Supply Chain Sustainability: Benefits, Examples, and 2026 Regulations

Sustainable supply chains are a hot topic in the business world today. Roughly 84% of supply chain leaders plan to invest in climate adaptation and mitigation within the next 18 months. 

As companies face increasing pressure to reduce their environmental impact and support fair labor practices, many are looking for ways to make their supply chains more sustainable.

In this article, we’ll explore the concept of sustainable supply chains and highlight the key trends and challenges shaping them today. We will also look at companies that are leading the way in sustainable supply chain management.

Why supply chain sustainability matters in 2026

Companies have gotten used to focusing their sustainability efforts on what they can control directly—facilities, vehicles, and energy use, known as Scopes 1 and 2. In 2026, that’s no longer enough. Scope 3, or supply chain emissions, are the full story now. 

On average, a company's Scope 3 emissions are 26 times higher than its direct operational emissions combined. In sectors like manufacturing and retail, upstream supplier emissions alone equal roughly 1.4 times the EU's entire 2022 carbon dioxide output—an astounding figure. For brands, decarbonization now depends on supplier actions, not just optimizing internal fleets and facilities. 

The risk is also financial and material. Based on 2023 disclosures, the implied carbon liability hiding in upstream supply chains is estimated at over $335 billion (using a 2030 IMF-style carbon price). Investors, boards, and leadership teams can no longer ignore that reality. 

While more companies reported environmental data in 2024 than before, action is lagging. Companies are still 2.4 times more likely to set targets for their smaller Scopes 1 and 2 emissions than for their much larger Scope 3 footprint. In fact, only 15% of companies currently have any upstream Scope 3 targets at all.

The upside of sustainability is clear value creation. Tackling climate risks in the supply chain represents an estimated $165 billion in potential business gains. Companies already collaborating with suppliers on decarbonization have realized $13.6 billion in savings and produced 43 million metric tons in greenhouse gas reductions.

What is supply chain sustainability?

Supply chain sustainability is the practice of minimizing the negative environmental and social impact of a company’s operations throughout its supply chain. It involves reducing waste and emissions, using eco-friendly materials and energy sources, and ensuring fair labor practices at every stage.

How sustainable supply chain management works

For a supply chain to be considered sustainable, it has to meet a few criteria:

• The supplies themselves should be sustainable, such as using recyclable materials in packaging.
• Production and delivery should be as low emission as possible.
• The socioeconomic impact on factory or fulfillment workers must reflect fair treatment.

Sustainability is also a logistical issue: Without reliable supplies, companies can quickly run out of environmentally friendly options.

Regulations and disclosure affecting supply chains

SEC climate rule

The SEC adopted its climate-disclosure rules on March 6, 2024, focusing on risk governance, strategy, and material GHG emissions. 

However, the rule was voluntarily stayed by the SEC on April 4, 2024, pending consolidated litigation. As of March 2025, that stay remains in place while legal proceedings continue.

Consider the rule paused, not permanently shelved. 

EU CSDDD

The EU's Corporate Sustainability Due Diligence Directive (CSDDD) creates a new, far-reaching standard for operational accountability. 

The CSDDD mandates ongoing human rights and environmental due diligence across the full chain of activities, covering upstream suppliers and downstream partners. It requires grievance channels, remediation plans, and direct board-level oversight.

The directive applies to non-EU companies, too. If your brand generates over €450 million in net turnover within the EU, you fall within its scope. You must establish EU-ready supplier risk screening, update contract clauses, and have remediation playbooks ready to deploy.

The rollout is tiered, with the largest companies starting in 2027 and others following in 2028 and 2029.

California SB 253/SB 261: Timelines and reporting focus

For any major brand doing business in California, two new laws now define climate disclosure:

• SB 253 (Climate Corporate Data Accountability Act): For entities with over $1 billion in revenue, this act mandates annual disclosure of Scopes 1, 2, and 3 emissions, with assurance phasing in.
• SB 261 (Climate-Related Financial Risk): For companies with over $500 million in revenue, it requires a biennial, TCFD-style report on climate-related financial risk, starting January 1, 2026.

Brands can begin building processes now to report Scopes 1 and 2 in 2026, and Scope 3 in 2027. Start by aligning vendor contracts to ensure you can get the data needed for sharing and assurance.

Sustainable supply chains vs. green, ethical, and responsible supply chains

There are a few different terms used to describe supply chain sustainability. They are often used interchangeably, but carry slightly different meanings.

• Green supply chains focus on reducing the environmental impact of a company’s operations, for example, by reducing waste and emissions and using eco-friendly materials and energy sources.
• Ethical supply chains are focused on ensuring fair and humane treatment of workers throughout the supply chain, including by adhering to labor laws and protecting workers’ rights.
• Responsible supply chains emphasize transparency and accountability throughout the supply chain, disclosing supplier information, enforcing ethical practices, and working to prevent corruption.

Sustainable supply chains are focused on minimizing the overall environmental and social impact of a company’s supply chain. They include elements of all three supply chain types.

Sustainable supply chain examples

Understanding the trends in sustainable supply chains is only one side of the coin. It’s just as important to see how leading brands are putting sustainability into practice across their supply networks.

Cotopaxi

What they did: Hiking gear brand Cotopaxi set supplier decarbonization targets and created a clear roadmap to help all Tier-1 suppliers transition to renewable energy by 2030 and reduce Tier-2 energy use by 2035. 

In 2024, they achieved 100% water-use data coverage across both Tier-1 and Tier-2 suppliers, verified primarily by third-party audits. Cotopaci expanded their circularity efforts through their Más Vida resale program and the Renovo upcycled capsule.

Why it works: Targeting Tier-1 and Tier-2 suppliers directly, Cotopaxi addresses their Scope 3 footprint, which accounts for almost 98% of their total emissions. Full water-data coverage enables the brand to manage risk in high-impact areas such as dyeing and finishing. At the same time, the resale and upcycling programs reduce demand for virgin materials and end-of-life waste.

Tony’s Chocolonely

What they did: The chocolate company operates a 100% traceable cocoa supply chain using their BeanTracker system and enforces 5 Sourcing Principles, which include paying a living income reference price (LIRP) well above standard rates. In the 2023–24 season, the brand paid over 20,000 farmers a price that was 44% higher than the Côte d’Ivoire main-crop price.

Why it works: Full traceability allows Tony's to enforce fair pricing, implement child labor remediation systems (CLMRS), and monitor deforestation at the farm level. Today, 99.95% of their supply chain is deforestation-free, and child labor rates among long-term partner co-ops are just 3.9%—compared with an industry average of roughly 46.7%.

Three elements of supply chain sustainability

The three elements of supply chain sustainability are social, environmental, and financial.

• Social focuses on ensuring workers are treated fairly and humanely, as well as promoting social responsibility and good citizenship in the communities where the company operates. Examples include following labor laws, protecting workers’ rights, providing fair wages and benefits, promoting diversity, and supporting communities.
• Environmental centers on minimizing a company’s environmental impact, such as cutting waste, lowering emissions, using eco-friendly materials and energy sources, and encouraging conservation. Examples include reducing greenhouse gas emissions, conserving water, and eliminating hazardous materials.
• Financial involves maintaining long-term financial health and stability for companies and their supply chain partners. This includes improving operational efficiency, reducing costs, and investing in sustainable technologies.

Companies that focus on sustainability can improve their bottom line, reduce financial risk, and build stronger, more resilient supply chains.

Benefits of supply chain sustainability

A sustainable supply chain represents more than a commitment to environmental and social impact. Supply chain issues in recent years have highlighted how a healthy supply chain can drive business growth.

Increased revenue 

Environmental, social, and governance (ESG) initiatives like a sustainable supply chain roadmap can have a demonstrable impact on business growth. 

Research from NYU's Stern School of Business found that while consumer packaged goods (CPGs) marketed as sustainable hold a 23.8% market share, they drove 41% of CPG growth in the US from 2013–2024, and show a five-year compound annual growth rate (CAGR) of 12.4% compared to 5.4% for conventional products. 

A global PwC survey found that consumers are willing to pay an average premium of 9.7% for sustainably sourced goods.

Better supply chains also improve global impact

Businesses concerned about forced labor practices or the high-emission extraction and processing of fossil fuels can mitigate these problems by looking to the supply chain first.

The International Labour Organization (ILO) reported in 2024 that forced labor generates an estimated $236 billion in profits annually, a 37% increase in a decade, showing how concentrated these risks are within supply chains.

Meet stakeholder demands

Investors are increasingly looking for companies with strong sustainability practices, and are willing to invest in (or divest from) companies based on their approach to sustainability. According to PwC, 80% of investors say they would increase investment in companies that are working with suppliers and communities to build sustainable value chains.

Companies that prioritize sustainability in their supply chain management can attract more investment, improve audit readiness, and strengthen financial performance.

Cost savings

Lowering emissions and waste can lower a company’s energy and resource costs. Green technology also improves efficiency, which can reduce long-term costs. Plus, working with suppliers that use sustainable practices can attract more customers and lead to more revenue.

Challenges of supply chain sustainability

Today’s brands face sustainability challenges when supply chains break down. Here are some of the most common reasons why.

Transportation emissions 

The transport sector accounts for over one-third of end-use carbon dioxide emissions and is overwhelmingly powered by fossil fuels. 

Globally, transport contributes roughly one-quarter of all energy-related carbon dioxide, with road freight alone responsible for about three-quarters of that footprint, according to the latest Our World in Data report. The biggest near-term opportunities lie in shifting modes (road-to-rail, air-to-sea) and transitioning to EV and sustainable fuels.

Use live datasets to identify and prioritize the least efficient shipping lanes and markets. Pair that analysis with sector-specific guidance to build lane-level abatement plans, focusing on rail access, freight consolidation, and service-level redesign.

Overreliance on single suppliers

Global supply chain disruption events jumped by 38% in 2024 alone, showing how reliant the world has become on a steady stream of cheaply shipped goods.

Relying on a single manufacturer can lock in inventory and create a predictable but fragile carbon footprint.

But when disruptions hit—say, from issues at the Port of Los Angeles—companies are forced to pivot to higher-emission delivery methods.

Diversifying suppliers gives companies the flexibility to choose more sustainable delivery methods.

Packaging

The UK's Plastic Packaging Tax (PPT) shows how governments are cracking down on unsustainable packaging. 

Under this rule, the rate per ton for packaging with less than 30% recycled content has consistently increased since April 1, 2024. Starting in 2025–26, producers will pay disposal fees, which will become variable based on recyclability from 2026–27.

The tax encourages producers to redesign packaging away from plastic and toward materials that are lightweight, recyclable, and contain higher levels of recycled content.

How to measure and reduce Scope 3 emissions with suppliers

Data sources, requests for information (RFIs), and target-setting

1. Standardize your requests for information (RFIs)

The first hurdle is getting clean data from hundreds or thousands of suppliers. You can do this by standardizing your RFI process.

Align your supplier questionnaires with the CDP's 2025 Question Bank. These questions are pre-vetted and cover essentials like:

• Organizational boundaries
• Activity data and supplier energy mix
• Existing reduction actions and targets

A standardized RFI process gives you an apples-to-apples baseline for scoring and prioritization, as many of your key suppliers already report this data to CDP.

2. Set a dual-target strategy

Once you have a baseline, set targets according to the Science Based Targets initiative (SBTi) framework. If Scope 3 accounts for 40% or more of your total footprint, which it does for most enterprise brands, your targets will cover at least 67% of those emissions.

Here’s how to achieve a dual-target strategy: 

• Set a supplier engagement target: This should be a top-down, qualitative goal that reinforces accountability. Your goal could be, “Commit that X% of our suppliers (by spend or emissions) will have their own validated science-based targets by 2030.”
• Determine a category reduction target: Identify a bottom-up, quantitative goal focused on your biggest hotspots, like raw materials. For example, “Reduce absolute emissions from Category 1 (purchased goods and services) by X% by 2030.”

Setting goals for both supplier collaboration and material cutbacks helps you make progress on two fronts at the same time. You get partners who are moving in the right direction and can make cuts to your biggest problem areas. 

3. Prioritize and invest

Your goals will help you pinpoint which suppliers or tiers contribute most to emissions. You can take it to leadership to get their attention and make the case for action. 

For example, you could say, “If we invest $X to help these 20 suppliers adopt renewable energy, we can hit 30% of our reduction target.” 

10 supply chain KPIs to track

Digital tools like FourKites can help you capture metrics, set key performance indicators (KPIs), and establish governance.

Some of the top metrics organizations track include:

1. Greenhouse gas emissions
2. Waste reduction
3. Water usage
4. Energy consumption
5. Use of renewable energy sources
6. Labor practices
7. Supply chain transparency
8. Management of hazardous materials
9. Biodiversity conservation
10. Resource efficiency and conservation

Setting clear goals creates a holistic, end-to-end view of the supply chain, helping you to track materials, working conditions, and progress to measure overall effectiveness.

Technology enablers for supply chain sustainability

Supply chains are under pressure to become more resilient and efficient in the wake of new regulatory requirements. To meet these demands, companies are adopting technologies that deliver end-to-end visibility and enable smarter decision-making.

• Digital twins: An innovation layer that sits over WMS, TMS, and APS to optimize daily cross-functional trade-offs, like service vs. cost vs. emissions. Case studies show they drive up to 20% better on-time delivery, 10%–15% lower DC/labor costs, and 5%–8% lower freight costs. Start by applying them in high-value areas like inventory positioning, transportation policy, and DC flow.
• AI/ML: Brands are using AI and machine learning for advanced demand-forecasting, inventory-planning, and logistics execution. While 72% of organizations have deployed GenAI, many face a "productivity paradox" with uneven return on investment (ROI). Success depends on prioritizing creativity-driven use cases, such as consumption-based demand-planning and team-level workflow design.
• Network optimization: Involves designing the network and adjusting transport modes to cut both cost and carbon. Given that rail and ocean are about 78%–82% lower in emissions per ton-mile than trucking, the strategy is to include carbon dioxide factors into all network studies and TMS policies, using rail and sea as defaults and trucking for first- or last-mile transport.

Supply chain sustainability best practices

How are today’s businesses adapting to build sustainable supply chains that withstand unpredictable demand shifts?

1. Set flexible contracts

Reducing static commitments (such as fixed, long-term supplier contracts) helps companies adapt more easily to changing trends. Flexible contract manufacturing, for example, enables companies to replace traditional fixed costs with variable costs, allowing them to scale with changing demand.

2. Diversify supply chain sources

Carefully choosing a diverse set of suppliers gives businesses more influence over sustainable practices. This is especially important in an environment with unpredictable supply shocks.

More companies are now focusing on the supply chain’s origin to build sustainability from the ground up. This helps promote industry in developing economies, where sustainable practices may still need financial support for growth. It also reduces dependence on single sources, making commerce more resilient to geopolitical disruptions.

3. Find suppliers that meet your supply chain Code of Conduct

Every supplier you work with should reflect your company’s commitment to sustainability. Diversify only with suppliers who can meet the criteria you establish. Use your RFI process from above to start these new relationships.

4. Focus on transportation

Transportation often has the largest impact on a company’s sustainability footprint. Efficient routes reduce travel and therefore emissions. To accomplish this, limit less-than-container loads (LCLs) and maximize container utilization. Other business practices, like upgrading refrigeration systems in warehouses and using reusable packaging, also deliver long-term benefits.

5. Optimize your network

Map your entire supply chain, identifying key warehousing and distribution warehousing locations based on when your customers are.

Maggie M. Barnett, COO of ShipHero, adds that ShipHero has optimized their own network to improve sustainability. Maggie calls last-mile delivery one of the points of biggest impact in the supply chain.

“Domestically, merchants have the opportunity to deploy a distributed warehouse network model, where the product is strategically placed in zones where demand is highest. This allows merchants to continue to meet rapid shipping speeds, while keeping product transportation on the ground to decrease reliance on airplanes for fast delivery,” says Maggie. 

Creating more sustainable supply chains

Building a sustainable supply chain is a one-time initiative. To meet the needs of an evolving and complex world, a supply chain must stay responsive to shifting demands in packaging and carbon emissions.

Sustainable supply chains are built at the organizational level. Companies succeed with ongoing optimization efforts aimed at improving sustainability programs and corporate social responsibility. They can also set performance-based sustainability targets to track their progress over time.

Today’s top brands are making commitments to better-sourced materials. They’re elevating supply chain executives to positions of higher leadership. Ultimately, they make a sustainable supply chain a priority.