Katie Martin is director of sustainability and innovation at Avetta, a global supply chain risk management software company. Views are the author’s own.
Historically, managing sustainability and ESG risk in the supply chain has been a reactive exercise for companies. Rather than identifying and strategizing around potential issues before they occurred, teams were left scrambling to respond whenever a new regulation emerged or a supplier controversy became public. Through that lens, sustainability was treated as a compliance exercise rather than a tool that could help organizations anticipate and manage supply chain risk — or even create competitive advantage.
This approach was more manageable when ESG requirements were less developed and supplier networks were easier to track. Today, however, supply chain organizations are managing complex, global networks against a backdrop of shifting regulations and significant reputational risk.
In this evolved environment, reacting quickly is simply not enough.
For example, a business recently faced citations for unsafe working conditions and wage violations at supplier facilities in a manufacturing hub. An independent review concluded that the retailer’s supply chain monitoring was inadequate and reflected weaknesses in corporate governance. The allegations triggered significant reputational and financial consequences: the company’s shares lost roughly one-third of their value in a week, a major institutional investor sold most of its stake, and several large retailers removed the company’s products from sale.
As a result of challenges like this and increasing regulatory requirements globally, companies are beginning to approach sustainability and ESG differently. Instead of addressing sustainability only when a problem makes itself known, they’re building risk management practices into daily operations and overarching strategy conversations. It has led to procurement, sustainability, legal and compliance teams coming together to build shared visibility into supplier and operational data in order to successfully implement these tactics.
The risk of managing ESG in silos
For many organizations, ESG responsibilities have traditionally sat within a single department, often sustainability or legal. While that structure may make sense in an operational flow chart, supplier risk rarely falls neatly within one team’s responsibilities. The teams handling day-to-day supplier risks may be missing a large piece of the puzzle.
These siloed workflows ultimately lead to inefficiencies. It typically leads to either duplication of effort resulting in resource waste or rising operational blind spots with no singular owner that can often morph into full-blown crises. A procurement team could secure a contract without realizing a crucial compliance mismatch that sustainability or legal is already tracking. Without collaboration between procurement and legal and other key departments, this issue could take a substantial amount of time to identify and address, wasting resources and compounding risk.
Stakeholders are also taking note and increasingly expect companies to showcase their ESG performance with evidence. They not only want to see these outcomes in an annual report but also expect continuous updates for high-risk cohorts and activities. An organization that can only show a snapshot of ESG and supplier risk once a year can miss crucial risk developments and reporting requirements, both internal and external.
The move to shared ESG responsibility
The companies creating long-term competitive advantage are those that are investing in shared visibility to manage ESG continuously and utilize data to reduce total cost of ownership, avoid reputational risk and connect with the highest value, most efficient suppliers. As a result, they’re better positioned to identify risks earlier and stay ahead of evolving stakeholder and regulatory expectations.
Day to day, this shared responsibility can show up in tangible ways. Teams can agree to use shared definitions — such as what counts as a "high-risk" supplier — so that when compliance flags an issue, it means the same thing to legal and procurement. Additionally, cross-departmental reviews could happen regularly rather than only occurring when an incident occurs. This also means that when a regulatory shift happens or a new risk emerges, there’s a clear path for that information to reach the right people quickly rather than being siloed within one team.
A perfect example of this is a large-scale retailer that is currently implementing a cross-functional ESG governance model, in which sustainability was integrated across sourcing, operations, merchandising, real estate, finance and public policy. Such a model would also include executive and board-level oversight, with climate risks incorporated into enterprise risk management. This business worked with suppliers on energy, packaging, waste, transportation, product design and nature issues and saw massive supplier response and adoption that resulted in quantifiable cost savings.
This shift to shared responsibility allows ESG oversight to evolve from just a tool to measure compliance after the fact into a strategic advantage with tangible impact, resulting in an infrastructure that allows an organization to act on risk before it escalates.
Why visibility is the advantage
With shared responsibility comes shared visibility into the supplier and operational data organizations rely on. That increased visibility can lead to concrete results, including strengthening organizations’ abilities to:
- Identify risks earlier – When supplier data is current and visible across teams, issues can be caught sooner, and teams have the chance to respond before a problem becomes a disruption.
- Showcase progress with confidence – When all teams are utilizing the same underlying data, the organization can back up its ESG claims with evidence instead of anecdotes. This gives companies a stronger way to demonstrate progress to stakeholders and customers.
- Anticipate evolving expectations – When teams share an understanding of risk and have visibility into the same information, they can respond more quickly to changing regulations and stakeholder expectations.
Governance structure matters, but the differentiator is the visibility that a shared ESG responsibility model provides.
Of course, this change doesn’t happen overnight — it requires investment from numerous departments and a breakdown of data silos that prevent procurement, legal, sustainability, and compliance from working from the same base of information. While this is an operational muscle that takes time and practice, the benefits outweigh the effort required.
Companies that stay in reaction mode will keep paying the cost of supply chain surprises. However, by treating ESG as a cross-departmental part of daily operations, rather than a once-in-a-while obligation, organizations can reduce risk, adapt more quickly, demonstrate progress and increased efficiencies, and build organizational readiness to better anticipate and manage future disruptions.
