Craig Coulter, advanced manufacturing and mobility sustainability leader with EY, assesses the progress that supply chains are making in complying with environmental, social and governance (ESG) requirements.

Many companies are undertaking the digital transformation of their supply chains. In the process, however, not all are addressing the need to conform to fast-developing ESG mandates.

“Awareness is out there,” says Coulter, “but a lot more needs to be done.” Companies must realize that the migration to digital systems goes hand in hand with ESG concerns, and can lead to greater sustainability of supply chains.

Among the obstacles to progress on the ESG front is the siloed nature of organizational functions. That prevents various departments from sharing and disseminating data in compliance with upcoming regulations such as the European Union’s Corporate Sustainability Reporting Directive (CSRD).

External concerns exist as well. Of particular concern is the need to comply with reporting requirements regarding emissions generated by supply chain partners over whom the manufacturer, retailer or distributor has no direct control. Cooperation among those entities is essential to obtaining the necessary emissions data for reporting and improving operational efficiencies.

There’s much talk about the ability to receive reporting data in “real time,” but Coulter says that’s not essential from a compliance perspective. Still, if a company can make changes to its supply chain on the fly, in response to unanticipated events, it would add value to the organization and achieve a measure of competitive advantage.

When it comes to enabling ESG compliance, there’s no time to lose. Regulations such as the CSRD are sure to include penalties for failing to report emissions data on a timely basis. What’s more, companies need to have their data certified by third-party auditors. “It’s going to require a lot more rigor around how data is gathered, stored and structured,” Coulter says.