Once considered a back-office concern, the supply chain is now a focal point for environmental, social, and regulatory scrutiny. For organisations committed to sustainable supply chain practices, traditional risk assessments are no longer sufficient. A more comprehensive evaluative framework is required: double materiality.
Double materiality refers to the dual consideration of financial materiality (how sustainability issues affect a business) and impact materiality (how a business affects people and the planet). This dual perspective is fundamental for companies aiming to build resilience, transparency, and compliance across their operations. At Ikano Insight, we support organisations in adopting data-driven, ESG-centric strategies to advance supply chain sustainability, aligning performance with purpose.
Below we will examine the role of double materiality in supply chain decision-making across three critical areas:
- Supplier selection and relationship management
- Integration of ESG criteria in procurement
- Risk management and mitigation
How double materiality influences supply chain decisions
The growing focus on supply chain sustainability is being driven by regulatory mandates, stakeholder expectations, and the imperative to address climate change and social inequity. Applying a double materiality perspective enables organisations to evaluate both the risks they encounter and the impacts they generate.
Conventional approaches to supplier selection, procurement, and risk frameworks often exclude non-financial risks and impacts. However, organisations that embed ESG considerations, including carbon emissions, labour standards, and resource efficiency, are better positioned to secure long-term value, regulatory compliance, and stakeholder trust.
By incorporating both financial and impact materiality, companies gain a holistic view of supply chain risks and opportunities. This facilitates the development of more responsible procurement policies and enhanced monitoring of supply chain ESG risks.
Supplier selection and relationship management
Strategic relevance:
Supplier selection is no longer driven solely by cost and quality. Organisations are now held accountable for the environmental and social performance of their supply partners. Evaluating ESG factors in supplier selection enables organisations to mitigate reputational risks, achieve regulatory alignment, and meet overarching sustainability targets.
Sustainability in supply chain management demands transparency and mutual accountability within supplier partnerships. Procurement functions are increasingly responsible for advancing sustainable development through rigorous supplier evaluation and engagement.
Key ESG factors to evaluate:
- Carbon footprint and emissions reduction targets
- Labour conditions and ethical employment practices
- Responsible sourcing of raw materials
- Biodiversity and ecological impact
Sustainable supply chains deliver both ethical integrity and operational resilience. Organisations must proactively address risks such as modern slavery, environmental degradation, and opacity in extended supply networks. By integrating ESG criteria into supplier assessments, businesses can eliminate vulnerabilities that compromise sustainability and compliance.
Solution approaches:
- Conducting supplier ESG audits and risk assessments
Platforms such as IBM Envizi enable centralised ESG data management, allowing organisations to identify high-risk suppliers and monitor performance over time.
- Developing long-term partnerships with sustainable suppliers
Strategic relationships foster innovation, lower switching costs, and drive continuous ESG improvement across supply chains.
- Implementing supplier codes of conduct to enforce ESG standards
Mandating supplier adherence to defined ESG benchmarks creates a clear accountability framework and ensures compliance with sustainability objectives.
As double materiality becomes integral to supply chain decision-making, supplier selection based on ESG criteria is essential. Performance alignment with both financial goals and sustainability objectives is now a prerequisite for supplier engagement.
Ask us about support for your double materiality assessment
If you think you need help implementing double materiality assessments, get in touch on the form here, and we’ll get straight back to you to see how we can help:
Integration of ESG criteria in procurement
Why It Matters:
Procurement is one of the most influential levers for driving sustainability in supply chain operations. Integrating ESG in procurement processes embeds environmental and social considerations at the point of origin, enhancing supply chain transparency and regulatory compliance.
Procurement professionals are tasked with ensuring goods and services meet defined ESG benchmarks. Whether through selecting energy-efficient equipment or sourcing from fair trade-certified suppliers, ESG in procurement processes translates sustainability commitments into operational actions.
Key ESG factors in supply chain procurement:
- Circular economy principles
- Waste and emissions reduction
- Sourcing of renewable and recyclable materials
- Supplier diversity and inclusion
Sustainable procurement practices support ESG goals while generating cost efficiencies and mitigating risk exposure. Enhanced visibility into ESG risks and supplier compliance enables the construction of robust, transparent, and sustainable supply chains.
Solution approaches:
- Embedding ESG criteria into procurement policies and supplier contracts
Sustainability expectations must be formalised within tender documentation, contractual terms, and performance evaluations.
- Prioritising local suppliers to reduce emissions and support communities
Local sourcing strategies shorten supply chains, reduce logistics emissions, and reinforce social impact through community engagement.
- Deploying digital procurement tools with ESG scoring
These tools empower procurement teams to evaluate suppliers across both financial and ESG metrics, enabling informed and sustainable decision-making.
In addition, ESG factors in supply chain procurement support circular economy initiatives such as waste reduction, lifecycle extension, and materials reuse. These choices influence upstream supplier practices and downstream consumer behaviour, amplifying the sustainability impact.
Aligning procurement practices with double materiality principles establishes a supply chain that is commercially viable and environmentally responsible. Sustainable supply chain practices grounded in procurement strategy enhance an organisation’s ethical standing and operational resilience.
Risk management and mitigation
Why It Matters:
The increasing frequency and intensity of climate events, geopolitical instability, and social injustice underscore the importance of risk mitigation in supply chains through double materiality. ESG risks, if unmanaged, pose material threats to financial performance, business continuity, and corporate reputation.
Sustainable supply chain management necessitates early identification and mitigation of ESG-related risks, many of which arise beyond the organisation’s direct control. Global supply networks, particularly those with complex tier structures, demand proactive and data-led ESG risk management.
Key ESG factors in the supply chain:
- Climate risks: Floods, droughts, and extreme weather events impacting operations and logistics
- Geopolitical instability: Conflicts, sanctions, and political disruptions affecting trade
- Human rights violations: Unethical labour practices and unsafe working conditions in extended supply chains
Solution approaches:
- Real-time ESG monitoring tools
Advanced platforms provide actionable insights into supplier risk exposure and environmental impact, enabling timely interventions.
- Scenario analysis and stress testing
Modelling disruption scenarios, such as extreme weather or regulatory change, allows organisations to plan responses to high-impact events.
- Contingency planning and supplier diversification
Diversifying sourcing strategies across suppliers and regions mitigates the risk of ESG disruptions and enhances resilience.
The double materiality impact on supply chain resilience is considerable. Organisations that assess how ESG risks affect their operations and how their operations affect broader systems are better equipped to build agile and adaptable supply chains.
In parallel, regulatory developments are increasingly mandating due diligence on ESG issues within the supply chain. Proactive management of supply chain ESG risks is critical for compliance, stakeholder confidence, and long-term competitiveness.
Conclusion
Supply chain sustainability is no longer a discretionary consideration, it is a strategic imperative. Companies must integrate both financial and impact materiality to make informed, responsible decisions that safeguard operations and advance global sustainability objectives. Double materiality in supply chains facilitates:
- Supplier selection based on ESG criteria
- Sustainable supply chain practices within procurement
- Risk mitigation in supply chains through double materiality
Embedding double materiality into procurement and supplier strategy strengthens compliance frameworks, enhances transparency, and provides a foundation for continuous ESG performance improvement. As sustainability disclosure requirements evolve, organisations with ESG-aligned, resilient supply chains will be best positioned to thrive in a competitive and accountable business environment.
At Ikano Insight, we support organisations in addressing supply chain ESG risks through advanced analytics, the IBM Envizi platform, and expert advisory services. By integrating financial insight with environmental and social accountability, we empower clients to establish transparent, resilient, and sustainable supply chains.
Written by Peter Jones
Head of Sustainability
Skilled in sustainability strategy and analytics, Peter is passionate about steering organisations toward a sustainable future, leveraging strategic vision and extensive experience for global betterment and bottom-line success.
