Transforming Businesses’ Value Chains to Meet Evolving ESG Standards

As the world inches closer to the UN Sustainable Development 2030 goals as well as the 2050 Net Zero objective, the business landscape has been steadily evolving and adapting to keep pace with changing ESG standards. However, without an actionable plan to restructure operations and practices, businesses could risk being underprepared for meeting current and upcoming sustainability regulations or penalized due to non-compliance. 

Concerning results from one survey showed that more than three in four companies acknowledged that they experience a significant lack of knowledge how to effectively execute ESG strategies in their supply chains, revealing a major gap that demands to be addressed.¹ The silver lining is that this process doesn’t have to be created from scratch. 

One way to start the process is to consider leaning on solution providers who are knowledgeable about the complexities of ESG regulations and initiatives, which can make integrating processes into supply and value chains simpler and faster for businesses of all types. 

However, it’s not enough to secure a tech partner who treats sustainability data and initiatives as a set of boxes to be checked. The best ones set an inspiring example for other businesses by reaching far beyond minimum regulatory requirements. 

Speaking of examples, we won an award in August 2024 for Best Sustainability Initiative of the Year for our ESG Impact Accelerator “Project Change”. 
We also recently hosted a virtual client roundtable featuring thought leaders and field experts who discussed the top best practices designed to help companies in the EU recognize the importance of executing an effective ESG strategy.  

Missed the roundtable or just need a refresher? We’ve compiled the main takeaways from the event. Here are seven ways businesses can start integrating ESG regulations into every aspect of their supply chain: 

1. Leverage External Platforms 

Companies who struggle to tackle ESG goals by themselves due to staff shortages or bandwidth constraints make use of software that specializes in sustainability processes. These tools are designed to streamline an organization’s ESG program by tracking, reporting, and assessing their suppliers’ performance while providing them with standardized assessments. This type of software also enables them to easily make measurable improvements to their ESG initiatives over time. 

2. Integrate ESG into Procurement Processes

Other businesses incorporate ESG criteria directly into Request for Proposal (RFP) processes.² For example, some companies can apply ESG standards from selecting suppliers or negotiating contractual terms. Integrating these measures into every step of the RFP ensures that sustainability is considered from the outset of any new supplier relationship.

3. Adopt a Segmented Approach for Evaluating Suppliers

Supplier evaluations aren’t one size fits all. Nowadays, companies who operate or do business in the EU are using segmented approaches to achieve Net Zero, social and compliance goals. 

• Consistent compliance. For strategic suppliers, more in-depth assessments and regular compliance checks are implemented. 
• Specialized support. Smaller suppliers may receive simplified questionnaires or specialized support to help them progress on their ESG journey. 
• Scoring mechanisms. Companies can use different scoring mechanisms for SMEs and provide training on sustainable procurement for smaller suppliers. 

4. Hold Sustainability Summits and Focused Discussions

Work closely with suppliers and facilitate one-on-one meetings with them to discuss progress and goals. By hosting suppliers at a sustainability focused event or summit, you can open dialogues with suppliers and help them understand the importance of meeting ESG standards and how sustainability fits into the broader business-supplier relationship.

5. Balance Expectations with Support

While setting clear ESG expectations is important, leading companies recognize the need for a balanced approach. This can look like training suppliers on sustainability best practices and rewarding them when they are followed successfully. Businesses can also offer tailored training capabilities and useful resources for suppliers who are looking to improve their ESG practices.

6. Focus on Meaningful Metrics

To achieve sustained progress, it’s important to avoid overwhelming suppliers with excessive data requests. To prevent this from happening, companies can focus on only the most relevant data points to assess supplier progress. Data requests must easily relate to their responsibilities and have clear justifications for why this data point is essential for assessing ESG compliance.

7. Incentivize Progress

Companies can ensure cooperation from their suppliers by recognizing and incentivizing their progress in meeting ESG standards. For example, organizations can host award ceremonies or offer gift packages for suppliers who are consistently meeting or even exceeding sustainability practices. This approach not only rewards top performers but also encourages others to improve. 

The Advantages of ESG Compliance and Beyond 

Companies that embrace ESG compliance and strive to exceed these requirements gain a significant competitive edge. This commitment not only enhances their appeal to potential talent and improves retention rates but also boosts investor confidence. The procurement process is directly impacted by this, as ESG criteria increasingly serve as quantifiable benchmarks when selecting new partners. Companies that proactively integrate ESG considerations into their operations, whether through innovative systems or building strong credibility and reputation, position themselves advantageously in the marketplace.