The dominant trend in improving the efficiency and profitability of the logistics and supply chain industry will continue to be achieved through automation. Environmental, social and governance (ESG) issues can be important considerations for investments in this sector due to potential reputational risks for the acquiring entity. Key issues include negative publicity surrounding the perception of job elimination, as well as the procurement of specialty materials required to produce batteries and other components of autonomous robots. The recycling or responsible disposal at the end of the life of the product is also a key focus especially in Europe.
TRC was asked to provide ESG risk screening for a foreign auto manufacturer’s investment in a U.S.-based autonomous robotics company. A two-step approach was taken to access the risks associated with this target. The first step evaluated the inherent risks of the target company’s sector based on its geographical spread and operations using public information like the Sustainability Accounting Standards Board (SASB) and the CDC Investment Works Toolkit. The second step involved deeper analysis of ESG risk assessments & insights
based on a review of specific controls that the company uses to manage its risks. This included a questionnaire, reviewing company documents and programs, and interviewing company representatives.
Given limited information from the target company and its sourcing of robot components, TRC employed the following approach for ESG due diligence:
- Supply Chain ESG Review: several key suppliers from the target had public disclosure available which were reviewed to assess especially E and S risks.
- Reverse engineer material ESG risks from the disclosure of the acquirer’s Sustainability Report which highlighted commitment to lowering GHG footprint, producing eco-friendly products, and creating social value.
- Apply information from the EHS due diligence to assess climate risks to physical facilities, waste generation/disposal, and regulatory compliance and safety issues/programs.
Key topics reviewed during the ESG screen included:
- General awareness and engagement of the company in evaluating and managing ESG risks
- Energy, carbon, and climate risks
- Water use and conservation risks
- Waste and recycling risks
- Customer and supplier risks
- Safety risks
- Pandemic preparedness risks
- Social and governance risks
TRC’s ESG screen proved valuable to legal counsel and the acquiring entity by determining that no major “red flag” issues were identified. It also provided focus for post-acquisition management of ESG risk, including increased monitoring of the labor fairness, ethics, and conflict minerals practices of off-shore suppliers of robot and battery components.
In summary, coupling ESG screening with traditional EHS due diligence is an efficient means to assess a broader array of risks and opportunities that may be relevant to certain investments. It is especially useful when the target’s reputation and public perceptions are important to its current and future value.
How can TRC Help?
TRC Companies, Inc. has an experienced team that can help improve the efficiency and profitability of your logistics and supply chain, or help with the development of new or repurposed property through integrated engineering and environmental advisory services that includes expertise to guide and support key EHS (Environmental Health and Safety) and ESG (Environmental, Social and Governance) issues for consideration as we work together to provide solutions for your supply chain needs. To learn more: Reshoring Environmental Solutions to Support Supply Chain and Logistical Optimization