Skip to main content

Future-Proofing Supply Chains

Supply Chain Sustainability and Key Trends in 2022


While corporate sustainability was a key focus of many companies before 2021, this past year made it clear that managing environmental, social, and governance (ESG) issues must be at the forefront of a company’s operations.

The COVID-19 pandemic has exposed critical supply chain weaknesses, particularly among suppliers with poor workplace health and safety practices. Global calls for greater inclusion and transparency resulted in firms with alleged human rights violations throughout their supply chain or lacking diversity within their workforce coming under public scrutiny. Increasing regulatory and consumer pressure for climate action prompted companies to make a record number of sustainability commitments. These events underscored the importance of sustainable, resilient, transparent, and legally compliant supply chains.

However, while a company may adhere to the highest ESG performance standards in its own operations, many of its suppliers may not hold similar practices. Studies have estimated that up to 90% of a company’s sustainability impacts originate in a firm’s supply chain.i

These impacts can hold considerable risk: companies such as Nike,ii Marks & Spencer,iii and Hershey’siv have experienced firsthand the reputational and financial fallout caused by ESG-related scandals in their supply chains.

Given the benefits to gain and the risks involved, corporations are turning towards their supply chains to incorporate ESG considerations. This guide summarizes the rationale behind integrating ESG considerations into a company’s supply chain management practices and outlines the key supply chain sustainability trends for 2022.

Future Value: The Business Case for Supply Chain Sustainability

Supply chain sustainability shifts the focus from short-term financial considerations to long-term value creation, and managing the ESG performance of one’s suppliers. By including such considerations, sustainable supply chain management not only benefits the environment, but also reduces risks, mitigates impacts, and realizes reputational and financial benefits, such as cost savings, brand goodwill, and customer loyalty (see Table 1 for an overview).

Moreover, ESG performance is increasingly considered a component of – and proxy for – resilience. Companies with strong ESG performance often have robust governance frameworks, manage social and environmental risks well, and have stronger relationships with suppliers. Weak ESG performance, on the other hand, can carry significant reputational and operational risks for a company. Prioritizing supply chain sustainability can, therefore, reduce general risks for corporations, including minimizing operational disruptions due to environmental risks, regulatory risks, or reducing reputational risks caused by labor issues.v

What does a supplier’s ESG performance include?

Environmental refers to the resources a supplier uses, the waste it produces, and the resulting consequences of those activities on the planet. This includes water management, greenhouse gas (GHG) emissions, and the use of dangerous chemicals.

Social refers to how a supplier manages its relationship with internal and external stakeholders. This includes labour relations, employee training and education, reputational issues, and how a supplier fosters positive relationships within the broader community.

Governance refers to a supplier’s internal framework of procedures, practices, and controls. This includes internal processes utilized to govern itself, comply with regulations, conduct external audits, and guide decision-making.

Impact of Supply Chain Sustainability on Companies

 Company With Weak Supply Chain SustainabilityCompany With Strong Supply Chain Sustainability
Risk ManagementIncreased likelihood of unexpected financial and reputational risks. Greater ability to identify, avoid, and manage potential risks, including better distribution of risks by greater collaboration with suppliers.
OperationsUnstable access to raw materials and increased chance of disruption to supply chain.Reduced incidences and/or impact of supply chain disruptions.
ReputationIncreased reputational risks, including loss of brand value due to controversial events.Builds brand loyalty among customers and increases ability to operate without disruption or negative media attention.
CostsIncreased costs related to supply chain disruptions.Reduced costs due to increased efficiency and productivity.
Shareholder ValuePotential decrease in shareholder value due to higher costs and impacts of controversial events on share value.Potential increase in shareholder value due to lower costs and reduced reputational and financial risks.
Human ResourcesIncreased likelihood of workforce instability (e.g., strikes, low retention rates).Decrease in employee turnover and greater stability in workforce.

Green Growth: Key Trends in Supply Chain Sustainability

Corporations, governments, and investors are calling for systemic changes in supply chain management to mitigate future disruptions and balance risk and resilience. Shifting consumer demands for transparency and increased stakeholder attention on the ESG performance on a company’s suppliers have also placed pressure on companies to change how they manage their supply chain.

In 2022, companies will need to respond to these demands by making key ESG-related changes to their supply chain management practices. Here are the seven emerging trends in supply chain sustainability that companies will need to pay attention to this year, along with some practical tips and takeaways for supply chain and sustainability professionals.

Building Greater Resiliency

Supply chain resiliency has increasingly been a focus in supply chain management. However, in light of the widespread supply chain disruptions caused by COVID-19 pandemic, companies are scrambling to accelerate resilience-building activities across their supply chains. According to a recent McKinsey survey of supply chain executives, an overwhelming 93% reported they are taking steps to increase resilience across their supply chain in the coming

Fostering supply chain resilience involves risk anticipation, impact mitigation, redundancy systems, and building suppliers’ capacity to rapidly adapt to changes. These measures enable an affected supply chain to regain full functionality after a shock faster compared to less resilient supply chains. When the COVID-19 pandemic began, companies with resilient supply chains were able to resume or continue production quicker than companies that had not put resiliency-related measures in place.vii

Building resilient supply chains will be paramount in the future as the COVID-19 pandemic is not an isolated event. Similar supply chain shocks are expected to increase in frequency and magnitude over the coming decades, triggering supply disruptions lasting a month or longer every 3.7 years on average. These disruptions alone will cost an average company approximately 45% of its annual profits over the course of a decade.viii Consequentially, companies have a strong financial incentive to continue to build greater resiliency across their suppliers in the coming years.

Key Takeaways

  • Mitigate against disruption impacts: Source from geographically diverse suppliers, multi-source key commodities, and reduce the number of unique parts required.
  • Implement redundancy systems: Revisit safety stock parameters, build redundancies into transport routes, and establish secondary supplier relationships.
  • Increase your capacity to anticipate risks: Plan for global scenarios and increase visibility across suppliers. Tools that quickly identify suppliers with higher or lower material ESG risks across your entire supply chain, like Sustainalytics’ ESG Assessment Platform, can help supply chain professionals increase visibility.

Focusing on a Green Recovery

In economic recovery plans across the globe, sustainability initiatives are being placed at the center, with many governments investing significant amounts in green recovery measures. The EU recovery package, for instance, includes funds directed toward assisting green food supply chain strategies, green transport options, and circular economy initiatives.ix

Companies are capitalizing on these initiatives and using the recovery period to ‘green’ their supply chains. Manufacturers are innovating with eco-friendly packaging, while retailers are developing low carbon alternatives. There has been a dramatic increase in large manufacturers and retailers committing to carbon neutral operations – including reduction commitments across their supply chain operations.x

For instance, Apple and Novartis committed to being 100% carbon neutral across their respective supply chains by 2030.xi xii Microsoft went further and committed to removing its historic emissions by 2050, in addition to achieving a carbon neutral supply chain.xv

Committing to a green recovery is not just good for the environment; it makes financial sense. Green consumerism continues to gain momentum, especially among consumers under the age of 40, with surveys showing that more than two-thirds of those consumers don’t mind paying a premium for sustainably produced products.xiv Reputational benefits present additional incentives to embrace a green recovery and improve a company’s ESG performance, as sustainable companies can more easily attract top talent, boast higher retention rates, and increase customer loyalty.xv

Key Takeaways

  • Engage leadership and set supply chain sustainability goals: Gain a greater understanding on what information similar corporations are disclosing, which standards and frameworks are used, and overall report style.
  • Integrate environmental considerations into procurement decisions: Set environmental benchmarks for potential suppliers and integrate ESG ratings into the procurement decisions.
  • Analyze existing suppliers’ environmental performance: identify high and low risk performers in terms of their environmental stewardship and call for performance improvement, when needed.

Responding to Increased Scrutiny on Suppliers’ Social Performance

Recent calls for racial inclusion and the protection of workers’ health and safety have resulted in greater attention on the social performance of a company’s suppliers. Regardless of the procurers’ social performance, companies can face significant financial and reputational risks when their suppliers violate labor laws, discriminate, or negatively impact their local communities.

Supply chain transparency in the fashion industry has been a hot topic for many years, with brands like Lacoste and Adidas pledging to cease all activity with direct and indirect suppliers using forced Uighur labor, following a public campaign from an EU parliament member.xvi

Conversely, companies committed to strong social performance across their supply chains mitigate these risks and benefit from positive publicity and brand differentiation. IBM provides a good case in point: it attributes its supply chain diversity as being a key factor in winning contracts.xvii There are also numerous campaigns and organizations dedicated to promoting companies that have integrated social standards across their supply chain.

Governments are also increasingly considering a supplier’s supply chain sustainability in major procurements and approvals for large, complex projects such as infrastructure, mining, and energy projects. The U.S. federal government mandates that contracts of a certain value be awarded to small businesses or include sub-contracting options to smaller businesses whenever possible, particularly to small businesses owned by women, disabled veterans, and in historically underutilized business zones.xviii

For those companies with strong social performance across their supply chain, this presents an opportunity to set themselves apart from their competitors and increase their likelihood of securing contracts.

Key Takeaways

  • Communicate social performance expectations with suppliers: Include messaging from senior executives and implement social performance requirements in procurement contracts such as the Responsible Business Alliance Code of Conduct.
  • Increase transparency with external stakeholders: Publish suppliers’ ESG ratings, which includes social performance metrics, on the company website and in annual reports.

“Partnership with our suppliers is paramount in our efforts to drive responsible manufacturing practices and diversity and inclusion in our supply chain." - DELL, 2020


Reporting on Suppliers’ ESG Performance

This year will see wide-reaching ESG regulations enter into force in several markets. The European Union released guidance in 2020 for corporations to implement effective human rights due diligence practices to address the risk of forced labor in their supply chains.xix Similarly, Germany will implement its own supply chain due diligence legislation in 2023.xx The EU Taxonomy requires financial market participants and large companies in the EU and UK to publicly disclose on their alignment with certain environmental objectives. Companies can expect to be under greater scrutiny by investors, consumers, and other companies for details on the material issues affecting their industry’s supply chains.

Other regulation frameworks around the world also require companies to guarantee that their supply chains are free from human rights abuses, such as California’s Transparency in Supply Chains Act and the UK and Australia’s Modern Slavery Acts, which mandate a firm report on the risk of modern slavery in its operations and supply chain. With regulatory trends in supply chain disclosures expected to accelerate in the coming decade, companies should begin to collect relevant data and be prepared to report on their upstream ESG performance.

While not mandatory, many voluntary reporting standards such as the Global Reporting Initiative (GRI), Task Force on Climate-Related Financial Disclosures (TCFD), and Sustainability Accounting Standards Board (SASB) are also integrating supply chain disclosure requirements. ALDI Nord, one of the largest supermarket chains in the world, discloses detailed information on its suppliers in line with GRI standards. The company has also chosen to publish information on suppliers’ production facilities for selected product groups, allowing customers to trace the origins of ALDI Nord’s textiles and footwear.xxi With 80% of Fortune 100 companies using the GRI standards to report on their sustainability-related activities, voluntary disclosures of a company’s supply chain sustainability are becoming commonplace and expected by many stakeholders.

Key Takeaways

  • Improve data collection and data management of suppliers’ ESG performance: Source quality data on end-to-end operations to ensure compliance with current and future disclosure regulations, as well as ease reporting requirements of voluntary standards, e.g., GRI.
  • Report using voluntary reporting standards: Disclose using internationally recognized reporting standards to increase transparency and create internal incentives for continuous improvement.

“Sustainability in the supply chain is one of our top priorities. This is reflected by the assessments of our managing directors, who ranked responsible supply chain practices…as one of the biggest challenges facing our future sustainability performances.” - ALDI Nord


Integrating Climate-Related Risks

Climate-smart supply chain planning is expected to play a significant role in supply chain management in the next year and beyond. With the impacts of climate change being felt more acutely in the coming decade,xxii companies are beginning to recognize the inherent risks climate change poses to their supply chains. Higher temperatures, extreme weather events, sea-level rise, and water shortages affect the availability of crucial materials and resources.xxiii These climate-related impacts pose significant disruption risks across global and local supply chains. As such, many investors are putting pressure on companies to tackle climate-related risks in their supply chains.xxiv

Companies will need to assess their exposure and vulnerability to climate-related risks along their supply chain and put mitigation plans in place, including asset protection measures and alternative material sources. For instance, in New York, energy suppliers have begun building higher sand and gravel banks around key infrastructure to mitigate future supply chain disruptions after Hurricane Sandy revealed the fragility of the state’s fuel supply to extreme weather events.xxv Global restaurant chains, including Chipotle and McDonald’s, have also started integrating climate change risks into their supply chain management, including conducting water risk assessments along their supply chain and diversifying suppliers.xxvi Salesforce introduced new climate commitments in its contracts to help suppliers track and reduce their carbon emissions.xxvii

Key Takeaways

  • Identify risk exposure across suppliers: Conduct a climate vulnerability risk assessment or identify suppliers with weak environmental management systems.
  • Support suppliers in addressing climate-related risks to their operations: Build strategic partnerships with suppliers to jointly work on implementing climate change mitigation and adaption measures (e.g., the physical protection of key assets or moving high-risk facilities).
  • Investigate alternatives for high-risk materials: Source substitute materials or secondary suppliers for material or products at high-risk.

Gaining Greater Visibility Across Lower-Tier Suppliers

Traditionally, companies have demanded that their Tier 1 suppliers – the manufacturer or service provider providing goods or services directly to the company – comply with certain ESG standards, with the expectation that these suppliers demand similar ESG performance from their own suppliers. In practice, this cascading effect along the supply chain rarely occurs, with significant ESG-related risks remaining further upstream in the supply chain.

Studies have shown that most lower-tier suppliers – those smaller companies providing materials and products to Tier 1 suppliers – fail to mirror the ESG standards expected from the end procurer.xxviii The public fallout Hewlett-Packard and Applexxix weathered when allegations surfaced of hazardous working conditions in suppliers’ factories are potent examples of the risks that lower-tier suppliers pose to a company.

Companies can mitigate these risks by analyzing their lower-tier suppliers and addressing potential vulnerabilities. Gaining total visibility on end-to-end operations can be challenging for a company, with approximately two-thirds of companies reporting that they lack crucial information on business-continuity arrangements with their lower-tier However, thanks to advances in artificial intelligence, machine learning, blockchain technology, and big data, companies can now leverage digital solutions to collect, aggregate, and analyze ESG data on suppliers. These advanced technologies create opportunities for businesses to identify problematic suppliers beyond Tier 1, avoid costly controversies, and promote their sustainability efforts with the certainty that their total supply chain will stand up to stakeholder scrutiny.

Key Takeaways

  • Utilize data to improve end-to-end visibility: Use enterprise solutions that measure and analyze lower-tier supplier data.
  • Build collaborative relationships with suppliers: This could include formal and informal information exchanges to increase visibility on upstream issues and develop a more collaborative mindset to support each other in case of disruptive events.

Supporting Suppliers Through Access to Capital and Capacity Building

Many small and medium-sized suppliers may lack the knowledge or access to financing to align their operations with a procurer’s ESG standards. This can prevent some smaller suppliers from winning bids or cause them to fail compliance audits. To ensure that smaller suppliers can satisfactorily comply with their ESG standards, some banks and companies have begun providing financing programs and capacity training to their suppliers to improve their ESG performance. The sports apparel company, PUMA, provides a financing program to suppliers to improve their environmental, health and safety, and social standards.xxxi

Capacity building also provides opportunities to promote diversity and inclusion across the supply chain by empowering minority-owned small businesses to supply to larger procurers. For instance, Nutrien, a Canadian agricultural company, works with majority Indigenous-owned companies they call ‘Opportunity Partners’ and extends additional resources to allow them to be more competitive in Nutrien’s supply chain.xxxii

Key Takeaways

  • Provide training resources for suppliers: Provide simple online tools or in-person training, which equip suppliers with the skills, knowledge, and systems to manage ESG issues.
  • Investigate supply chain financing programs: Provide loans to suppliers, with loan terms conditional on the suppliers’ ESG performance, in partnership with financial institutions or alternative lenders.

Shifting the Dial: Supply Chain Sustainability in Practice

Given the accelerating trends in supply chain management, integrating ESG considerations throughout the supply chain will be a key priority for companies in 2022 and beyond. The COVID-19 pandemic and its subsequent ripple effects on shipping and product availability and pricing have demonstrated the need for companies to rethink supply chain management practices, source new suppliers, and embed sustainability criteria to ensure their supply chains are future-proof.

However, building a sustainable supply chain takes time and resources. Companies can use enterprise software and other digital tools to increase the efficiency and effectiveness of their transition to a sustainable supply chain. These advanced tools utilize robust ESG risk data, sophisticated algorithms, and machine learning to quickly analyze risks across the supply chain and provide insight into the ESG performance of the entire supply chain, including lower-tier suppliers. These enterprise solutions and other supply chain sustainability practices mentioned in this guide can help build and maintain supply chains that are able to weather the uncertainties of tomorrow.


i Bové, A. and Swartz, S. (2016), ‘Starting at the source: Sustainability in supply chains,’ McKinsey & Company, accessed (12.01.21) at:

ii Since the early 1990s, Nike’s use of overseas suppliers has been under scrutiny, with several alleged incidences of overtime violations, poor employment conditions, and worker abuse. Banjo, S. (2014), “Inside Nike’s Struggle to Balance Cost and Worker Safety in Bangladesh,” Wall Street Journal, accessed (18.01.21) at:

iii Marks & Spencer faced public criticism of worker abuse including forced overtime, firing of pregnant women and underage labor in their supply chain, as well as public reproval for a lack of transparency in addressing the allegations. Graham-Harrison, E. (2015), “M&S and others supplied by factories that mistreat workers, rights group says,” The Guardian, accessed (18.01.21) at:

iv After allegations of use of child labor in its supply chain, Hershey faced a coordinated consumer boycott of its products. Business and Human Rights Resource Centre (2011), “Consumers Use Smart Phone Codes in supermarkets to Campaign Against Child Labor in Hershey Bars,” Business and Human Rights Resource Centre, accessed (28.01.21) at:

v Business for Social Responsibility (BSR) (2010), ‘The Business Case for Supply Chain Sustainability,’ BSR, accessed (12.01.21) at:

vi Lund, S. et al (2020), ‘Risk, resilience and rebalancing in global value chains,’ McKinsey & Company, accessed (14.01.21) at:

vii i Lund 2020a

viii Lund 2020b

ix Krukowska, E. and Millan Lombrana, L. (2020). ‘Europe’s Green Recovery Plan has green strings attached,’ accessed (14.01.21) at:

x The number of commitments to reach net zero emissions from local governments and businesses has roughly doubled in less than a year, as many prioritize climate action in their recovery from Covid-19. United Nations Framework Convention on Climate Change (UNFCCC) (2020), ”Commitments to Net Zero Double in Less Than a Year,“ UNFCCC, accessed (19.01.21) at:

xi Apple (2020), ”Apple commits to be 100 percent carbon neutral for its supply chain and products by 2030,“ Apple, accessed (19.01.21) at:

xii Novartis (2020), ”Climate,” Novartis, accessed (29.01.21) at: environmental-sustainability/climate

xiii Microsoft (2020), “Microsoft will be carbon negative by 2030,” Microsoft, accessed (28.01.21) at:

xiv Nielsen (2018), “Unpacking the Sustainability Landscape, “ Nielsen, accessed (13.01.21) at:

xv Olupinyo, G. (2020), “Benefits of Sustainability: Improved Employee Attraction, Engagement and Retention,” Green Business Bureau, access (20.01.21) at:

xvi Glossy (2021), “Lacoste and Adidas pledge to cut forced Uighur labor from supply chain “ Glossy, accessed at (16.12.21) at:

xvii IBM (2020). ‘IBM Corporate Responsibility Report 2019,’ IBM, accessed (16.01.21) at:

xviii U.S. Small Business Administration (SBA) (2020), ”Set-Aside Procurement,“ SBA, accessed (29.01.21) at:



xxi ALDI Nord (2020), ”ALDI Nord 2019 Sustainability Report,” ALDI Nord, accessed (20.01.21) at:

xxii McFall-Johnsen, M. (2019). ‘Painfully slow hurricanes, deadly heat, and cities without water: What the climate crisis will look like in the next 10 years, according to experts,’ Business Insider, accessed (14.01.2021) at:

xxiii Goldstein, A., Turner, W.R., Gladstone, J. et al. (2018), ”The private sector’s climate change risk and adaptation blind spots,“ Nature Climate Change, Vo 9, pp. 18–25

xxiv Scott, M. (2020). ‘Fast Food Giants Need To Tackle Climate and Water Risks, Investors Warn,’ Forbes, accessed (14.01.2021) at:

xxv Zawadzki, S. and Sussman, A. (2013). ‘Analysis: Six months after Sandy, New York fuel supply chain still vulnerable,’ Reuters, accessed (13.01.21) at:

xxvi Chipotle is securing alternative sources for avocados due to rising temperatures and prolonged droughts in key agricultural regions in Mexico, the primary producer of avocados. McDonald’s has publicly disclosed an assessment of its meat and dairy suppliers’ exposure to water risks. Forbes (2020), “Fast Food Giants Need To Tackle Climate And Water Risks, Investors Warn,” Forbes, accessed (28.01.21) at:


xxviii Villena, V. and Gioia, D. (2020). ‘A More Sustainable Supply Chain,’ Harvard Business Review, accessed (11.01.21) at:

xxix Allegations of labor law violations, including excessive overtime and unsafe working conditions, were made against a key supplier to major tech brands, resulting in intense public scrutiny and changes to the supplier‘s labor practices. Barboza, D. (2012), ”Foxconn Plans to Lift Pay Sharply at Factories in China,“ New York Times, accessed (28.01.21) at: https://www.nytimes. com/2012/02/19/technology/foxconn-to-raise-salaries-for-workers-by-up-to-25.html?_r=1

xxx Sneader, K. and Singhal, S (2021). ‘The next normal arrives: Trends that will define 2021—and beyond,’ McKinsey & Co., accessed (18.01.21) at:

xxxi BNP Paribas (2016), ” BNP Paribas and PUMA launch innovative financing program for suppliers to reward social and environmental standards ,” BNP Paribas, accessed (25.01.21) at:

xxxii Nutrien (2020). ‘2020 Environmental, Social and Governance (ESG) Report,’ Nutrien, accessed (14.01.21) at:

Connect with Our Team of Experts to Learn More About Corporate ESG and Sustainable Finance

Sustainalytics, a Morningstar Company, is a leading global ESG research, ratings, and data firm supporting corporations and their financial intermediaries to consider sustainability issues in their policies, practices, and capital projects. As the leading second-party opinion provider in the market, Sustainalytics offers issuers credible verification on the use of proceeds for sustainable finance products. Corporations also leverage Sustainalytics’ ESG Risk Ratings to understand and promote their ESG performance with their internal and external stakeholders. The firm has received awards in recognition of its ESG solutions and opinion services, most recently from Climate Bonds Initiative, Environmental Finance and GlobalCapital. With 17 offices globally, Sustainalytics has more than 1,700 staff members, including more than 800+ analysts with varied multidisciplinary expertise across more than 40 industry groups. For more information, visit