Insofar as environmental, social and governance (ESG) promotes fundamental ideals like complying with the law, treating employees fairly, and avoiding pollution, it is not new. What is new is businesses assessing where they are in relation to such ideals, where they want to be, and then reporting all that out to stakeholders. That exercise may be voluntary based on the conclusion that it makes good business sense to undertake it, or it may be mandatory because evolving regulatory frameworks require it. A common misconception is that ESG extends only to large publicly-traded companies and that privately-held small and medium size enterprises need not tune in. But, there are strong—and increasing—indicators to the contrary. Regulatory and market demands will likely continue to push ESG deep into supply chains. The result is every business along those chains could be made to take up ESG efforts, regardless of a given business’s order of magnitude.

As a threshold matter, overlooking supply chains in crafting and implementing ESG strategies could skuttle those plans. Businesses that fail to address ESG factors at their supply chains expose themselves to reputational and litigation risk based on claims that their ESG representations do not accurately reflect all of what the business is doing and how it is doing it. That means that the entities in those supply chains will, in turn, be called upon to undertake ESG efforts and make ESG disclosures on which the businesses to whom they supply goods and services can rely.

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