As companies increase their focus on sustainability, they rely heavily on the ESG performance of their suppliers to help them make progress. As many businesses are discovering, to secure trust in the supplier-buyer relationship, they need to respond well to demands for ESG information. This article brings together resources on how to manage ESG for suppliers so you can prepare a robust response to customer requests for information.
Why are Supply Chain demands increasing?
There is a multitude of reasons why larger companies are turning to their suppliers for insights into their ESG performance. For many, it is simply that they have adopted more responsible business practices and are assessing how suppliers align with their sustainability principles. In other cases, the increase in regulatory focus is a driver, as obligations for larger companies increase due to regulations such as EUDR, PPWR, and CBAM.
The most typical scenario is that a company has set targets to improve their impact, and the performance of their supply chain plays an integral part. Companies are using their position in the value chain to use their purchasing powers to drive improvements. This covers obvious areas, such as carbon reduction, but also addresses many other factors such as traceability of materials, working conditions for employees, water footprint, diversity of workforce and many other areas.
In situations where regulations are driving the increase, it is likely a more targeted acitivty to perform a risk assessment on the supply chains, or to improve the traceability of materials within products or their packaging. Regulations such as EUDR apply stringent risk based controls which apply to commodities such as rubber, palm oil, paper, pulp, and wood. The introduction of Digital Product Passports is also encouraging companies to build up a clearer picture of the chain of custody of products in their route to consumers.
The requirements are being applied to both new and existing suppliers. For existing suppliers, this increase in due diligence can feel uncomfortable, but it can be an opportunity to build greater trust with customers.
Reactive Response
The first time a business receives a request from a customer to provide information on their approach to ESG management can be daunting. General requests are often based around a requirement to perform an independent audit of some form, typically using an online platform such as Ecovadis or Sedex. More specific requests typically stem from EUDR, PPWR, DPP, and CBAM requirements. These often take the form of surveys to complete or data sheets to populate related to the products you provide.
For the more general requests, these are typically structured, but have broad requirements making them a challenge to respond to without some prior preparation since they require inputs from many parts of the business.
Ecovadis
An increasing number of companies require suppliers to perform an audit using Ecovadis. This is an online platform which asks a set of questions related to how you manage ESG within your business. This covers four main areas: environmental management, workers and human rights, ethics, and sustainable procurement.
Responses are given a score out of 100. Most customers expect suppliers to achieve a minimum score of over 45 to maintain the supplier status and an increasing number expect greater than 65. To achieve a good score, companies need to evidence the levels of management control in place, baselines for their impact, targets for reduction, effective policies to manage key areas of interest such as human rights, and supplier code of conduct.
The audit is at the suppliers expense and is valid for a year. Medals are awarded to the best performing companies in comparison to their peers in each sector.
Sedex
Another online platform is Sedex. This focuses on providing an ethical way for companies to exchange information related to conditions in complex global supply chains. It performs a question based assessment on labour standards, human rights, health and safety, environmental management and ethics. The platform provides an audit, known as a SMETA (Sedex Members Ethical Trade Audit), which provides a consistent mechanism for comparison of companies.
Sedex offers two tiers of membership. A Supplier membership, which works for simple supplier relationships where they produce and sell directly to customers as the tier 1 supplier. The second is a Buyer/Supplier membership. This is designed for companies which are intermediaries in a supply chain and ensures that they provide information as tier 1 suppliers, but also assesses their approach to managing their suppliers, giving the customer assurances beyond tier 1.
Proactive Response
Given the increase in expectations on suppliers, it helps to invest resources ahead of customer requests catching you by surprise. Most customers will generally want consistent information from their suppliers, which means by preparing your position you will satisfy the majority if not all requirements which come through. In preparing your position, you will also improve the management of sustainability wint your own business. In this section we look at the general areas to work on to build a robust position.
Environmental Management
The first, and perhaps most obvious place to start is to establish your companies carbon footprint. By establishing a baseline, a target reduction goal and an action plan to achieve it, you can give customers confidence in how your reductions will contribute to helping reduce their scope 3 emissions.
Your carbon management is generally important to you as a responsible business. It may also be business critical if you are in the value chain of materials impacted by ETS or CBAM. Equally, as more companies look to attribute carbon footprints to individual products, the ability to provide increasingly granular information about your emissions will position you well with your customers.
The water and waste footprint of your business may also be important to quantify, along with reduction targets and plans to achieve them. If your business interacts with the natural environment, your relationship with nature and impact on biodiversity will also be critical to manage.
Social Impact
Companies are increasing their due diligence on suppliers to ensure they operate ethically. Aligned with OECD guidelines on responsible supply chains, companies want to see evidence that your approach to your own work force and workers in your supply chain are aligned with responsible practices. This requires clear policies in place, management controls and where appropriate, independent audits for assurance.
Business Practices
Under the governance considerations, many suppliers will want to see evidence of how you conduct your business. This looks at areas such as compliance, anti-corruption and bribery management, board composition, and whistleblowing mechanisms. Creating written policies for these can be easily achieved, but putting them into action can take some time.
Taking a structured approach
Depending on where you are starting from, establishing a position on ESG for suppliers can be overwhelming. We advocate for taking a structured approach to progressively build a capability which is right-sized for your business.
We’ve worked with clients in developing a phased approach which helps to focus resources and to deconstruct the challenge to help with execution.
1. Understand the context
Knowing where you stand today is the first step. This should start by ensuring you have clarity of where you are positioned within your value chain(s) and what you should anticipate will be the needs of your customers. It also helps at this stage to document your business model. This can help when it comes to communicating your information to customers.
2. Establish a baseline
Depending on the needs analysis of customer expectations, focus moves to building a baseline of information. This looks across the business starting at your objectives in relation to ESG and then in the underlying information about your impact, policies, processes and data in relation to the appropriate ESG elements.
3. Prioritise Actions
The list of actions you could possibly take will be almost endless. Applying rigorous prioritisation will be essential, both to ensure your resources are allocated efficiently, but also so you can be clear with your customers about where you are investing for any improvements. In most cases, your customers will be asking you for information so they can quantify how your actions will support their commitments to improving as a business.
3. Build Capability
Most companies do not have experienced resources readily available to step up and drive activities. It will be important to build capability within the business and improve the understanding of ESG management across teams. It is also feasible to bring in capacity, and our Sustainability Managed Service is a great fit for companies who need the expertise but don’t want to build the team from scratch.
4. Communicate
Rather than waiting for customers to approach you, as you build your approach to managing ESG within the business it’s a great idea to communicate this to both your customers and suppliers. Most businesses appreciate the transparency this provides and it helps to build trust. In our experience, it also helps to share areas where you are experiencing challenges as it often leads to offers of support and collaboration from partners.
5. Iterate
Managing ESG within your business is not a one-time activity. It requires constant attention and ideally should be integrated into the operating model of your company. No business has the resources to address the challenges related to climate change or operating an increasingly responsible business. Iterating on your approach will ensure your actions are aligned with available resources and offers customers confidence you are constantly improving.
How Jordisk can help
We work with companies across a broad range of value chains to prepare and respond to supply chain expectations on ESG Management.
Our support includes:
Decoding customer requirements – translating ESG questionnaires and expectations into plain language.
Building data readiness – helping you identify, collect and present the right data effectively.
Developing credible responses – creating ESG targets, policies, processes which withstand scrutiny
Improving internal capability – training teams to manage future requests with confidence
Strengthening customer relationships – positioning your ESG progress as a source of value, not risk
Whether you’re responding to your first ESG survey or looking to formalise your approach, Jordisk provides practical and experienced support.
