Implementing ESG best practices in your supply chain

Supply chains remain a critical focus point for organisations committed to environmental, social and governance (ESG) goals.

The ESG landscape in supply chains is shaped by technological progress, evolving regulations, and innovative corporate and operational strategies. Implementing ESG best practices in the supply chain is no longer a nice-to-have activity —it’s a necessity for companies committed to long-term success and resilience.

Key ESG Integration Steps

Supply chains are at the heart of most businesses’ operations, yet they are often also at the epicentre of environmental and social challenges. From sourcing raw materials to
manufacturing, transportation, and disposal, supply chain activities have significant environmental impacts. Moreover, supply chain workers may face unsafe conditions,
inadequate wages, or lack of job security.

A robust ESG Framework in supply chain can mitigate risk, enhance brand value, and drive longterm profitability.

Key Steps to implement ESG best practices in the supply chain

1. Conduct Comprehensive Supply Chain Assessment – Initiate ESG practices with a thorough supply chain audit, evaluating processes from supplier selection to delivery. Tools such as supplier audits, surveys, and sustainability assessments can help in identifying risks and opportunities for improvement.
2. Establish clear ESG Goals and Code of Conduct –Develop transparent ESG strategies, communicating values to stakeholders, including suppliers, customers, and investors. It’s important to establish key performance indicators (KPIs) to track progress, such as –
   a. Carbon emissions per unit of production
   b. Water usage and Energy Consumption
   c. Compliance with labour standards
   d. Standards for ensuring health and safety of workforce, etc.
3. Engage with Suppliers and Stakeholders – Businesses must collaborate closely with their suppliers to ensure that ESG standards are met across the entire value chain. This may involve providing suppliers with training, resources, or financial support to adopt more sustainable practices. Companies may also work with third-party certification bodies to ensure that suppliers are held accountable to the highest standards.
4. Monitor and Measure Progress – Companies should establish mechanisms to regularly review and update their ESG goals, assess supplier performance, and adjust as needed. This includes conducting periodic audits, engaging in supplier reviews, and using data analytics to track sustainability outcomes. On-site audits must cover review of a) Health and Safety, b) Labour practices, c) Responsible Sourcing, and d) Environmental & Regulatory Compliances.
5. Embrace Innovation and Technology – Utilisation of renewable energy sources, embracing circular economy principles and integrating sustainable packaging solutions are vital elements that organisations can incorporate to optimise their ESG performance.

Challenges like data gaps, cost pressures, lack of universally adopted metrics for ESG indicators and scope 3 emissions, resistance to regulatory compliances’ adherence, and geopolitical risks underscore the complexity of shifting to ESG-driven practices.

Overcoming these challenges requires a strategic approach — integrating robust data tracking, aligning with evolving ESG frameworks, fostering regulatory compliance, and leveraging technology to enhance transparency and accountability across the supply chain.

A Deeper Look: ESG Best Practice Implementation in a Global Fashion Leader

Project Objective: One of the top global leaders in fashion industry, founded in early 1940s desired to conduct ESG review of its top manufacturer based in India, with key focus on areas of Health & Safety, Environmental and Labour Practices.

Overview of Work performed:

Site visit of 6 contractors engaged with the supplier in India

• Interview of ~ 400 workers during site visits
• Review of necessary permissions, policies and procedures for all 6 contractors
• Payroll based review vis-à-vis biometric records and payslips for 100 sample workers.

Open Risks identified for Client – Potential Local & Global Reputational Risk. Conducting above review assisted in identification of risk exposure for the client, paving a way forward for them to take appropriate remedial actions.

Conclusion

Tackling such obstacles can be a starting point in seizing future opportunities, and building resilient, transparent, and sustainable supply chains that foster both business success and progress in environmental and social impact. Further, conducting periodical review of supply chain partners is important to stay assured of their compliance with basic ESG practices surrounding ethical practices, governance, and regulatory requirements.

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