Published: June 17, 2025
Companies face pressure from regulators and investors to monitor their supply chains for environmental, social and governance risks that could negatively impact operations or reputation.
Some firms are engaging in resource-intensive supplier assessments to investigate potential sustainability risks, but many are not taking the initial step of screening their suppliers to help pinpoint which ones are most likely in need of an assessment. According to S&P Global Sustainable1 data, 63% of companies are conducting supplier assessments but lack a screening process.
Introducing a more rigorous supplier screening process from the outset can help save companies time and money by eliminating unnecessary assessments.
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eopolitical tensions and a volatile international trade environment have put supply chains squarely in the spotlight. Companies have traditionally sought to balance efficiency, cost control and quality in the inputs they source, from agricultural commodities to manufacturing components like microchips. In recent years, however, regulators and investors in many parts of the world have put stronger pressure on these companies to prioritize sustainability due diligence in their supply chains. Companies are increasingly expected to assess the environmental and climate risks embedded in their supply chains and what kind of labor and human rights protections their suppliers promise — with the goal of avoiding potential damage to corporate reputation and operations and ensuring compliance with the sustainability requirements usually set out in supplier codes of conduct. Identifying and mitigating these risks has become a key element of building supply chain resilience.
Identifying risk exposure is itself a multistep process, yet many companies are skipping the critical early step of proactively identifying sustainability risks among their suppliers through a screening process, according to our analysis of data collected in the S&P Global Corporate Sustainability Assessment (CSA). Firms are instead casting a wide net across their suppliers with detailed assessments, a more expensive and resource-intensive process that works best when targeted at the suppliers most likely to carry risk based on a preliminary screening. By conducting supply chain sustainability due diligence early and with intention, companies can better prioritize assessments and streamline supplier engagement, ultimately creating a more resilient supply chain and supporting long-term, sustainable value creation.
Many companies establish a supplier code of conduct to represent the basic ethical commitments and standards they expect suppliers to follow. This is often a company’s first signal to suppliers, customers and the wider market that it is placing emphasis on sustainability in its supply chain.
In terms of selecting and managing the suppliers it does business with, a company typically follows several steps: screening, assessment and development.
Supplier screening is a structured process used to identify potential sustainability risks and assess the business relevance of suppliers. Screening is the step before engaging suppliers with high risks or business relevance in in-depth assessments of their sustainability management practices. When used early in the sourcing process, screening acts like a pre-qualification step — helping companies assess whether potential suppliers meet minimum standards filters out those that pose ethical, legal or operational risks before entering a contract.
The screening process may include actual or modelled data on suppliers, their business activities, and locations, reviewing media coverage and sanctions lists, and applying risk-based screening. A screening process may consider aspects of risk including:
Environmental: Emissions, resource use, pollution, biodiversity
Social: Labor practices, human rights, community impact
Governance: Ethics, anti-corruption, compliance
Business relevance: Strategic importance, spend
Country-specific risks: Political stability, regulatory strength, human rights context
Sector-specific risks: Sustainability norms and risks typical to the industry (e.g., pollution, labor practices)
Commodity-specific risks: Issues like deforestation, forced labor, scarcity, or price volatility
In a next step, the supplier assessment process helps evaluate the sustainability management practices of suppliers that screening has identified as having “high sustainability risk” or relevance to the business. Supplier assessments can be conducted as survey-based desk assessments or as on-site audits. As such, supplier assessments are more detailed and resource-intensive than supplier screenings. If an assessment gathers information that shows a supplier’s practices or operations need to be improved, a company can collaborate with the supplier on a development plan to mitigate the issue.
The S&P Global Corporate Sustainability Assessment (CSA) is an annual evaluation of sustainability practices at more than 12,000 companies around the world. Our analysis of 2024 CSA data shows that supplier screening has not been adopted widely, and a majority of companies carry out supplier assessments without screening in advance. This gap between the adoption of screening and assessment indicates the potential for inefficiency. Screening can reduce the resources spent on assessments by identifying low-risk suppliers that are unlikely to need assessment.
Across all sectors, 30% of companies have a publicly available supplier screening process, based on a sample of 5,764 companies assessed on supply chain management in the 2024 CSA. This figure ranges from only 21% of companies in the real estate sector to as high as 38% among utilities and consumer staples companies.
To unpack this further, we looked at the subset of companies that have a publicly available supplier assessment process. Of this sample of 2,726 companies, 63% are performing supplier assessments without first conducting screening. This was the case for a majority of companies in nearly every sector. At the low end, in the communication services sector, only 44% of companies are assessing suppliers without screening, while at the high end, 73% of companies in the consumer discretionary sector are assessing without screening.
The consumer discretionary sector is a noteworthy case, as it includes companies that typically have complex supply chains: clothing brands, electronics manufacturers, luxury goods and automakers, among other categories of nonessential goods and services. A lengthy chain of suppliers is behind the final product in any of these industries. For example, a global automobile manufacturer may count around 18,000 suppliers in the supply network leading up to the cars that roll off its assembly line, according to Swiss Re. A manufacturer that skips the screening step could be assessing far more suppliers than is necessary.
The consumer staples sector is also known for its supply chain complexity. The sector includes food and beverage and household goods companies that rely on agriculture and forestry inputs from around the world. In this sector, screening before assessment is somewhat more common, but a majority of companies (53%) still are conducting assessments without a screening process first.
Low adoption in these sectors may reflect the perceived difficulty of applying a screening process to a deep network of individual suppliers that spans the globe. A company’s tier 1 suppliers — those only one step removed from the finished product — may be large companies themselves with their own complex supply chains. Each group of suppliers one step removed from the final product comprises another tier. While assessing a supplier becomes more difficult with each additional tier, screening can describe a distant supplier’s risk profile based on its context, such as what kinds of sustainability risks may be present in the country where it operates, what the norms and practices of local markets may be and what risks may be likely in the input the supplier provides.
Supplier assessment is still an essential part of supply chain management. Evaluating suppliers in more detail is resource intensive and typically involves remote, desk-based reviews using structured questionnaires completed by the supplier or on-site visits, document audits and interviews with staff. These assessments can be carried out directly by the purchasing company or outsourced to a third-party provider.
Across CSA companies that conduct supplier assessments, most (82%) conduct desk-based assessments with systematic verification of the evidence suppliers send to back up their responses. Nearly half (49%) of companies use on-site assessments conducted by the purchasing company’s own staff or a contracted consultant.
A supplier found to be deficient in some aspect of its sustainability performance — for example, pollution or environmental controls, human rights protections or business ethics — typically undergoes a development process in collaboration with the purchasing company to mitigate the problem.
CSA data shows that while 46% of companies report having a supplier assessment process, only 32% have a formal supplier development process in place. This 14-percentage point gap suggests that many suppliers are assessed but not actively supported or improved through development efforts. This disconnect also points to the potential inefficiency of widely assessing a supplier network rather than screening to identify the suppliers that are more likely to pose sustainability risk to the buyer and therefore would benefit most from an in-depth assessment. An assessment that reveals that a supplier is not in need of development may confirm what a more efficient screening process could have identified at the onset.
Successful and cost-effective supplier management is becoming more important as regulators, sustainability reporting frameworks and investors place more scrutiny on the environmental and human rights risks embedded in supply chains. The EU has put significant supply chain risk monitoring and mitigation rules in place in recent years with the Corporate Sustainability Due Diligence Directive (CSDDD) and the EU Deforestation Regulation (EUDR). The CSDDD sets out a due diligence duty for companies to prevent, end or mitigate their adverse impact on human rights and the environment across their upstream and downstream “chain of activities,” including supply, production and distribution. The EUDR requires companies that place certain products or commodities on the European market to prove they did not originate from recently deforested land or contribute to forest degradation.
The EU is considering a plan to simplify many of its sustainability reporting rules, including CSDDD, and it has proposed streamlining EUDR as well. While many investors have welcomed the proposals’ spirit of easing reporting burdens, some major investor groups have also called on the EU to maintain the ambition of these rules, including their impact on supply chain management.
There is also evidence that minimizing supply chain sustainability risk can improve companies’ market returns. Researchers found in 2023 that investing in a hypothetical portfolio of stocks with the lowest levels of supply chain sustainability risk, combined with shorting the stocks with the highest levels of risk, generated an excess return of 6.77% over a benchmark portfolio. They also found that a higher frequency of sustainability incidents among suppliers — such as pollution, impact on ecosystems, human rights abuses, forced labor or corruption — has “an incremental negative effect on future profitability” for the purchasing company.
Regulatory pressure to monitor and prevent environmental and social risks at the supplier level, combined with growing evidence that minimizing these risks is associated with higher market returns, create a strong case for companies to improve their supply chain management process. The question facing companies that decide to prioritize managing and improving their suppliers’ sustainability performance is how to do so in a cost-effective way. CSA data shows that companies are often undertaking resource-intensive supplier assessments across their supplier networks without first identifying whether such assessments are necessary. By strengthening supplier screening processes upfront, companies may be better able to target their assessment and development efforts to build more resilient and risk-informed supply chains.
