The growing demand for ethical and environmental accountability from multinational companies is fueling a thriving sector of businesses dedicated to validating these corporate assertions.
Corporate social responsibility (CSR) has become a central part of financial reporting for many companies, requiring companies to assess their social and environmental impact rather than focusing solely on financial profits.
At the beginning of 2023, the EU introduced the corporate sustainability reporting directive, which obliged all large companies to report on the impact of their business on people and the environment.
Also in the United States and through the ISSB (International Sustainability Standards Board), stricter regulatory frameworks are taking shape that set standards for climate-related financial disclosures.
Sylvain Guyoton, head of evaluations and methods at sustainability assessment group EcoVadis, said there was now a “wave of regulation” in the sector.
EcoVadis is one of the companies working to verify ethical claims, and says it has evaluated more than 120,000 companies to date.
Already existing tools include the Higg index, which evaluates the sustainability of the value chain to evaluate, for example, water use, carbon dioxide emissions and working conditions.
The American company Worldly said that it used artificial intelligence to verify companies’ claims, especially in the clothing and textile industry.
“AI helps us know if a subcontractor is providing the right information,” said John Armstrong, Worldly’s chief technology officer.
“When it comes to human rights, artificial intelligence is leading us in the right direction: if a statement is not accurate or anomalies are detected, we will take a closer look,” he said.
He said more and more companies are looking to leverage technology to bolster corporate claims.
“Everyone wants to take advantage of artificial intelligence, and there is competition.”
Australian company Givvable entered the niche market two years ago, targeting companies that use a lot of subcontractors and complex supply chains.
“We can’t just send everyone surveys and surveys, and actually the market knows how ineffective and inefficient that kind of thing is,” said Givvable founder Frances Atkins, adding that the goal is to take responsibility for self-assessment. away from the companies themselves.
“Our clients are medium to large enterprises because they tend to have a lot of suppliers, and it’s a little difficult to try to do due diligence without technology,” he said.
“Better than doing nothing”
French company Tilkal, founded in 2019, also uses artificial intelligence to verify CSR requirements and says it has built a blockchain network dedicated to the supply chain and its effects.
Sectors they have worked in include textiles, cosmetics, honey, milk and cocoa.
“Most companies these days don’t know who their subcontractors’ subcontractors are,” said co-founder Matthieu Hug.
But he warns that “when we don’t know what’s going on, there’s a risk that it’s not a good thing.”
Tilkal collects information about the supply chain and tries to trace gray areas.
“We’re looking for inconsistencies, alerting and telling our customers when they need to check this point at this location with their subcontractors,” Hug said.
However, he warns that “data is always missing” – especially when dealing with factories and suppliers thousands of kilometers away, where countries may not have the same focus on human rights.
“But it’s a lot better than doing nothing.”
The methods used to measure corporate responsibility can always be questioned, as experts say some companies have fallen short of their favorable ratings.
According to Guyoton, the new regulations should help to some extent to solve the problems of different classifications, but it still depends on the efforts of the companies.
“Rating can be used to determine where the risks are and guide the necessary actions, but it is not the whole solution,” he added.