Consumers and investors demanding supply chain transparency

Sharing is in vogue, and not just in social media networks.

Increasingly, corporations are opening up and reporting more of their non-financial information. In 2011, only around 20 percent of the Fortune 500 reported their performance on environmental, social and governance (ESG) issues, but that jumped to 57 percent this year, according to a new report from the Governance and Accountability (G&A) Institute, which saw similar growth among S&P 500 firms.

What's more, this and other recent reports -- from research firm Verdantix and the Underwriters Lab (UL) -- show firms slow to embrace transparency are likely to suffer by losing the faith and patronage of an increasingly inquisitive and empowered consumer base. Manufacturers' supply chains used to be largely invisible and unimportant to consumers, but that is changing fast, in part because consumers both in developed and developing markets are demanding more transparency.

"Consumers are more informed than ever about what brands are responsible," says Sara Greenstein, president of UL Environment.

UL's Product Mindset report, released last month, showed the ingredients or components that go into consumer products play an increasingly important role to consumers, who respond to firms with the most transparent supply chains. "Each year, consumers are getting more sophisticated," she adds, referring to their ability to research, parse and interpret product information. "Consumers are becoming a stronger demand driver for sustainable products."

Oftentimes, concern for their own health and safety, and that of their families is what drives consumers to demand transparency. It's not simply an altruistic endeavor to understand the pedigree of the products they purchase.

Leaders in electronics

The Verdantix report focused on the consumer electronics industry and found a number of U.S. firms are leaders in supply chain transparency. "The U.S. consumer electronics firms in our research, particularly Apple, Dell and HP, are significantly more advanced in terms of regularly auditing suppliers, and importantly, in how they disclose and communicate the results of these audits with the public," says Verdentix's lead analyst on the report, Abbie Curtis. "There are social and environmental issues across electronics supply chains, and by disclosing the scale of the challenge and the actions being taken to improve standards, these firms are leading their Asian counterparts."

The most transparent of these firms go beyond regulatory compliance and perform their own audits, as well as commissioning third-party audits, to further examine and convey the environmental and social ramifications of their supply chains. "There will always be concern with audit programs that do not involve independent third parties, but in a sector where reputational risk is so high it makes business sense for firms such as Apple to build knowledge of their supplier base through conducting their own audits," she says.

Next Page:  Who leads?

Photo courtesy of Sergey Nivens via Shutterstock