Open:FactSet Forum

ESG performance through an entity's supply chain

I was looking to browse through some examples to test a general hypothesis that a supplier’s ESG performance impacts the company for which those goods/services are provided. Knowing that TKJP Corporation (more commonly known as Takata Corporation) was involved in several airbag recalls over the past few years, I used FactSet Supply Chain Relationships to identify the companies that were affected upstream. Before looking at the data, I expected the major car manufacturers to take the biggest ESG impact from the recall, but also envisioned Takata Corporation’s scores over time closely following the same trend since they were very much in the news.

The time series I evaluated was from 2007 to present and I opted to use RepRisk’s Current RRI to paint a more complete picture. In brief, the higher the value of the score, the riskier it is (further methodology explanations are found in the above link). To best illustrate this trend, I chose three of the top car manufacturers impacted by the recalls: Honda Motor, Nissan Motor, and Toyota Motor. This article provides a detailed, long-running timeline of the events that occurred to help provide more context around the key events that impacted the overall scores.

It’s interesting to see how the risk index of all three converged around mid-2014 to 2016. This sparked my curiosity to investigate the news count by RepRisk issue type for these four companies, as seen in the below chart- I filtered based on the most relevant issue types, shown on the Y-axis.

Given RepRisk’s robust public and private company coverage, it would be interesting to dig further into Takata’s downstream supply chain to see how much news exposure they had to the ongoing issue. The above shows a glimpse into this idea – particularly in the “Supply chain issues” graph. The navy line there shows that news articles featuring supply chain issues likely did not discuss Takata’s suppliers in a significant manner, something to explore! Overall, there’s promise in evaluating ESG risk exposure throughout the supply chain that can give rise to potential investment ideas.