Supply chains are becoming more complex, more transparent and increasingly regulated. Whether you are a supplier to large corporations, work in sensitive industries or simply want to reduce your risks: ESG in procurement is no longer just an add-on topic. It determines whether companies remain able to deliver, win – or lose – contracts. The SME sector faces a clear task: identify risks in the supply chain, reliably meet requirements and seize opportunities.

What Does ESG in the Supply Chain Mean?

ESG in the supply chain means that companies systematically review and manage how suppliers act in three areas:

• E (Environment): energy, emissions, water, waste, materials
• S (Social): working conditions, occupational safety, wages, human rights
• G (Governance): compliance, corruption, management systems, certifications

At its core, it is about reducing risks, increasing quality and making collaboration more stable.

For SMEs, it is important to note: it is not about fully auditing hundreds of suppliers. It is about creating transparency with simple means where it really matters.

Why Is This a Success Factor for SMEs?

• Securing major customers
  Corporations must reduce their Scope 3 emissions and provide evidence. Those who cannot provide data will be replaced.

• Better terms with banks
  Banks increasingly require information on sustainability risks – and rate companies with clear supply chain processes more favorably.

• Lower risk of disruptions
  Transparency helps to identify dependencies, price risks and quality issues at an early stage.

• Image and reputation advantages
  Reliable processes prevent greenwashing and strengthen trust.

• Less effort in audits and documentation
  Companies with structured data save time and resources.

In short: transparency reduces risk and creates competitive advantages.

A Few Practical Use Cases

Example 1: Several major customers require new ESG data – especially CO₂ values and proof of origin.

Instead of launching a major IT project, a simple solution is chosen:

• Standardized supplier questionnaire (PDF, 12 questions)
• Two risk categories: “critical” and “non-critical”
• Data maintenance in a small cloud-based ESG software

Result:

• Major customers satisfied
• Initial CO₂ hotspots visible
• Risks clearly identified (e.g. missing certifications)
• Significant improvement in the house bank’s rating

Investment: minimal. Impact: significant.

The Pragmatic Start – in Three Stages

Stage 1: Quick Wins

• Short ESG questionnaire for main suppliers
• Simple risk categories (e.g. volume, location, certifications, ESG risk)
• Create red-flag visibility (where is the real risk?)
• First supplier scorecard as a one-page overview
• Document the basic supply chain (who supplies what?)

Effect: transparency where it really matters.

Stage 2: Medium-Term Measures

• Record CO₂ data in a more structured way (rough values are often sufficient)
• Combine quality and sustainability targets in procurement
• Assess alternative suppliers (risk diversification)
• Abstract supply chain risk analysis based on modelled supply chains down to raw material level
• Integrate sustainability criteria into tenders
• Simple audits for critical suppliers
• Launch training and joint development programs

Stage 3: Long-Term Transformation

• Fully integrated supplier management systems
• More in-depth Scope 3 analyses
• Joint CO₂ reduction programs
• Send a supplier code of conduct with requirements to suppliers
• Long-term, binding partnerships with key suppliers
• Standardized scorecards, audits, KPI management
• Close integration with product development and strategy

This is where procurement evolves from a “cost factor” to a strategic value driver.

What Happens If You Do Nothing?

• Exclusion from the supply chains of large companies
• Worse terms from banks
• Growing compliance risks (especially in sectors relevant to the German Supply Chain Act)
• Price and supply risks remain invisible
• Reputation risks in audits, inspections and with customers
• Competitors appear more modern, more reliable and easier to manage

Conclusion

SMEs do not need complex systems – they need transparency, structure and collaborative partnerships. ESG in procurement starts with a few well-chosen steps and then evolves. Companies that act early secure their ability to deliver, improve their position with customers and banks, and sustainably reduce risks.

Further Article

Basis article: ESG as a success factor

Sylvia Albrecht

Senior Consultant and Team Lead Supply Chain.
With 20 years of experience in procurement and procurement consulting, her focus is on sustainable sourcing and the Supply Chain Act (LkSG, CSDDD). Through her many years of work in and with procurement, she knows the processes of sustainable supplier management and understands the value contribution that procurement can make to a sustainable corporate strategy. Sylvia also leads Terra’s EcoVadis training partner program.

Questions? Feel free to reach out by email (s.albrecht@terra-institute.eu)