by Julia Hazel and Dianna ONeill

While the dire outlook for the 2024 Atlantic hurricane season has raised alarms across the U.S., supply chain risk leaders focusing solely on this region are dealing with incomplete information.

Unlike 2023, the Pacific is expected to experience a relative reprieve from tropical cyclones this season. The complex climate dynamics impacting typhoons and hurricanes across the two oceans underscores the need for a global, seasonally-dependent assessment of catastrophic risks to supply chains.

The Looming Threat in the Atlantic

The National Hurricane Center’s unprecedented forecast is fueled by climatic conditions creating a perfect storm for intense hurricane development. However, an exclusive focus on this region alone risks overlooking critical threats to global supply chains posed by tropical cyclone activity elsewhere.

According to data from the World Bank, natural disasters in the East Asia and Pacific region caused over $60 billion in economic damages in 2021 alone, with a significant portion attributed to tropical cyclones disrupting supply chains.

Pacific Cyclones: An Underestimated Peril

In 2023, while the Atlantic saw 20 named storms, the remaining 58 tropical cyclones wreaked havoc across the Pacific and Indian Oceans, inflicting damage from China to Australia and Africa. The impacts of a single, powerful storm system can be immense:

  • Typhoon Doksuri, which ravaged Beijing and coastal China in July 2023, closed major ports and destroyed critical infrastructure, triggering $25 billion in U.S. economic losses according to Munich Re.
  • The technology sector has been heavily impacted by Pacific storms, with companies like Apple, Samsung, and Intel facing disruptions to their supply chains in recent years. In 2022, Super Typhoon Noru forced several semiconductor factories in Taiwan to temporarily halt operations, exacerbating the global chip shortage.
  • The automotive industry has also been battered by Pacific cyclones. In 2021, Typhoon Chanthu caused production stoppages at Toyota’s plants in Thailand, resulting in estimated losses of $98 million.

Regionally Tailored Forecasts

Interestingly, while the Atlantic is bracing for a historically active hurricane season, the forecasts for other regions paint a different picture. The outlooks for the Central and Eastern Pacific call for below-normal tropical cyclone activity, with NOAA anticipating a 50% chance of below-normal activity in the Central Pacific and 60% in the Eastern.

This divergence can be attributed to the effects of La Nina, which augments hurricane development in the Atlantic but has the opposing effect in the Pacific by increasing both vertical wind shear and atmospheric stability – conditions that suppress cyclone formation and intensification.

Comprehensive Catastrophic Risk Assessment

The stark disparity in this year’s forecasts across different regions of the world underscores the importance of businesses adopting a truly global, seasonally-dependent assessment of catastrophic risks to their supply chains. The threats posed by tropical cyclones are dynamic, shifting in both space and time depending on the season, the inherent risk profile of a given location, and continuously evolving climatic patterns.

To protect against these dynamic threats, organizations must gain greater visibility into their extended supply networks, identifying key suppliers situated in areas historically prone to natural hazards like hurricanes and tropical cyclones.

Moreover, they must continuously monitor how risk patterns shift across seasons and regions in real-time, using comprehensive supply chain lifecycle risk intelligence to proactively adjust mitigation strategies:

  • Interos’ catastrophic risk model provides a powerful solution to this complex challenge, offering a high geospatial resolution. This delivers more precise in-country and in-state risk indicators for faster and more focused hazard mitigation.
  • The technology enables businesses to proactively assess which suppliers are in areas susceptible to different natural hazards, as well as which specific hazard risks are likely to emerge during particular seasons.
  • The model’s continuous monitoring enables real-time tracking of supply chain impacts from unfolding natural events, empowering organizations to respond swiftly.

Consider the example of Cooper University Health Care. It used catastrophic risk intelligence from Interos to identify suppliers located in the path of Hurricane Idalia in 2023. By leveraging real-time catastrophic intelligence, managers were able to pre-position critical materials to ensure uninterrupted patient care.

As climate volatility and extreme weather become increasingly commonplace, embracing global, real-time hazard monitoring solutions like Interos’ catastrophic risk technology are crucial for proactively deterring and mitigating supply chain disruptions.

Click here to learn how Interos can secure your supply chain against extreme weather and other risks.

 

Interos Takes Center Stage at Supply Chain USA: AI’s “Golden Moment” for Resilient Supply Chains (3 Key Takeaways)

Photo: Interos Industry Principal Patrick Van Hull (far right)

As 600+ supply chain leaders converged on Atlanta, one concept dominated all others. “AI’s golden moment is upon us,” said Zero100 CEO Kevin O’Marah in opening remarks for the 2024 edition of Supply Chain USA.

More than a “moment,” supply chain AI has surpassed critical mass at warp speed.

According to Gartner, 74% of high-performing supply chain organizations partner with IT to establish robust data security mechanisms for leveraging AI/ML, compared to only 61% of lower performers. Furthermore, McKinsey’s “The State of AI in 2023” report found that 65% of respondents said their organizations have adopted AI capabilities for supply chain management functions.

Interos Industry Principal Patrick Van Hull emphasized this tectonic industry shift during his main stage conference presentation alongside senior supply chain and technology leaders from General Mills, Chevron, and Amgen.

Van Hull stressed AI isn’t just about navigating challenges, but about “using AI to empower individuals to create meaningful, impactful results.”

Here are three additional key takeaways he shared:

1- AI can expand the scope and narrow the risk aperture. Imagine a crystal ball that enables enterprises to see potential disruptions and offers more profound insights into their ecosystem. What about sharing insights across functions in common tools that continuously monitor for changes and enable on-demand reporting? Augmenting human intelligence with the analysis of vast datasets ensures that supply chain leaders have more visibility to understand what’s most material to their enterprise when making informed decisions that align to business goals.

2- Harnessing the data goldmine is all about understanding acute business problems and aligning technology like AI efforts to enable people to solve them. However, the success of these initiatives hinges on a crucial factor: executive buy-in. C-suite leaders need to champion AI integration into supply chain management, driving the necessary cultural and procedural changes that will shape and sustain the future of supply chain management.

3- Traditional supply chain systems can be complex, making it challenging to see beyond point-to-point transactions. At its core, any effective supply chain relationship makes interactions more accessible and impactful. AI enhances these relationships by breaking down silos and enabling seamless information flow. AI empowers all stakeholders to collaborate more effectively to improve operational efficiency and sparks innovation and continuous improvement across the value chain.

While there’s so much more to digest and apply, the initial insights from Reuters Supply Chain 2024 highlight that organizations can build resilient, efficient, and agile supply chains across multiple inflection points:

  • Supply chains mapping: AI rapidly maps interconnected supply chains to reveal hidden failure points
  • Hidden insights streamlined and consolidated: AI uncovers valuable information and patterns from massive datasets
  • Proactive, not reactive: AI enables enterprises to anticipate and address disruptions before they strike.

The key to success is expanding the value chain scope, measuring performance and impact in innovative ways, and aligning the right data management strategies and executive support. Especially with the increasing influence and utility of AI, organizations have never been more enabled to turn risks into opportunities and build resilient supply chains that drive value creation.

 

Bracing for the Worst Hurricane Season on Record: NOAA’s Dire 2024 Forecast and How to Secure Your Supply Chain

The National Oceanic and Atmospheric Administration (NOAA) has issued an unprecedented warning for the 2024 Atlantic hurricane season, predicting it to potentially be the most active and destructive on record. A combination of exceptionally warm ocean temperatures and favorable atmospheric conditions could spawn up to 25 named storms, compared to an average of 14, including four to seven major hurricanes, compared to an average of three. The Atlantic hurricane season runs from June 1 to November 30.

NOAA’s Alarming Forecast

NOAA’s 2024 guidance is based on several factors:

  • Near-record sea surface temperatures: The Atlantic Ocean is experiencing among its warmest temperatures ever recorded, providing an ideal breeding ground for intense storm formation.
  • A rapid transition from El Nino to La Nina Conditions: La Nina conditions are typically associated with above normal hurricane seasons in the tropical Atlantic
  • Low wind shear: Forecasters anticipate lower-than-average vertical wind shear due to a transition from El Nino to La Nina conditions, which can disrupt the intensification and tracks of hurricanes, leading to more robust storm systems that can strike the coast.

With these conditions in play, NOAA warns that 2024 could surpass the record-breaking 2005 season, which saw 28 named storms, including the devastating Hurricane Katrina.

The Escalating Toll of Climate Disasters on Supply Chains

The potential impact of an unprecedented hurricane activity is part of a broader trend of escalating extreme weather worldwide, with serious implications for global supply chains and business continuity.

These continued climate shocks have exposed the vulnerabilities of complex and interconnected global supply chains, underscoring the urgency of comprehensive lifecycle risk management to mitigate threats.

Organizations that lack the ability to gauge supplier exposure to hurricanes and other disasters risk paralyzing disruptions that damage brand, reputation, and profitability.

Leveraging Catastrophic Risk Technology

Interos’ groundbreaking Catastrophic Risk technology is an advanced solution to help businesses navigate extreme weather. This AI-powered innovation provides organizations with a comprehensive and continuous view of their extended supply chain, enabling procurement and risk leaders to proactively identify and mitigate risks from hurricanes, wildfires, floods, and other catastrophes.

As an example, New Jersey-based Cooper University Health Care leveraged Interos’ Catastrophic risk intelligence to get ahead of Hurricane Idalia in 2023 as it barreled toward an area in Florida where several of the company’s suppliers are based.

“Interos gave us the ability to track potential impacts before the storm hit,” says Thomas Runkle, VP, Supply Chain. “We identified three suppliers in the path, two of which provide products to our system. We discovered one placed a cutoff on orders with no notice. Having acted on the new risk map data, we reached out in time to get several days of orders placed before they were stopped due to the hurricane.”

By leveraging advanced supply chain risk intelligence and machine learning, Interos’ technology can visualize sub-tier suppliers impacted by a range of hazards, including weather patterns, climate, communication, infrastructure, and healthcare capacity.

This proactive approach empowers businesses to pre-plan months in advance and take necessary steps to minimize disruptions.

Interos’ Catastrophic Risk intelligence provides foundational risk intelligence to fuel key strategies for achieving climate-resilient supply chains, including:

  • Mapping to Diversify the Supplier Base: Explore alternative suppliers in different geographic regions to reduce reliance on a single location or region prone to climate disasters.
  • Real-time Risk Identification to Support Business Continuity Plans: Develop and regularly update comprehensive business continuity plans that outline strategies for maintaining operations during and after hurricanes, floods, wildfires, or other natural disasters.
  • The World’s Largest Knowledge Graph to Enhance Inventory Management: Understand your extended supply chain to support maintaining strategic inventory levels of critical components and materials to mitigate the impact of supply chain disruptions.

As the 2024 hurricane season approaches and the threat of climate disasters escalates, it is crucial for businesses to prioritize supply chain resilience and embrace AI-risk capability like Interos’ Catastrophic Risk Visibility technology.

By taking proactive measures and leveraging advanced lifecycle risk intelligence, organizations can better navigate the challenges posed by extreme weather events and ensure the continuity of their operations, while mitigating the staggering economic toll of supply chain disruptions.

 

Xinjiang Forced Labor Sanctions: Homeland Security Move Underscores Five Pillars of Combatting Unethical Labor in Global Supply Chains

By Warren Smith & Dianna O’Neill

In a significant move, the U.S. Department of Homeland Security (DHS) announced additional sanctions and measures targeting forced labor practices in China’s Xinjiang region on May 16, 2024. These measures underscore the U.S. government’s commitment to combating human rights abuses and holding bad actors accountable.

They also highlight the growing international pressure on companies to ensure their supply chains are free from forced labor.

The new actions include:

  • Imposing visa restrictions on Chinese officials involved in repression and forced labor practices.
  • Expanding enforcement of the Uyghur Forced Labor Prevention Act (UFLPA) to cover more products and sectors; a total of 65 China-based firms are now banned under the act.
  • Increasing coordination with allies and partners to address forced labor in global supply chains.

The Complexities of Forced Labor in China

Global supply chains are grappling with the significant challenge of the prevalence of forced labor, notably in regions like China’s Xinjiang, a textile manufacturing center. Forced labor in China presents multifaceted challenges, including supply chain complexity, lack of transparency, legal and political obstacles, difficulty tracing raw materials, and the prevalence of subcontracting and informal sectors.

China’s economic landscape is deeply entwined with practices that many international observers and human rights organizations classify as forced labor. The situation in the Xinjiang Uyghur Autonomous Region has garnered particular attention, with reports suggesting that Uyghurs and other ethnic minorities are being coerced into working in various industries, from cotton fields to high-tech manufacturing sectors.

Five Key Strategies for Companies to Mitigate Forced Labor in Global Supply Chains

To address the issue of forced labor in their supply chains, organizations must take proactive measures to mitigate forced labor, and other critical ESG threats. Interos data shows executives estimate that ESG-related cost increases or revenue losses companies at $44M annually.

Here are five actions to prioritize:

  1. Conduct Comprehensive Supply Chain Mapping: Gain visibility into the extended supply chain, from direct suppliers to nth-tier sub-suppliers, to identify vulnerabilities. AI-first risk intelligence from Interos enables advanced analytics and real-time monitoring to scrutinize supply chains for regulatory violations and other ESG concerns.
  2. Implement Robust Due Diligence Processes: Develop and enforce rigorous due diligence procedures to complement technology-based assessments. This includes assessing suppliers’ labor practices through audits carried out by accredited third-party agency, worker interviews, and document reviews.
  3. Leverage Advanced Technology and Data Analytics: Utilize cutting-edge technologies like Interos’ platform, which evolve enterprises from lagging to leading indicators to drive proactive mitigation. Interos’ expanded ESG risk model monitors a range of critical attributes reflecting the multi-faceted nature of ESG threats, including forced labor, emissions, diversity, foreign ownership, and other critical attributes.
  4. Collaborate with Industry Partners and Stakeholders: Engage with industry associations, non-governmental organizations, and government agencies to share best practices, align efforts, and collectively address forced labor challenges.
  5. Promote Transparency and Accountability: Implement transparent reporting mechanisms, establish clear policies and codes of conduct, and hold suppliers accountable for violations through corrective action plans or termination of business relationships.

Case Studies: Accelerating Ethical Supply Chains with Interos

Interos survey data shows more than a third of leaders at large enterprises are stepping up their ESG investments, and over half acknowledged supply availability was paramount. Global organizations using Interos have gained a sharper picture of supply chain risks, enabling proactive strategies, yielding clear results:

  • A leading global airline leverages Interos to ensure the highest standard of ethics and compliance across its apparel supply chain and other sourcing channels.
  • A supermajor oil and gas company leverage Interos to ensure adherence to 30+ EU regulations related to labor, emissions, and other areas.
  • A major retailer utilizes Interos’ foreign ownership data to determine, reduce and remove slave labor from its product lines.

Interos is leading a broader supply chain risk revolution towards transparency and ethical responsibility across industry, enhancing corporate brand, reputation, and profitability.

By taking proactive steps and leveraging the Interos platform, organizations can navigate the complexities of forced labor in China, and elsewhere, to foster ethical, responsible, and adaptable supply chains that meet, and surpass, the demands of today’s interconnected economy. Across sector, technology and data will continue to play a crucial role in shaping responsible and risk-resilient supply chains, with companies like Interos, and its innovative global customers and partners, at the forefront of this transformation.

Read more on navigating supply chain ESG risk and complexity HERE.

 

 

U.S.-China Trade Wars Reignite: White House Announcement on New Tariffs References “Supply Chains” Eleven Times

Sweeping new U.S. tariffs on Chinese clean-energy products are inflaming tensions between the world’s two dominant economies, raising the stakes for risk leaders already navigating concurrent crises in the Middle East and Europe.

The sanctions announced today by the Biden administration target $18 billion in Chinese imports, quadrupling existing levies on Chinese-made EVs, while imposing new tariffs ranging from 50% on solar panels to 25% on other essential sectors including semiconductors, aluminum, critical minerals, batteries and more.

The White House statement repeatedly references shoring up U.S. supply chains amid anti-competitive practices from China, noting “China’s forced technology transfers and intellectual property theft have contributed to its control of 70, 80, and even 90 percent of global production for the critical inputs necessary for our technologies, infrastructure, energy, and health care—creating unacceptable risks to America’s supply chains and economic security.”

The new tariffs build on existing Trump-Biden Chinese sanctions, which the global think tank Tax Foundation estimates will cut long-run GDP by 0.21%, wages by 0.14% and employment by 166,000 full-time equivalent jobs.

The Ripple Effect: How Geopolitical Events Impact Your Supply Chain

 Whether fueled by trade disputes, military conflicts, or regulatory changes, political shocks can reverberate throughout global supply chains, disrupting procurement, production, and distribution.

This dynamic is exacerbated by complex and interconnected supply chains that hide multiple potential sub-tier failure points.

A U.S. Federal Reserve report reveals a heavy dependence on foreign suppliers across various industries, citing the automotive (23.7%), machinery and equipment (18.4%), basic metals (16.8%) and electrical equipment (16.5%) sectors among the top sectors relying on foreign value for exports. This globalized reality necessitates a proactive approach to supply chain risk management.

Beyond Borders: The Globalized Reality of Modern Procurement

 The key to strong collaboration with supply partners includes a heavy emphasis on real-time analysis of the extended supplier base – ensuring all stakeholders are positioned for economic success amid volatility.

Here are five strategies for securing supply chain lifecycle risk for maximum adaptability:

1. Implement Real-Time Monitoring and Intelligence

Real-time extended supply chain monitoring enables organizations to detect and gain intelligence for proactive actions from fluid risk events quickly. One leading global defense contractor used supply chain life cycle risk intelligence from Interos to identify concentration risk in a vital $5 billion weapons program, isolating and mitigating the threat in days, rather than weeks, before there was a ripple effect across the enterprise.

2. Transition to Leading Indicators

Moving from lagging to leading risk indicators ensures organizations keep pace with click-speed disruptions. Interos intelligence on another simmering political issue – China’s potential annexation of Taiwan – reveals U.S. companies have almost 70,000 direct (tier-1) relationships with Taiwanese suppliers. In the event of a Chinese attack, Bloomberg Economics estimates up to $10 trillion in potential losses, or about 10% of global GDP. Interos is the only solution to quantify and score enterprise risk to plan for a crisis at this level, enabling enterprises to tailor their risk register for threat management by exception, at scale.

3. Utilize Predictive and Prescriptive Insights

Supply chains are a big data problem built on massive data sets. By leveraging AI to consolidate and analyze trends, companies can proactively identify vulnerabilities and implement preemptive measures. For instance, a global energy company facing rising levels of ESG risk leveraged Interos’ platform to triple its supplier due diligence capacity in one year, without expanding headcount.

4. Invest in Advanced Supply Chain Mapping

AI-powered continuous supply chain mapping enables companies to proactively identity suppliers facing urgent geopolitical and other risks, at speed and scale. In the case of the Russia-Ukraine conflict, Interos’ platform enabled customers to instantly identify key sub-tier suppliers located in harm’s way for alternate sourcing.

5. Foster Collaboration and Information Sharing

Cross-enterprise teams including finance, operations, risk, procurement and sourcing play critical roles in next generation supply chain risk management. Establishing comprehensive and consistent communication channels for trusted risk intelligence is the foundation for speed and clarity in response. Interos ensures companies better understand and align against systemic threats within a single, intuitive platform.

These strategies are essential starting points in meeting the scale and scope of today’s global disruptions. By navigating multi-factor risk with foresight and innovation, organizations can secure their brand, reputation, and profitability – a win for stakeholder at every supply tier of the supply chain.

Read more about global supply chain threats and opportunities in Invisible Threats: Interos’ Annual Supply Chain Industry Risk survey.

 

Canada’s Updated B-10 Guidance Becomes Reality: Mastering Supply Chain Regulatory Challenges

Canadian financial institutions are grappling with stringent updated regulations governing third-party relationships. After years of development, the Office of the Superintendent of Financial Institutions (OSFI) formally implemented Guideline B-10: Third-Party Risk Management (TPRM) today.

Unlike its predecessor, B-10 adopts a nuanced risk-based approach spanning the entire lifecycle of supply chain risk, mandating broader accountability and N-tier visibility for organizations reliant on third-party vendors, suppliers, and partners.

B-10 reflects the broader transformation and maturity of TPRM, fueled by a wave of industry challenges:

  • Rising Cybersecurity Threats: Surging cyber-attacks on third-party applications pose serious threats to data and operations, with Gartner reporting 61% of all U.S. businesses were directly impacted by software supply chain attacks between 2022 and 2023.
  • Consequences of Noncompliance: Severe penalties, including fines, damage, and service interruptions, underscore the importance of compliance.
  • Financial Pressures and Digital Disruptions: digital disruptions ripple across interconnected digital supply chains, exposing organizations to unforeseen external shocks.

The TPRM threat landscape is constantly evolving. Organizations need to aggregate changing risk conditions, look for patterns, and prioritize vulnerabilities. Managing multi-tiered complexity at speed and scale is virtually impossible without next generation AI systems that transform systemic threats into strategic advantage.

Interos’ critical risk intelligence platform achieves this by continuously monitoring lifecycle supply chain risk to fortify critical capability.

  • Advanced Risk Identification: Interos customers can tailor their risk register to what matter to them, including critical compliance gaps, financial instability, cyber-attacks, and geopolitical threats – working with Interos’ platform, a top ten A&D customer identified compromised suppliers and alternative options within 24 hours of the initial signal highlight.
  • Continuous Monitoring: Real-time N-tier monitoring helps organizations pre-empt threats with actionable intelligence to get in front of emerging risk – a healthcare company used Interos’ catastrophic risk intelligence to pre-position inventory 24 hours before their vendor shut operations due to a hurricane.
  • Forward-looking Intelligence: Interos analyzes historical data and identifies patterns, speeding enterprise response and focus – one global financial used Interos to identify “repeat offenders” within their third-party network, gaining a 24-hour head start on a cyber vulnerability.
  • Efficiency and Scalability: Automation through AI streamlines due diligence, monitoring, and reporting – for onboarding alone, a leading global airline estimated a 40% efficiency improvement, projecting $250,000 in savings, using Interos.

Leveraging AI-powered third-party risk monitoring technologies is not just a competitive advantage but a critical necessity for global businesses seeking to safeguard operations, protect stakeholders, and ensure long-term profitability in an increasingly complex risk landscape.

Given the $3T annual economic impact of global supply chain disruption, companies cannot wait for the next crisis. Proactive strategies are the only way forward. Without real-time insight into N-tier supply chain lifecycle risk, shocks remain inevitable.

In the words of Interos Founder and Executive Vice Chair Jennifer Bisceglie, “Risk is a constant imperative. Companies must not overcomplicate their response; they can navigate fluid environments with forward risk intelligence that eliminates enterprise noise and empowers decisive action.”

Navigating ESG Transformation: From C-Suite Priorities to Regulatory Realities

Photo: Dori, CC BY-SA 3.0 US, via Wikimedia Commons

By Andrea Little Limbago & Julia Hazel

Increasing ESG (Environmental, Social, and Governance) mandates are resetting corporate agendas and exposing fault lines across businesses that lack an aligned response. While Chief Supply Chain Officers (CSCO) have relegated sustainability to the sidelines, a seismic shift has occurred elsewhere in the C-suite, with CFOs, who have catapulted ESG to the top of their priorities.

A recent survey in March 2024 demonstrated that CFOs ranked sustainability as their first priority, a departure from a July 2023 Gartner report, which found that two-thirds of CSCOs deprioritize it. In Interos’ own 2023 annual survey, executives estimated ESG-related cost increases or revenue losses companies at $44M annually. More than a third of respondents reported stepping up their ESG investments, and over half acknowledged that supply availability was paramount. Given the fluid and dynamic regulatory landscape, ESG disruptions can quickly become a near-term risk, leaving many companies ill-prepared for compliance or reputational or financial risk.

ESG is also a hot button issue in the United States, with some states expanding ESG-related regulations even as others introduce anti-ESG regulation. Despite this disconnect, stakeholder demands and regulatory reporting requirements are clearly not going away.

The E.U. Supply Chain Act and Germany’s Supply Chain Due Diligence Act are a case in point. The European Parliament just passed the proposed Corporate Sustainability Due Diligence directive (CSDDD) this week. The law, which heads to a final vote set for next month, requires large companies to disclose environmental damage or forced labor in their supply chains.

The German regulation took effect in January 2023 and includes disclosure of both human rights and environmental impacts across their supply chains. first actions have already been filed against several global corporations for failures to ensure worker safety in Bangladesh.

Overcoming “Aggregate Confusion”

Whether a company is taking the first steps toward ESG resilience or looking to strengthen existing efforts, the ESG regulatory landscape is a moving target. There are no common data standards to drive a clear, consistent, and effective strategy within organizations. This leads to divergent assessments, frustration for those attempting to prepare for the upcoming compliance wave, and simply, “aggregate confusion” with regards to ESG data. Fortunately, ESG data is improving. There are growing opportunities for organizations to assess supply chains with transparent, traceable, and verified data, which in turn enhances a company’s capacity for compliance and minimizing reputational risk.

The Regulatory Landscape: Conflict and Conceptual Stretching

The conflicting and vague nature of many ESG-related regulations or advisories are contributing to the gap between risk and action. For instance, climate-related risks are often bundled together under a single umbrella – or in conflict with one another – making it difficult for companies to discern and create appropriate response strategies. Both the European Union’s CSDDD), as well as California’s climate disclosure bill SB 253, include extensive Scope 3 disclosure requirements.

In contrast, the recent Securities and Exchange Commission (SEC) climate risk disclosures do not include Scope 3 requirements. The SEC climate risk disclosure focuses on the environment, requiring companies to disclose natural hazards risks, such as expenditures resulting from severe weather events, Scope 1 and 2 emissions, as well as climate-related targets and goals.  However, grouping these disclosures under one umbrella creates additional confusion. Distinct corporate strategies are required to address risks related to climate resilience versus actions to mitigate a company’s environmental impact.

On the one hand, actions to ensure climate resilience focus on the impact that climate change has on a company’s global footprint and operations. Interos  previously discussed these kinds of catastrophic risks and how companies can use continuous risk intelligence to pre-empt disruption. On the other hand, a company’s impact on the environment relates to fast-changing environment, social, and governance (ESG) regulations.

Broadly, the difference comes down to compliance and reputational risks compared to physical (even existential) continuity risks, with financial risks common across both. Each of these provides two distinct, but interconnected risks associated with sustainability that require different organizational strategies and preparation. While the data and science behind natural hazard risk has a long and robust history and validation, the same is not true in the ESG space.

The Data Challenge

MIT’s Aggregate Confusion Project highlights the ESG data problem by noting that the correlation among major ESG ratings agencies is only .54. By comparison, financial ratings agencies have credit ratings correlated at .92. The poor correlation between ESG ratings agencies has wide repercussions. The same company could be scored highly by one agency and poorly by another, making it both difficult to prove compliance while also opening the aperture for misuse of the scores.

Interos has assessed many of the most prominent ESG ratings vendors with a focus on transparency, traceability, and external validation. The data is created through one of two opposing methods – surveys or machine-learning web scraping. Those that focus on surveys provide extremely comprehensive data with understandably low coverage, but they also lack validation and often enable self-scoring and attestation. Conversely, machine learning data collection has extensive coverage, but is extremely shallow in data depth and quality. A single news article, for example, may be the basis of an entire score.

Towards a New ESG Model

Interos developed a new ESG model with data that allows for the transparency and traceability lacking in the ESG space. The model was developed in partnership with ESG data and technology leader ESG Book. As a global leader in sustainability data and data transparency, the company operates a corporate disclosure platform to facilitate ESG disclosures and help organizations map these disclosures to leading global frameworks. Interos’ expanded ESG risk model provides raw metrics that cover a range of ESG topics: Scope 1, 2, and 3 emissions, forced labor and human rights policies, supplier oversight and product safety, and more.

In addition to ESG Book, Interos has integrated its own critical restrictions risk and corporate ownership structure data into its enhanced ESG model. This enables the platform to connect specific human-rights related restrictions, such as UFLPA and companies operating within the Xinjiang Uyghur Autonomous Region, as components of social risk models. The company also leveraged Interos proprietary ownership data to create a new government intervention risk based on Interos’ unique combination of ownership control and government ties. Risk managers that need to monitor governance risk must consider the growing global risk of government intervention into the private sector, one of many necessary steps required to surface vital information to get in front of risks and prevent supply shocks.

Charting the ESG Future for Competitive Edge

Forward-leaning organizations are adapting their risk frameworks to integrate ESG, integrating environmental and social sustainability into corporate strategies designed to embed critical supply chain risk intelligence throughout the enterprise. Regulations emerging from Europe will have a global impact beyond their borders. As with the General Data Protection Regulation (GDPR), European laws will directly impact global companies with operations in affected geographies.

Leading organizations are urgently responding to risks associated with the shifting regulatory and reputational ESG landscape. This requires leaning into sustainability risks and opportunities, instead of away from them, especially during strategic trade-off discussions. Organizations can leverage advanced visibility and continuous risk intelligence to transform ESG vulnerabilities into competitive advantage.

A proactive ESG risk posture furthers confidence among critical stakeholders who view ethical and compliant supply chains as foundational to responsible commerce. The path forward begins with mapping and monitoring sub-tier ESG threats. Interos is excited for this next stage in ESG risk assessments and helping businesses embed resilience across their enterprise.

Navigating Semiconductor Supply Chain Disruptions: Insights from Taiwan’s Earthquake

Interos is monitoring supply chain impacts in Taiwan following the 7.4 earthquake that shook the region overnight. Our hearts go out to the people of Taiwan as they cope with the extensive damage. At least 9 casualties are reported with hundreds more injured. In addition to the tragic loss of the life, the quake, the worst since 1999, is reverberating across global electronic and the semiconductor supply chains, causing disruptions in chip manufacturing operations. Semiconductor chips are vital to dozens of products including computers, cellphones, auto, industrial machinery, and more.

Impact on Semiconductor Supply Chains

Key chip producers like TSMC and UMC temporarily closed operations to conduct facility inspections and ensure employee safety. While employees have returned and some operations resumed, ongoing inspections are expected to take time and may impact production schedules. Even short factory closures can lead to millions of dollars in delays and one report estimated a significant semiconductor disruption in Taiwan could affect up to $1.6 trillion, or approximately 8%, of annual U.S. GDP.

Within the semiconductor market, Taiwan-based companies account for approximately 60% of global production and approximately 90% of production of advanced semiconductors. The quake temporarily suspended chipmaking machinery and evacuated personnel from various semiconductor manufacturing facilities, impacting the production of advanced process nodes. Since highly sophisticated semiconductor fabs need to operate in a continuous vacuum state for several weeks, the temporary halt in operations, especially for advanced nodes like 4/5nm and 3nm, could lead to delays in shipments and increased pressure on pricing within the semiconductor sector.

Further, while manufacturing plants may not have been directly affected by the earthquake’s epicenter, the temporary shutdowns and inspections in Taiwan may lead to delays in chip-making machinery and semiconductor shipments to surrounding countries that rely on Taiwanese products for their own production processes. These delays could result in production bottlenecks and inventory shortages in various industries, including electronics, automotive, and consumer goods.

Dependence on Taiwanese Supply Chains

The semiconductor industry is heavily concentrated in Taiwan, which had around a 63% global market share of chip manufacturing in 2020. Integrated circuits (ICs) and micro assemblies accounted for 35.6% of Taiwan’s total exports by value in 2020 – 10X bigger than the next category. Taiwan dominates manufacturing of cutting-edge chips used in advanced commercial and military technologies, producing over 90% of global output featuring transistors smaller than 10 nanometers. Taiwan’s Semiconductor Manufacturing Company (TSMC), a supplier to Apple, Nvidia, and other technology giants, has a 53% global market share, and with a market capitalization of over $550 billion.

Analysis of Supply Chain Relationships

Dependence on Taiwanese supply chains among G7 countries is extensive. An analysis of Interos’ global database of business relationships shows:

  • U.S. companies have almost 70,000 direct (tier-1) relationships with Taiwanese suppliers. Companies in other G7 member countries have almost 10,000 between them.
  • When indirect multi-tier relationships are included, G7 member companies have more than 315,000 tier-2 and 750,000 tier-3 connections to Taiwanese firms.
  • Although tier-1 relationships with the two major Taiwanese semiconductor manufacturers, TSMC and United Microelectronics Corp. (UMC), are relatively small in number (led by the U.S. with around 220), as tier-2 and tier-3 suppliers these two companies are present in hundreds of thousands of supply chains in G7 countries.

Analysts say the situation may cause a short-term delays to regional electronic manufacturing companies in Japan, Korea, China and Vietnam. Interos will continue to provide supply chain updates and information as the situation unfolds.

 

Banking on Security: Unveiling the Secrets of Third-Party Risk Management in Financial Services

By Patrick Van Hull

Throughout our webinar, “Banking on Security: Unraveling the Secrets of Proactive Resilience in Third-Party Risk Management,” Chris Ballantyne of TD Bank, Michael Nassar of Deloitte, Jennifer Bisceglie, CEO and founder of Interos, and I delved into the landscape of managing third-party risks and the wide range of opportunities for financial services leaders to realize the value-generation opportunities of TPRM.

The financial services sector faces an ever-shifting panorama of risks, demanding a proactive stance to stay ahead. Traditional approaches are no longer sufficient; organizations must embrace real-time monitoring and continuous risk assessment. Disaster recovery and business continuity planning must evolve to encompass new risks and scenarios.

This transformation entails shifting from defensive to offensive strategies, focusing on mitigation, and adopting digital supply chain programs to develop comprehensive approaches to risk management.

Harnessing Data and Advanced Analytics for Effective Risk Management

Improving data quality and adopting advanced analytics and AI are central to this journey. These transformative tools streamline processes, enhance predictive capabilities, and enable proactive handling of third-party breaches. Organizations can swiftly identify and mitigate risks by leveraging external market intelligence and internal data analytics, bolster operational resilience, and protect against potential costs.

A clear majority of poll respondents in the webinar audience selected combining internal and external data to enhance risk assessment as a critical way to ensure technology and data integration in TPRM programs for maximum effectiveness.

The TPRM approach at TD Bank, according to Chris, also includes that sentiment: “We’ve been looking at how we can leverage data more effectively, both internal data and external data that are available, but also our suppliers and their supply chain, to figure out and triage an event more effectively, respond faster, and address them in a more timely manner to quickly shut down where that risk exists within our supply chain.”

Technology’s Influence on Operational Resilience and Compliance

Technology is both a boon and a challenge in the quest for operational resilience and regulatory compliance. While regulatory changes pose hurdles, they also spark innovation opportunities. Integrating commercial technology facilitates the transition from mere visibility to actionable insights, navigating the complex terrain of compliance while progressing along the industry’s maturity curve.

Nearly half of the webinar poll responses selected continuous compliance monitoring and management to encourage ongoing alignment with evolving regulations and industry standards in TPRM, with Michael’s thoughts expanding further: “to actually focus on that proactive element and respond with more agility and efficiency and effectiveness to the evolving threat landscape to the increase in incidents from third parties that is only going to frankly be impressive as a practice to regulators because it allows you to respond, assess, triage and action those incidents more quickly than you ever could before.”

Cultural and Technological Alignment

Crucially, this transformation necessitates alignment with cultural and technological shifts. Third-party risk management must become ingrained within organizational culture, grounded in data, and demonstrate tangible business value. Initiatives should start small but aspire to grand visions, moving beyond reactive approaches to emphasize proactive intelligence-driven decision-making.

As Jennifer puts it, there’s growing momentum toward “how do I do my day job faster, better, quicker, more efficiently, repeatable, and predictable? So, I don’t have to defend why I made the decision. I’m more focused on what I’m going to do with that decision. And that’s really been the big material change.”

Along the lines of that thought comes the fostering of a culture of shared responsibility for risk management, which was the most selected response to the poll question about how organizations can collaborate to embed TPRM capabilities into their culture effectively.

Setting a Path Forward

As Chris, Michael, and Jennifer see it, this journey toward resilience begins with mastering third-party risk management, which is not merely necessary for the future but is also a strategic imperative for financial institutions. Risk management may not be one-size-fits-all, but several core capabilities are essential in the path forward, including:

  • Building visibility by mapping third-party ecosystems to quantify risk exposure and continuously monitor critical indicators.
  • Leveraging trustworthy data intelligence combining internal and external sources to understand risk materiality.
  • Demonstrating actionability and agility in making decisions without compromising on risk.

To progress through ongoing expectations of uncertainty and rapid change, organizations must confidently navigate the turbulent waters of disruption and emerge stronger by embracing proactive resilience, leveraging technology, and fostering cultural alignment.

Watch a replay of the webinar here.

Assessing the Fallout of the Dali Cargo Ship Collision in Baltimore

Photo: David Adams / U.S. Army Corps of Engineers, Baltimore District, Public domain, via Wikimedia Commons

Interos is continuing to monitor supply chain impacts following the tragic collision between the cargo ship Dali and Baltimore’s Francis Scott Key Bridge. Impacts are already being felt as companies reroute shipments to other East Coast ports. The 11th largest port in the U.S., the Port of Baltimore handled $80 billion in foreign cargo in 2023. Maryland could lose $550 million to its GDP and $1 billion loss in total value of goods and services if the port is closed for 30 days. Early projections on potential global impacts vary, and come at a time when ongoing supply chain disruptions already cost the economy nearly $2 trillion dollars annually.

Interos is tracking several areas of concern in Baltimore:

  • Sectors like automotive, manufacturing, and energy, are most vulnerable to disruption. Baltimore is the top port in the nation for automobile shipments, having imported and exported more than 750,000 vehicles in 2022.
  • Auto imports are diverting to nearby ports like New York/New Jersey, Philadelphia, and Norfolk, Virginia, potentially leading to increased freight rates and congestion. However, many ports are already crowded with imported vehicles given a slowdown in EV and SUV sales. Some analysts predict auto manufacturers and dealers may moderate prices and offer discounts to move vehicles faster to avoid worsening backlogs.
  • Coal is another pressing issue. Baltimore serves as a crucial hub for coal exports, and an extended port closure could damage U.S. energy exports. Baltimore ranked as the second busiest port in the U.S. for coal exports last year, with India being the largest importer. While some coal shipments can be redirected, not all ports are equipped to handle coal imports.
  • Additionally, substantial amounts of nickel, tin, and copper stored in Baltimore may face increased transportation costs as suppliers resort to less cost-effective alternatives like trucking and rail.

This accident underscores how interconnected our nation’s vital supply networks are. It’s crucial for businesses to assess their nth Tier suppliers in the region to evaluate potential supply chain disruptions. Interos remains committed to providing relevant supply chain data to support informed decision-making.