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Your supply chain can be both your greatest asset and your greatest vulnerability.
Suppliers are a wildcard - an unpredictable, operational enabler - and a paradox, accounting for much of your risk exposure, despite sitting outside your direct authority.
The classic supplier risk management playbook leans on compliance: send a 100-question survey that requires pulling teeth, run a daunting audit once a year, file unrepresentative reports. Suppliers push back and clients are intimately aware that risks are still there, resulting in friction, frustration and minimal engagement - year in and year out.
Fortunately, there is another way. It requires a reframing, from compliance to collaboration. When suppliers see ESG as a process that supports them, rather than a burden imposed on them, companies cut real risk while building stronger, more resilient supply chain relationships.
Step One: Understand the ESG Risk Landscape
The first step is understanding that supplier ESG risk is your problem.
McKinsey found only 2% of companies have visibility beyond their supply chain’s second tier, and fewer than half even know where their tier one suppliers are located.1 That blind spot is costly: labor issues, safety failures and environmental gaps surface first in the supply base and once public, the liability shifts to you.
Regulators are also making this visibility mandatory. The EU’s Corporate Sustainability Due Diligence Directive (CSDDD) requires companies to identify and act on ESG risks across their supply chains.
It’s not just a matter of avoiding losses. A recent Bain & Co survey found that 90% of market-leading companies expect sustainability to have a positive impact on their business over the next three years.2 That outlook is reshaping procurement: more companies are assigning business to suppliers that demonstrate credible sustainability performance, while those that can’t are being left behind.
If you can’t see your supplier risks entity-by-entity, you can’t prioritize and certainly can’t capture the upside. Half the work is deciding you need that visibility in the first place. Without it, suppliers won’t engage and your ESG program won’t move.
Step Two: Put the Right Mechanisms in Place
Once you’ve decided supplier ESG risk is a business priority, the next step is to formalize the rules of engagement, usually through a strong supplier code of conduct: the document that sets expectations, outlines your ESG commitments and defines your authority.
A strong code does two things. First, it gives you the right to request evidence, audit performance and demand corrective actions. Second, it includes both incentives (Carrots) and terms for consequences (Sticks). Carrots can include lighter monitoring, faster onboarding or stronger access to bidding lists for compliant suppliers. Sticks are the contractual rights to demand corrective action, escalate oversight, or terminate agreements when suppliers don’t comply. Without those levers, the process collapses.
Industry dynamics matter too. In sectors like FMCG or retail, buyer leverage is high. Suppliers compete aggressively and compliance conditions stick. In contrast, in industries such as heavy equipment or construction, entrenched suppliers often hold bargaining power due to high switching costs, geographic dominance, or capacity constraints. Here, positioning ESG as a client-funded support service, not oversight, is critical to securing cooperation. The authority you have depends on the industry you’re in. The mechanism is the same; the way you apply it changes.
Step Three: See Through the Supplier’s Eyes
There is merit in a supplier’s resistance. The requirements often make no sense from their perspective. Questionnaires are long. Documentation requests lack context. While one client asks for a policy, the other asks for raw data and another for certifications. For suppliers - most of which don’t have a dedicated ESG team - it’s overwhelming.
The result ranges from partial, outdated or unverified answers at the very least to total disengagement at most. An arbitrary and unstructured process only invites a similar outcome. Suppliers consider ESG compliance a dull game of surviving paperwork.
If the goal is supplier engagement, you need to account for their reality, which partly means providing structure and clarity. It means showing them what “good” looks like and breaking requirements into manageable steps. The other part is making it fun.
Step Four: Optimize for Engagement
Carrot, sticks and positioning are great tools, but not always enough to keep engagement high. That’s where gamification adds a critical layer. There’s a reason it’s a $30 billion market: it works.3 Studies consistently show strong links between gamification and improvements in learning, productivity and behavior change.
Harvard Business Review explains why.4 Gamification taps into three core drivers of motivation: autonomy, or the ability to choose a path; competence, or visible progress toward mastery and relatedness, or feeling part of a shared effort.
For suppliers, gamification can take different forms. For instance, they earn tiered ‘badges’ for completing milestones such as submitting policies, passing audits or achieving certifications. Leaderboards showcase top-performing suppliers by category, while progress dashboards highlight improvement over time. Linking rewards, such as preferential bidding access, to these achievements reinforces motivation.
Instead of ESG being another checklist, it becomes a system where each action visibly moves them forward.
Tech as an Enabler
None of this is possible without technology. Codes of conduct and engagement strategies are essential, but they collapse if the process stays manual. Technology carries the complexity so that collaboration has room to work.
That’s why platforms designed for ESG risk management matter. They absorb the heavy work: structuring messy evidence, standardizing assessments and showing suppliers where they stand and where to go. The point is to make the relationship workable and turn ESG from a yearly audit into a guided and engaging process.
Closing Thoughts
Managing ESG risk in supply chains is one of the hardest parts of the job. Current compliance tools set the baseline, but they rarely inspire the kind of engagement needed for managing ESG risk.
The way forward is to reframe the relationship, from compliance to collaboration: that means seeing risk clearly, setting the rules, understanding the supplier’s perspective and designing mechanisms that keep them motivated to improve.
In the end, compliance is necessary but not sufficient. The companies that succeed will be those that manage suppliers through engagement, not paperwork.
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