Research Sustainability Social Hotspot Analysis

Social Hotspot Analysis

New laws at both national and European levels increase the due diligence obligations of companies along their supply chains. This poses challenges specifically for globally active companies with complex supplier structures.

Where are the social hotspots in the supply chain? Which measures can most effectively improve the impact of companies? A social hotspot analysis helps to answer these questions.

Definition: Social Hotspot Analysis

A social hotspot analysis determines the social impact along the global supply chain of companies or industries. Using a macroeconomic model, WifOR maps the entire supply chain from the first to the last stage.

The results identify the most significant hotspots along the supply chain. Depending on the data input, results can be broken down as follows:

Country or region
Economic sector
Supply chain level, e.g. by direct suppliers
Department, purchasing areas, and reporting units

Which social indicators are used?

For the social hotspot analysis, WifOR uses multiple indicators to map the social impact of a company or industry along the supply chain. Examples of social indicators are shown in the following figure:

The WifOR indicators are compatible with standardized frameworks and methods – including ESRS, LkSG and VBA.

Which methodological approach is used for a Social Hotspot Analysis?

The starting point for calculating the social hotspots is a company’s purchasing list. This contains the procurement costs for all goods and services purchased during a specific financial year. For instance, the data structure can follow such a pattern:

WifOR calculates the social impact along the supply chain using an extended input-output analysis – a globally recognized method of supply chain analysis. The WifOR model combines official input-output databases to ensure a high degree of reliability, country and sector coverage, accuracy, and indicator breadth.

Example results for indicator ‘risk cases of child labor’ could be as follows:

Example results for indicator ‘risk of child labor’

Comparability and prioritization using Impact Valuation

In the first step, Impact Analysis delivers results in physical units such as ‘risk cases of child labor’ or ‘training hours’. In order to make these comparable and prioritize them, the effects can be converted into monetary units through Impact Valuation. Coefficients, known as Impact Valuation Factors, enable companies and industries to quantify the social significance in a uniform currency (euros or dollars). This creates comparability of the social impact of individual indicators, both within and outside a company, and provides a scientific database for informed decision-making.

Objectives of WifOR’s Social Hotspot Analysis:

WifOR’s Social Hotspot Analysis enables companies, organizations, and industries to:

Understand and categorize their social impacts along the supply chain
Fulfill legal requirements
Identify the areas with the greatest need for action (e.g., by country, industry, supply chain level)
Develop strategies to improve social impact
Incorporate sustainability metrics into business decisions

Use Case Overview:

Reporting and Investor Relations

Materiality Assessment | CSRD/ESRS
Supply chain due diligence laws (CS3D)
TCFD and TNFD | ISSB
Integrated Reporting and Impact Accounting

Use Cases Sustainability: Communications

External and internal Communications

Country & stakeholder perspective – local content
Global and regional impact narrative
SDG contribution
Enriched stakeholder dialogue

Procurement and Supply Chain Management

Supplier screening and engagement
Prioritization of efforts
Target setting
Improved decision-making

Strategy and Holistic Steering

Overview of social impacts
Comparability and benchmarking
Improved decision-making

Use Case German Supply Chain Law – own calculations using the WifOR Sustainability Impact Tool (WISIT)

The WifOR Sustainability Impact Tool (WISIT) enables companies to carry out a risk analysis and prioritization of social impacts themselves. WISIT supports companies in identifying and analyzing risks along the supply chain – as required by legislation including the German Supply Chain Law (LkSG). Watch the video to find out how companies can meet the LkSG requirements with the help of WISIT:

Political Context

The United Nations has set a total of 17 Sustainable Development Goals in its 2030 Agenda. These goals were adopted by all UN member states in 2015 and are a call for joint cooperation to promote peace, prosperity and well-being globally.

WifOR’s sustainability research integrates these goals and supports organizations and industries in measuring their progress. Social hotspot analyses contribute positively to the achievement of the following sustainability goals: