In today’s global economy, the credibility of business sustainability strategies hinges not only on what a company controls directly but on the integrity of every link in its supply chain. While boardroom commitments and ESG reports may look comprehensive, many organisations unknowingly overlook high-risk blind spots embedded in their procurement and supplier networks. These oversights can derail well-intentioned strategies and expose brands to reputational, operational, and regulatory risk. Continue reading as we unpack ten often-missed ESG strategy pitfalls and showcase companies leading the way.
What is ESG?
ESG, short for Environmental, Social and Governance, is a framework used to assess how an organisation manages risks and opportunities related to sustainability and ethical impact. An ESG strategy covers:
- Environmental: How a business impacts and manages natural resources (e.g. carbon emissions, waste, water use, biodiversity).
- Social: How it treats people, from employees, suppliers, and communities (e.g. labour rights, diversity, health & safety).
- Governance: How it’s run in terms of leadership ethics, accountability, transparency, and compliance (e.g. board diversity, anti-corruption, executive pay).
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10 common ESG strategy risks in the supply chain
Here are 10 common ESG strategy pitfalls that can derail even the most well-intentioned strategies and how forward-thinking businesses can avoid them.
1. Lack of supplier transparency
When organisations lack visibility beyond their Tier 1 suppliers, they risk blind spots in emissions, labour practices, and ethical sourcing. Without full transparency, ESG reporting becomes a guesswork exercise rather than a compliance framework.
Action point: Invest in supplier mapping and transparency tools to trace relationships deeper into the chain, ideally to Tier 3 and beyond.
2. Overlooking subcontractors and informal labour
Subcontractors, particularly in agriculture, apparel, and construction, are often unmonitored yet rife with social risks, including unsafe conditions, underpayment, and even forced labour. Informal workers may operate outside any formal oversight, leaving companies exposed to reputational damage.
Action point: Mandate full disclosure of subcontracting relationships and include them in ESG due diligence and site audits.
3. Ignoring Scope 3 emissions
While many organisations report Scope 1 and 2 emissions, Scope 3 (often 70 percent of a company’s carbon footprint) remains a major blind spot. These indirect emissions stem from purchased goods, logistics, and even supplier energy use.
Action point: Begin with estimating high-impact categories using secondary data, then progressively engage suppliers for actual data and reduction plans.
4. Treating ESG as a one-time audit
A static supplier audit at onboarding isn’t enough. Without ongoing engagement, ESG conditions can regress, certifications can lapse, and new risks can emerge.
Action point: Shift from annual audits to continuous monitoring using real-time dashboards, supplier portals, and performance reviews.
5. Misalignment between procurement and ESG teams
Procurement teams often prioritise cost and delivery timelines, while sustainability teams push for ethical sourcing. Without collaboration, ESG goals are easily sidelined.
Action point: Embed ESG strategy KPIs into procurement scorecards and ensure sustainability and commercial goals are aligned in supplier negotiations.
6. Greenwashing by suppliers
Suppliers may market themselves as “green” or “ethical” without third-party validation or credible evidence. This exposes the primary buyer to accusations of greenwashing and investor distrust.
Action point: Require evidence of third-party certifications (eg, B Corp, Fair Trade) and conduct random compliance checks.
7. Cultural and regional blind spots
ESG expectations based on European or North American norms may not align with legal, cultural, or infrastructural realities in other regions. This can result in ineffective policies or ethical grey zones.
Action point: Localise your ESG criteria in consultation with regional experts and consider “minimum viable” ESG standards where infrastructure is limited.
8. Overdependence on a single supplier
Relying on a single supplier increases exposure to ESG failures. If that supplier faces legal action, environmental fines, or worker protests, the ripple effect hits your brand immediately.
Action point: Build redundancy into your supplier network and evaluate suppliers not just on price, but on ESG maturity and resilience.
9. Failing to embed ESG in contracts and incentives
If ESG isn’t written into supplier contracts, it’s not enforceable. Moreover, if it’s not incentivised, it’s often deprioritised.
Action point: Include ESG strategy clauses in all procurement contracts and consider incentive models such as ESG-linked bonuses or longer contract terms for high-performing suppliers.
10. Disconnected data and reporting
Fragmented ESG data across spreadsheets, systems, and regions results in inconsistent disclosures, missed red flags, and poor decision-making.
Action point: Invest in an integrated ESG reporting platform that allows supplier scorecarding, real-time tracking, and streamlined reporting to stakeholders.
Best ESG strategies from companies across the globe
Here are real-world ESG strategy examples of companies putting sustainability into action across their supply chains with clear, measurable impact.
BMW Group – Global supplier ESG integration
Strategy: BMW integrates strict ESG compliance into its 12,000+ supplier contracts across 140 countries. The company mandates adherence to environmental standards, labour rights, and human rights, and has built an AI-based compliance system to flag risks proactively.
Outcome: By embedding an ESG strategy into sourcing from the outset, BMW reduced its exposure to regulatory risk and protected its brand reputation. It’s estimated that this systematic ESG oversight helped reduce carbon emissions across the supply chain by over 40 percent in specific parts-sourcing initiatives.
Cisco – Enforceable social risk interventions
Strategy: When Cisco discovered underage workers through its routine supplier audits, it demanded immediate corrective action and ensured payment of fair wages. Cisco continuously assesses Tier 1 and Tier 2 suppliers and publishes transparent social performance data.
Outcome: The swift action enhanced Cisco’s credibility with ESG investors and stakeholders. Cisco maintains its position on multiple ESG indices and saw increased institutional investment from sustainability-focused funds as a result.
Mejuri – Scope 3 emissions reductions through collaboration
Strategy: Mejuri, a mid-sized jewellery brand, partnered with other fashion companies to create collective strategies for addressing Scope 3 emissions. The brand emphasises responsible sourcing, supplier engagement, and reducing packaging waste.
Outcome: By working collaboratively rather than independently, Mejuri achieved cost-effective emissions reductions. The brand has seen significant growth in customer loyalty and brand equity, particularly among Gen Z and millennial buyers.
Treefera – Tech-driven traceability
Strategy: UK-based Treefera uses AI, drone, and satellite data to monitor the first mile of supply chains in commodities like coffee and palm oil. The platform verifies sustainability claims and flags illegal deforestation or social violations early.
Outcome: Treefera’s clients reduce ESG risk exposure and improve compliance reporting. The company recently raised $30M in Series B funding and expanded into new markets, indicating strong commercial validation of its traceability model.
Conclusion
The supply chain is often where ESG strategies either take root or unravel. Whether it’s unmonitored emissions, opaque labour practices, or patchy data systems, the most pressing ESG risks typically exist beyond an organisation’s direct control. This is precisely where progress is needed the most. Tackling these risks is about more than ticking off boxes for compliance; it’s about building more resilient, future-ready businesses.
The case studies highlighted above illustrate that responsible practices deliver measurable impact and long-term value. Ultimately, success calls for embedding ESG into the way teams work, decisions are made, and partnerships are managed. Explore our accredited sustainability training for employees to equip your entire organisation with the knowledge and tools to lead ESG efforts from within your supply chain.
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Dedicated to harnessing the power of storytelling to raise awareness, demystify, and drive behavioural change, Bronagh works as the Communications & Content Manager at the Institute of Sustainability Studies. Alongside her work with ISS, Bronagh contributes articles to several news media publications on sustainability and mental health.
