Analyst Insight: Many companies treat ESG as a compliance exercise, involving the creation of corporate policies and supplier codes of conduct. Yet they struggle to achieve tangible results, such as reducing carbon emissions, addressing workers’ rights, and improving supplier sustainability. In the process, they fail to tap ESG’s potential as a strategic lever for resilience, efficiency, and competitive advantage.

With 66% of shoppers prioritizing eco-friendly brands, consumer demand for sustainability is stronger than ever. While compliance requirements may evolve, the fundamental drivers of ESG — consumer expectations, investor scrutiny, and supply chain resilience — are as relevant as ever.

To move from policy plans to measurable outcomes, businesses must embed ESG practices and priorities into their supplier relationship management systems. Following are eight ways that they can achieve this goal.

Prioritize sustainable sourcing. Sourcing plays a fundamental role in an organization’s environmental footprint. Companies should prioritize suppliers that follow responsible sourcing guidelines, such as those of the Forest Stewardship Council (FSC), and use fair trade-certified materials. Conducting lifecycle assessments (LCAs) can further inform procurement decisions by evaluating the environmental impact of materials from extraction to disposal. By embedding sustainability into sourcing, businesses can cut waste, lower carbon emissions, and drive an environmentally responsible supply chain.

Move beyond compliance to performance-driven ESG. This requires concrete sustainability metrics that extend beyond self-reported supplier policies. They should incorporate data from certified laboratory testing, independent studies, and LCA reports. Digital supplier scorecards and systematic data capture enable real-time visibility into environmental impact, allowing companies to anticipate future trends and potential risks. Timely data collection serves as an early warning system to mitigate risks and minimize negative impacts. Companies should set ambitious yet achievable targets, track progress through key performance indicators, and invest in supplier-development programs that provide training and incentives to drive continuous ESG improvements and long-term business resilience.

Apply quality-management principles. Quality management drives operational excellence, minimizes defects and improves efficiency across the supply chain. These principles can also apply to ESG initiatives, making sustainability efforts with suppliers systematic and results-driven.

A key lesson from quality management is the use of structured frameworks, such as Six Sigma and Kaizen, to set objectives and measure progress. ESG goals should follow the same approach, focusing on quantifiable outcomes such as carbon footprint reduction, water conservation and waste minimization.

Supplier audits, traditionally used for compliance, should instead highlight areas for process enhancement. By working closely with suppliers, companies can implement corrective and preventive action plans. Establishing continuous feedback loops with suppliers ensures that ESG efforts remain dynamic, so that businesses can refine strategies and maximize impact over time.

Use transparency and data to drive ESG impact. These are essential for turning ESG commitments into measurable progress. Digital supplier scorecards, real-time Scope 3 emissions tracking, and artificial intelligence-driven analytics enhance supplier visibility. Prescriptive analytics enables businesses to define what good sustainability performance looks like, and implement corrective actions. If, for example, a supplier reports high atmospheric emissions, companies can proactively request an emissions analysis or require a corrective action plan (CAP) to address infrastructure improvements that reduce pollutants and particle emissions. By shifting from reactive to proactive ESG management, organizations can make data-backed decisions that improve sustainability performance and supplier accountability.

Collaborate on emission reduction and cleaner production goals. Engage suppliers in achieving net-zero goals and promoting cleaner production practices that reduce waste, emissions, and resource consumption at the source, rather than relying on end-of-pipe solutions. This approach aligns with regulations such as the EU Deforestation Regulation (EUDR) and broader climate commitments. Rather than viewing sustainability as an individual effort, businesses can collaborate with suppliers to align on climate commitments and share best practices. This can be done by setting shared sustainability targets, investing in supplier training in green manufacturing, and incentivizing the transition to renewable energy and waste reduction. 

Some businesses are co-investing in cleaner technologies with their suppliers, such as funding solar installations at production facilities, or jointly developing lower-carbon materials. These collaborative approaches make emissions reductions scalable, measurable, and aligned with business goals. 

Promote resource efficiency in supplier partnerships. Encourage suppliers to adopt sustainable production methods, such as reusing manufacturing byproducts or applying closed-loop recycling systems. Take-back programs for end-of-life products, recyclable designs, and closed-loop supply chains cut waste while driving considerable mid-term cost savings. Some manufacturers are reclaiming used components from suppliers, remanufacturing them, and reintroducing them into the supply chain.

Drive innovation in low-impact materials. Collaborate with suppliers to innovate and adopt low-impact materials that reduce environmental harm, improve safety and cut costs. By collaborating on material innovation, such as replacing high-emission inputs with sustainable alternatives, businesses can minimize supply chain risks, enhance product sustainability, and open new market opportunities. Joint R&D efforts, clear targets, and incentives drive long-term sustainability and business value.

Embed ESG into procurement and performance tracking. Companies should mandate environmental criteria in requests for proposals and supplier contracts, reward high-performing suppliers, and align metrics with global ESG frameworks such as the Global Reporting Initiative (GRI) and Task Force on Climate-Related Financial Disclosures (TCFD). This shift from risk-based ESG compliance to value-driven sustainability outcomes reinforces long-term accountability and progress.

Moving ESG from plans to results requires a shift in mindset. Companies that integrate sustainability into supplier management don’t just meet regulations; they build resilience, reduce costs, and gain a competitive edge. By measuring performance, engaging suppliers, and embedding ESG into business operations, organizations can turn sustainability into a long-term strategic advantage.