3-3. Managing EHS Risks Across the Supply Chain: Integration with Procurement Policies

Amid advancing globalization, companies are now expected to manage EHS (Environment, Health, and Safety) risks not only within their own operations but across their entire supply chains. An industrial or environmental accident at a business partner can directly affect a company's brand value and business continuity, making EHS risk management integrated with procurement policies essential. Here we explain the importance of EHS risk management across the supply chain and key practical points.

1. Characteristics of EHS Risks in the Supply Chain

Supply chains involve business partners in diverse countries and regions, each with different laws, regulations, and safety cultures. The main risks include:

• Legal Compliance Risk: Violations of environmental regulations or occupational safety standards in overseas locations.

• Labor Risk: Excessive working hours, child labor, or inadequate safety equipment.

• Environmental Risk: Improper waste disposal, excessive greenhouse gas emissions, or inadequate chemical substance management.

• Reputational Risk: Damage to a company's public image when accidents or violations at a supplier are reported in the media.

2. Importance of Integration with Procurement Policy

EHS risk management across the entire supply chain must be integrated with CSR procurement and sustainable procurement policies. By clearly stating EHS requirements in your procurement policy and demanding compliance from the start of a business relationship, you can prevent risks from occurring. Recently, there has been a growing movement to mandate human rights and environmental considerations for business partners, based on frameworks like the RBA (Responsible Business Alliance) Code of Conduct and the UN Guiding Principles on Business and Human Rights.

3. Practical Steps for EHS Risk Management

• Set Supplier Selection Criteria: Check for environmental certifications (ISO 14001, etc.), the state of their occupational health and safety systems, and past accident records.

• Conduct Supplier Audits: Use on-site visits and surveys to verify working conditions and legal compliance.

• Incorporate into Contracts: Include clauses in contracts that require compliance with EHS standards and set forth corrective actions or contract termination clauses in case of violations.

• Provide Education and Support: Share safety training and environmental management expertise with business partners to support their improvement efforts.

• Monitor and Improve: Conduct periodic audits and evaluations, and request improvement plans if non-conformities are found.

  
  

4. ESG Evaluations and the Investor Perspective

Investors and ESG rating agencies place great importance on how a company addresses risks across its entire supply chain. Integrating EHS risk management with procurement policies and transparently disclosing these efforts can lead to higher evaluations and more favorable access to capital.

5. Future Directions

With the advancement of digital technology, supply chain management is evolving, enabling real-time EHS data sharing and AI-based risk prediction. Companies are expected to integrate EHS management into their procurement policies to build sustainable and reliable supply chains.

Managing EHS risks across the entire supply chain is not merely a risk-avoidance tactic; when integrated with procurement policy, it becomes a crucial strategy that directly leads to an increase in corporate value.