Guide ESG Updated March 13, 2026 14 min read By Shantala Hickey

Guide to ESG and its Impact on the Supply Chain

Shantala HickeyDirector, ESG Division, GPSI

The Environmental, Social, and Governance (ESG) criteria are integral to supply chain standards — a set of guidelines for eco-friendly, socially acceptable, and ethical operations, focused above all on procurement, sourcing, and supplier management.

86% of consumers expect CEOs to
address societal issues (Edelman)

Supply chain management is governed by standards, regulations, and strategies — and without them, risk materializes and negatively impacts business. ESG is one of those core standards. So what exactly is ESG, how does it impact a supply chain business, and how can a company remain compliant?

Key Takeaways

A growing number of companies in global supply chains implement and maintain ESG programs within their business strategy.
ESG ensures efficiency, reliability, visibility, reputation, and health and safety — and reduces carbon emissions for the betterment of the environment and society.
Implementing an ESG program requires careful planning and collaboration with partners, suppliers, teams, employees, stakeholders, and clients.
A supplier audit is essential to identifying and mitigating ESG-related risks.

At a GlanceESG and its impact on the supply chain

ESG aspect	Key insights	Value to businesses
Environmental impact	Reducing carbon footprint and waste management.	Enhances sustainability and regulatory compliance.
Social responsibility	Ethical labour practices and supplier diversity.	Improves brand reputation and employee relations.
Governance & compliance	Ensuring transparency and accountability.	Mitigates risks and enhances stakeholder trust.
Risk mitigation	Identifying and addressing ESG-related risks.	Strengthens resilience and long-term sustainability.

Question 01What is ESG?

ESG refers to environmental, social, and governance — a set of regulations, guidelines, or standards for a business’s behaviour, used by conscious investors to monitor and analyze potential investments.

The three pillars of ESG — ESG spans three pillars — environmental, social, and governance.

Environmental (E)

How a business protects the environment — corporate climate policies, waste and pollution, energy use, treatment of animals, and natural resource conservation. Reduce emissions, manage toxic waste, follow regulations, and educate stakeholders.

Social (S)

Relationships with employees, suppliers, customers, and communities — diversity, inclusion, social justice, corporate ethics, overcoming discrimination, and donating a percentage of profit to the local community.

Governance (G)

Leadership, administration, management, executive pay, internal controls, shareholder rights, and internal audits — preventing conflicts of interest, political interference, and preferential treatment.

Question 02Why is it important?

ESG is crucial to business development, growth, profit, employee retention, and brand reputation — companies running an ESG program perform better and stand out from the competition.

86%

of consumers expect CEOs to address societal problems (Edelman)

58%

of employees weigh ESG when choosing an employer (WTW)

64%

of millennials avoid firms without solid sustainability practices

3×

Per WTW, companies with strong ESG standards are this much more likely to retain employees — who are also 1.5× more engaged, boosting productivity and the bottom line.

Why ESG matters for supply chain companies — Neglecting ESG can disrupt materials flow, delivery times, and customer satisfaction.

The cost of neglecting ESG (per UNPRI)

Disruption in the flow of raw materials
Negative impact on product delivery times
Adverse effects on customer satisfaction
Corruption and lack of internal audits
Ineffective supplier audits and poor financial management
Poor brand reputation from human rights abuses, pollution, and emissions
Increased supply chain costs
Decreased employee retention rates

Question 03How can a company be compliant?

Embedding ESG standards into a compliance program streamlines operations and improves supply chain networks. Here are the steps to get there:

Achieving ESG compliance — ESG compliance starts with clear goals, investor support, and the right framework.

Set goals and objectives

Develop SMART goals — specific, measurable, attainable, realistic, timely — that reduce environmental, social, and governance impact and align with ESG compliance guidelines.

Seek business support

Investors increasingly back ESG-compliant businesses for long-term sustainability — research their requirements, gather data, and secure funding to streamline operations.

Choose the right framework

Select one aligned to your goals — generic frameworks like ISAE 3000 or ISO 19600, or topic-specific ones like the Greenhouse Gas Protocol — with an investor-friendly reporting system.

Question 04What are the ESG risks in the supply chain?

Supply chains have grown more complex — through the pandemic and the Russia-Ukraine war — and about 80% of trade passes through global supply chains. Most companies outsource production for cost advantage, leaving them vulnerable to ESG risks that become operational and reputational threats.

Environmental risks

Climate risk affects all sectors — financiers fund eco-friendly companies. Nature-related risks include deforestation, raw-material depletion, and water waste, especially in manufacturing and agriculture.

Social risks

Human rights violations are the biggest social risk. Follow the UN Universal Declaration of Human Rights and labour standards — forced and child labour and poor conditions are most prevalent in third-world countries.

Governance risks

Corruption is the leading governance risk — dispersed chains hinder monitoring of suppliers and vendors, causing reputational damage, legal penalties, and reduced retention. A solid audit system is essential.

Question 05Why are supplier audits important to reducing ESG risks?

As supply chains grow into complex networks of manufacturing hubs, logistics, and distribution centres, they become more vulnerable to risk. A supplier audit inspects a supplier’s use of regulatory practices — including ESG standards — and is best conducted by a neutral third-party inspection company on your behalf.

Improves quality standards

Your product’s quality depends on suppliers. Enforcing ESG and quality-management standards through audits discovers non-compliant material and ensures conformance.

Risk identification & management

Audits enable traceability and product genealogy, identifying gaps in ESG compliance, quality, engineering change, manufacturing, and shipping — closing the loop on nonconformances and deviations.

Streamlines cost management

Unaudited suppliers increase ESG risk and quality issues — and cost. Audits recover the cost of poor quality, including supplier chargebacks for defective products.

Enhances ESG communication

Audits improve supplier/vendor communication and visibility, enabling open real-time data exchange. Schedule regular audits to meet mutually beneficial, ESG-aligned goals.

Question 06What is the ESG effect on the supply chain?

ESG has become increasingly important — helping businesses optimize operations, follow regulations, and stay afloat. Here is how it affects the supply chain:

38% / 63%

Anglian Water, a UK water company implementing ESG guidelines, has cut waste by 38% and carbon emissions by 63% since 2010 — evidence of ESG-driven efficiency gains.

Increases efficiency

Sustainable operations align processes with ESG goals — reducing waste, resource and water usage, costs, and emissions while meeting regulatory requirements.

Improves visibility

ESG data reveals how the supply chain performs and where to improve — enabling SMART decisions and switching suppliers that fail to meet ESG, quality, or delivery commitments.

Enhances reputation

An ESG program attracts investors, suppliers, and clients, retains customers, and lifts employee productivity and retention — the “social” aspect boosting revenues.

Streamlines risk mitigation

Real-time ESG data mitigates risk and measures growth — addressing toxic waste, water and air pollution, deforestation, biodiversity loss, emissions, and governance issues like corruption.

Final WordsESG shapes the whole business

A supply chain company’s ESG impacts its entire operation — using child labour, for instance, brings reputational damage and legal penalties once consumers discover it. Implementing and maintaining ESG compliance is essential to streamline operations, increase revenues, improve reputation, and achieve long-term sustainability.

ESG compliance favours the environment, society, and your company alike — and a supplier audit is the most reliable way to identify and mitigate ESG risk across the chain. — Shantala Hickey, Director, ESG Division

Frequently asked questions

What is ESG?

ESG stands for Environmental, Social, and Governance — a set of standards for a business’s behaviour used by environmentally and socially conscious investors. Environmental covers climate and environmental policies, social covers relationships with employees, suppliers, and communities plus diversity, and governance covers leadership, executive pay, internal controls, and shareholder rights.

Why is ESG important for the supply chain?

ESG drives growth, reputation, and retention. Per Edelman, 86% of consumers expect CEOs to address societal problems; per WTW, 58% of employees weigh ESG when job-hunting and companies with strong ESG are three times more likely to retain employees and see 1.5 times more engagement.

How can a company become ESG compliant?

Set SMART goals and objectives, seek investor and business support, and choose the right framework — such as ISAE 3000, ISO 19600, or the Greenhouse Gas Protocol — with a clear reporting system that investors can understand.

What are the ESG risks in the supply chain?

Environmental risks (emissions, deforestation, resource and water depletion), social risks (human rights violations, forced and child labour, poor working conditions), and governance risks (corruption, weak internal controls, and the resulting reputational and legal exposure).

Why are supplier audits important for reducing ESG risks?

A supplier audit — ideally conducted by a neutral third party — improves quality standards, identifies and manages risk through traceability, streamlines cost management, and enhances ESG communication and transparency across the supply chain.

How does ESG affect the supply chain?

ESG increases supply chain efficiency — Anglian Water cut waste by 38% and carbon emissions by 63% since 2010 — improves visibility, enhances business reputation, and streamlines risk mitigation across environmental, social, and governance issues.

Shantala Hickey

Director, ESG Division, GPSI

Shantala joined GPSI’s team in 2022, following her post-graduate diploma in Environmental Management. She is responsible for the ESG Division and the corporate social responsibility strategy. Before joining GPSI, she held several management positions at Bombardier Aerospace as well as Galderma, a company operating in the pharmaceutical and cosmetics industry. She has more than 15 years of experience in procurement, logistics, and production planning. The environment and sustainable development are undoubtedly her greatest passions.

Reduce ESG risk with a supplier audit

GPSI helps you identify and mitigate ESG risk across your supply chain through structured supplier sustainability audits and risk assessments. Let’s find a time to connect.

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