5 Key Insights on ESG & Sustainability Risks to Manufacturers in 2025

ESG and sustainability challenges continue to mount for manufacturers. As regulations—and stakeholders—demand new levels of accountability, companies are left with the difficult challenge of obtaining deeper, more detailed insights into their supply chains. 

In our recent webinar, Best Practices for Managing Sustainability Risks in Manufacturing, Verdantix ESG & Sustainability Industry Analyst Jessie Wilson and Z2Data Director of Sales Ruth Gray covered the biggest risks companies face—and what steps they’ll need to take to get compliant. 

Here are five key takeaways:

1. Climate-change related risks could cost up to $5 trillion in damages worldwide

A 2023 Global Assessment Report on Disaster Risk Reduction by the United Nations Office for Disaster Risk Reduction (UNDRR) found that “the impacts of climate change are causing existing hazards to become even more intense and occur with greater frequency.”

According to the report, “the number of recorded disasters has increased fivefold over the past 50 years.” This trend is expected to accelerate, causing challenges that include:

• Electricity production
• Challenges in matching energy demand
• Urban flooding, especially in South Asia and Southeast Asia
• Drops in labor productivity

Extreme heat alone is projected to drive “climate change-related costs of about $5 trillion worldwide,” explained Wilson in the webinar. Additionally, the European Environmental Agency has cautioned that the EU faces a growing risk of financial shocks from climate change, with potential economic losses exceeding €1 trillion annually.

For companies with large global footprints in their supply chain networks, these climate-induced changes expose companies to a greater degree of risk. From increasing energy costs to pressures on global ports and maritime supply chains, companies must rise to the formidable challenge of contending with these risks.

2. Half of consumers would avoid brands over misleading sustainability claims

It’s not enough to claim environmental friendliness to win consumers over. Today’s stakeholders expect companies to take a proactive role in transforming supply chains and ensuring accountability for social and environmental impacts. Falling short of these expectations can lead to serious reputational damage, eroding brand trust and negatively impacting credibility with existing and prospective customers. In fact, a KPMG study found that over 50% of UK consumers would avoid brands that were found to be making misleading sustainability claims.

To address this, many companies are implementing ESG and sustainability into their risk management strategies to reduce operational, financial, and legal vulnerabilities. But as Wilson puts it, “there are many challenges to achieving this…manufacturers have some of the most complex supply chains along with some of the most limited visibility, especially beyond Tier 1 suppliers.”

Some companies can have as many as 30,000 suppliers in their supply chain, making it difficult to gather all the necessary data to meet their ESG and sustainability reporting goals. And it’s not just the number of suppliers that can prove unwieldy—many companies also lack the internal resources to effectively gather such data. 

“Many manufacturers lack the necessary infrastructure to adequately gather relevant ESG data. In one of Verdantix’s recent surveys, we found that only 9% of the 400 respondents we surveyed actually believe that their supply chain emissions data quality meets financial audit requirements at present.”

For many companies, the first challenge will be setting aside the resources to collect, clean, and organize this information in order to deliver accurate ESG and sustainability reports. But as they scramble to get this information, consumers continue to look for competitors who can answer these concerns faster and more efficiently. 

3. Over 60% of suppliers feel they get too many data requests already from manufacturers

Supplier surveys continue to be the most common method of gathering critical information for ESG and compliance reporting purposes. However, this method for data collection is burdened by several limitations, especially when considering scalability and sustainability.

First, supplier surveys are not scalable to the level required by the impending slate of ESG regulations. As directives demand more insight into supplier practices and ethics, the volume of surveys being submitted to Tier 1 suppliers regarding their sub-tier visibility is going to expand quickly and dramatically. As a result, even those companies that ramp up the quality, comprehensiveness, and rigor of their surveys may still face unresponsive suppliers and diminishing returns.

Second, survey fatigue is a real and growing concern. A 2024 Voice of the Supplier survey

of suppliers found that 61% felt that “their most important customer sends them too many information requests.” Additionally, 60% of those surveyed also noted that “their most important customer expects them to do too much administration.”

Suppliers that deal with multiple clients who each demand extensive compliance information can quickly become overwhelmed. This results in incomplete or rushed responses, particularly from mid-tier suppliers who may not prioritize smaller companies. Even when responses are collected, the quality and depth of data is often substandard and may be compromised by a lack of thoroughness. This further limits the effectiveness of supplier collaboration efforts.

What’s the way around this struggle for alignment between manufacturers and their suppliers? According to Wilson, it starts by focusing on making as many in-house improvements as possible. “Embed ESG factors into your procurement operations and business decision-making. Identify ways to provide training and collaboration with all the players in the ecosystem and across the value chain, not just with your suppliers.” 

4. Even excellent supplier relationships aren’t enough to meet new regulatory reporting demands

Challenges like supplier fatigue, disconnected efforts, and visibility gaps impede organizations from accurately managing Scope 3 emissions. A 2022 CDP report revealed that even firms engaging over 80% of their suppliers only cover less than 50% of total Scope 3 emissions.

To address this, companies are turning to supply chain sustainability software. These tools provide greater transparency, automate ESG data collection, and offer training modules to enhance supplier engagement. According to Deloitte, 71% of manufacturing firms now view supply chain sustainability as a strategic priority.

However, there’s no one-size-fits-all solution. Tackling ESG risks requires assessing supply chain networks, embedding ESG considerations into procurement, and digitizing processes for real-time monitoring and analysis. By adopting a systematic approach, companies can mitigate risks, align supplier practices with ESG goals, and create a more resilient supply chain.

5. Z2Data helps companies track compliance across 60+ regulations

Sustainability and ESG compliance hinge on accurate data. According to industry reports, however, over 40% of companies struggle to gather reliable supply chain emissions data. This challenge grows as regulations like the EU’s Corporate Sustainability Reporting Directive (CSRD) and the SEC’s climate disclosure rules tighten requirements.

Z2Data streamlines ESG reporting by offering centralized access to essential supplier data across four key scopes: material compliance, supplier compliance, environmental metrics, and social governance. During the webinar, Ruth highlighted the platform's extensive resources, stating, “The platform features compliance information for over 60 regulations, data on more than 28 global sanctions lists, and ESG metrics for over 300,000 suppliers.” This comprehensive coverage empowers businesses to identify compliant partners and enhance their sustainability strategies.

Additionally, Z2Data’s vast database of over 1 billion components and materials ensures organizations can meet material traceability and regulatory requirements with ease. By automating data collection and analysis, Z2Data minimizes manual effort and equips companies to meet the growing demands of global ESG reporting standards.

In Summary

For companies who want to retain access to global markets, environmental compliance is only going to grow in importance in the years to come. In order to prepare themselves for the next half-decade of regulations, companies should begin to think about how to strategically utilize their resources—both human and technical—as well as their supplier relationships to foster greater transparency and data sharing.

To see how Z2Data can help you achieve your compliance targets, sign up for a free trial.