Supply chain sustainability is the focus of a new guide titled “Sustainability in supply chains: A guide for private market investors.” It was released recently, offering practical advice and a business case for private market investors to integrate sustainability risk assessment into their due diligence and management processes.
The guide, developed in collaboration with LRQA, a global risk and assurance advisory firm, is designed to help General Partners (GPs), Limited Partners (LPs), and their portfolio companies navigate the complex landscape of supply chain sustainability.
The document highlights that understanding the detailed structure of supply chains and associated sustainability risks is
no longer optional but is a critical driver for value creation and protection. Geopolitical shifts and a growing body of regulations are increasing the urgency for firms to have visibility into their supply chains to ensure resilience and prepare for future exits.
Key takeaways:
The guide outlines the significant financial, operational, and reputational harms that can arise from failing to manage human rights and environmental impacts within supply chains.
It emphasizes that a rigorous assessment of supply chain risks should be a core component of due diligence, not just a high-level screening. This is particularly crucial for companies in high-risk industries or countries.
The guide advocates for supply chain mapping exercises, starting with tier-1 suppliers and extending deeper in high-risk areas, to uncover risks like forced labor and poor working conditions.
It addresses a global trend of new laws and regulations requiring companies to conduct due diligence to prevent human rights and environmental damage in their supply chains.
It recommends that portfolio companies establish robust frameworks for supply chain management, including targeted risk assessments, supplier training, and continuous monitoring.
Practical guidance for investors and portfolio companies:
The guide provides a roadmap for integrating supply chain sustainability at every stage of the investment process.
For General Partners (GPs):
Governance and Policies: Establishing clear governance structures and procedures to consider supply chain risks.
Early Screening and Due Diligence: Identifying red flags and conducting thorough assessments of potential investments.
Decision-Making and Agreements: Ensuring due diligence findings inform investment decisions and are reflected in legal agreements.
Engagement and Monitoring: Actively engaging with portfolio companies to support continuous improvement.
Exit Strategy: Taking sustainability impacts into account during exit planning.
For Limited Partners (LPs):
Oversight and Accountability: LPs are encouraged to use their position to set expectations, request transparency, and hold GPs accountable for their approaches to supply chain sustainability.
Key Questions: The guide provides a list of key questions for LPs to ask their GPs, such as whether they have established strong monitoring and reporting mechanisms focused on supply chain sustainability.
For Portfolio Companies:
Due Diligence Programs: Implementing effective human rights and environmental due diligence programs.
Supplier Management: Mapping and screening suppliers, assessing risks, and providing training and monitoring.
Remediation and Disclosure: Establishing processes for remediation of issues and transparent disclosure.
To complement the guide, a global supply chain regulation tracker has also been published, providing investors with a tool to navigate the evolving legal and regulatory landscape.
