the supply chain are low or very low. This is due to our prioritization of national suppliers, a result of our commitment to local sourcing. There is much work to be done. Influencing other companies to achieve impeccable environmental, social, and governance responsibility is a lengthy process that requires investment and commitment, but both ingredients are present. We will continue forward to achieve it. We see it as a duty.
