ESG Pressure Is Moving Down the Supply Chain

Environmental, Social, and Governance (ESG) criteria are no longer exclusive to large, publicly listed companies. Today, ESG expectations directly affect all supply chain actors, including small and medium-sized suppliers.

Particularly in Europe, large corporations are assigning clear responsibilities to their suppliers regarding environmental performance, ethical labor practices, and data reporting in order to comply with frameworks such as TSRS, ESRS, and CBAM.

This policy brief offers a practical roadmap for SMEs to build their ESG readiness, strengthen business relationships, and navigate compliance without being overwhelmed by complex regulations.

1. Why Are ESG Demands Shifting to Suppliers?

• Large corporations are under increasing pressure to:
  • Analyze their entire value chain (e.g. ESRS E1 and S1 scopes)
  • Improve ESG scores through supplier assessments and audits
  • Reduce Scope 3 emissions to mitigate risks under carbon-based regulations like CBAM
• As a result, small suppliers are increasingly being asked to provide certificates, declarations, and ESG-related data.

2. Challenges Faced by Small Suppliers

• Limited familiarity with ESG terminology
• Lack of human resources or reporting capacity
• Difficulty understanding legal language
• Fear of losing customers due to non-compliance

➡ The solution is not becoming a reporting expert, but rather taking scalable, structured steps toward institutional readiness.

3. Where Should Small Suppliers Start?

A. Conduct a Risk Assessment

Identify the ESG topics most relevant to your sector:

Sector	Key ESG Topics
Food Production	Hygiene, waste, water usage
Textile	Chemical use, occupational safety
Logistics	Emissions, fuel consumption

B. Prepare Basic ESG Data

Keep simple records in the following areas — this is sufficient for a first step:

• Electricity and fuel consumption (for Scope 1–2 emissions)
• Number of employees, age and gender breakdown
• Overtime, unionization, and occupational safety violations
• Waste types and disposal methods

C. Certifications / Commitment Letters

• Even if you don’t yet hold ISO 14001 or ISO 45001:
  • ✅ You can provide a written commitment letter declaring your ESG principles to your customer.

4. Digital Tools and Templates: Big Support for Small Suppliers

• Excel-based ESG tracking templates (S4A templates coming soon)
• Free environmental calculators (e.g. Carbon Footprint Calculator for SMEs)
• Online training platforms (offered by KOSGEB, ISO, TSE, etc.)

5. Turning ESG Into a Business Opportunity

ESG compliance is not just an obligation — it’s a pathway to competitive advantage.

Opportunity	How?
Access to new clients	Provide ESG-aligned certificates or declarations
Better supplier scoring	Submit ESG data proactively
Access to low-cost financing	Meet green loan eligibility criteria
Enhanced crisis resilience	Manage EHS and environmental risks proactively

Conclusion

For small suppliers aiming to work with large companies, ESG readiness is now a key differentiator. No one expects SMEs to master all ESG indicators — but keeping basic records, showing improvement, and demonstrating reliability is more than enough.

At S4A, we support small businesses with custom-designed guides, templates, and advisory tools to help them understand and manage ESG compliance — efficiently and effectively.