A majority of companies are failing to take the crucial early step of screening suppliers for ESG risks, opting instead for costly and time-consuming assessments that could be streamlined, according to S&P Global Sustainable1, an intelligence unit of S&P Global.

The report, authored by sustainability analysts Lauren Costello, Martin Staeheli and Ha-Chau Ngo, highlights a major inefficiency in corporate supply chain practices, particularly as regulatory and investor scrutiny increases.

“Many companies are conducting supplier assessments without first identifying which suppliers are most likely to present sustainability risks,” said Costello, lead author of the report. “This shotgun approach wastes resources and overlooks the opportunity to build more resilient, risk-informed supply chains.”

Gap Between Assessment and Screening

Drawing from 2024 data in the S&P Global Corporate Sustainability Assessment, the authors found that 63 percent of companies with supplier assessment processes do not conduct preliminary screenings.

Only 30 percent of 5,764 companies evaluated had a publicly available supplier screening process in place.

Costello noted that “screening helps prioritize risk and relevance, enabling companies to focus their efforts where it matters most.”

The screening process can identify ESG risks related to environmental degradation, labor practices, corruption, and business relevance before companies undertake full-scale assessments.

It typically leverages a mix of real or modeled data, regulatory information and media reports.

Sector-Wide Disconnect

The gap is widest in the consumer discretionary sector, where 73 percent of companies assess suppliers without first screening them.

These firms — including automakers, apparel brands, and electronics manufacturers — often have extensive and complex supply chains.

Even in the consumer staples sector, which relies on global agricultural and forestry inputs, 53 percent of companies still conduct assessments without screening first.

“Many companies are overwhelmed by the scale of their supply networks,” said Costello. “But screening can help manage that complexity by identifying context-based risks — such as those related to geography, commodity type or sector norms.”

Underdeveloped Development Plans

Supplier assessment is often followed by development plans when issues are found. However, S&P’s analysis showed that while 46 percent of companies perform supplier assessments, just 32 percent have formal development processes in place.

“This 14-point gap signals inefficiency,” Costello said. “It means many companies are investing in identifying problems but failing to follow through with corrective action.”

The findings suggest that strengthening early-stage screening could reduce unnecessary assessments and concentrate development efforts on suppliers most in need of support.

Regulatory and Market Pressures Rising

The pressure to monitor ESG risks in supply chains is mounting, especially in the European Union. The Corporate Sustainability Due Diligence Directive and the EU Deforestation Regulation impose strict obligations on companies to identify and mitigate sustainability risks throughout their entire value chains.

While EU regulators have proposed easing some of these requirements, investor groups have urged the bloc to preserve its rigor.

In parallel, investors are increasingly rewarding companies with lower supply chain ESG risk. A 2023 study cited by S&P found that portfolios favoring firms with minimal supplier sustainability risk outperformed the benchmark by nearly 7 percent.

Looking Ahead

Costello emphasized that supply chain sustainability must become both smarter and more targeted.

“It’s not just about identifying risks — it’s about doing so efficiently. Companies that implement robust supplier screening can save costs, enhance resilience, and deliver long-term value,” she said.

As regulatory frameworks evolve and market expectations intensify, the report makes clear that ignoring screening processes could leave companies exposed — financially, reputationally and operationally.