Sustainability in the supply chain is no longer optional—it’s a legal obligation. With the Supply Chain Due Diligence Act (LkSG) and the upcoming EU Directive (CSDDD), companies face clear requirements—and steep penalties for violations. Here are the 7 most important steps to make your supply chain sustainable, transparent, and compliant:
With these measures, companies make their supply chains more efficient and future-proof—while meeting growing legal requirements. The urgency is clear: regulatory scrutiny is increasing, and both consumers and investors are demanding greater accountability. According to McKinsey, companies with robust ESG practices outperform peers in long-term value creation, making sustainability a strategic imperative as well as a compliance issue. (McKinsey)
Life Cycle Assessment (LCA) is a core tool in ESG strategy to systematically record and minimize the environmental impacts of products and services. Especially in Germany, where over 80% of environmental impacts in many industries originate in the supply chain, LCA is indispensable. LCA follows ISO standards 14040 and 14044, ensuring transparent and comparable sustainability assessments (ISO).
With LCA, companies can evaluate the environmental impacts of their products across the entire life cycle—from raw material extraction to disposal or recycling. Factors such as resource consumption, water use, and CO₂ emissions are considered. For example, an analysis of a T-shirt showed that nearly 50% of its CO₂ footprint comes from energy use during manufacturing, while about 18% is due to the cotton fibers used. (Nature)
Such data-driven insights help identify hidden environmental risks and initiate targeted actions. If raw materials are the biggest CO₂ contributor, for instance, recycled materials with a lower impact could be used.
Europe is a pioneer in integrating LCA into environmental policy and regulation to promote sustainable development goals. The European Union has adopted several directives that are either directly based on LCA or require its application. The Joint Research Centre of the European Commission predicts that by 2025, over 80% of European companies will integrate LCA into their processes, offering a clear competitive advantage for early adopters. (European Commission)
The LCA process includes four steps: goal definition, inventory analysis, impact assessment, and evaluation. Companies can choose from various approaches, including:
This flexibility allows for step-by-step implementation tailored to the specific needs of the supply chain. Key factors include temporal accuracy, geographic representativeness, and technological completeness. LCA can also be used to assess supplier environmental impacts and make informed partner selection decisions.
Measuring the ROI of LCA initiatives is crucial for long-term success. Studies show that 98% of sustainability initiatives fail due to unclear ROI measurement. At the same time, only 45% of companies track the returns on their sustainability actions, even though 74% of CEOs consider sustainability a priority. Companies with effective sustainability strategies achieved 2.6 times higher shareholder returns between 2013 and 2020 (McKinsey). Ethical supply chain practices also boost revenue from responsible products by 20% and reduce supply chain costs by 16% (BCG).
Practical examples highlight the benefits: Walmart saves around €95.42 million annually in energy costs by using energy-efficient technologies like LED lighting and modern HVAC systems. Toyota saves about €11.45 million annually on waste and raw material costs through a zero-waste initiative. Using specialized sustainability software can increase the precision of ROI calculations by 45% (GreenBiz).
Building on Life Cycle Assessment (LCA), integrating sustainable suppliers is the next step in implementing ESG measures. Collaboration with suppliers is crucial for the success of supply chain sustainability programs. Without it, companies often face obstacles such as lack of transparency, insecure supply chains, and insufficient technological capabilities. Thorough supplier qualification is the foundation for measurable sustainability progress.
Scope 3 Emissions: A Key Leverage Point
According to PwC, 65% to 95% of a company’s CO₂ emissions come from the supply chain, with up to 80% of these emissions stemming from just 20% of purchases (SBTi Report). This concentration offers enormous opportunities for targeted action.
Companies can reduce emissions by 10% to 30% by prioritizing sustainable suppliers. It’s crucial to include sustainability criteria in the selection process and continuously monitor supplier performance.
How Supplier Qualification Works
Sustainability should play a role from the onboarding of new suppliers. Aligning with international standards such as the Science Based Targets Initiative (SBTi) is a sensible approach. Transparency is essential: companies must measure their suppliers’ Scope 3 emissions to accurately determine their CO₂ footprint.
Regular feedback, performance monitoring, and ESG training foster a culture of improvement. Companies that reward outstanding ESG performance among suppliers create additional incentives for better results.
Due Diligence and Legal Compliance
Combining LCA strategies with supplier integration is essential for a comprehensive ESG strategy. A 2025 survey shows that 51% of companies see the German Supply Chain Act as beneficial for their supply chain sustainability. Additionally, 90% of companies consider supplier collaboration central to implementing the law (LkSG).
Companies must establish comprehensive risk management systems that include regular risk analyses. This includes reviewing direct suppliers for potential risks or violations of environmental and human rights standards. This due diligence should apply both when onboarding new suppliers and throughout the entire business relationship.
Efficient Data Collection
To analyze supply chain risks, companies need clear guidelines and processes for data collection. These ensure consistent and comprehensive data gathering.
Risk Management as an Integrated Process
A central coordinator should oversee all activities, while standardized assessment methods include financial and socio-ecological aspects. Risk management must be firmly integrated into supplier selection and other business processes.
Digital Solutions for Greater Transparency
Modern ESG software platforms simplify the integration of data sources and the evaluation of supplier sustainability. For example, the Bank of Montreal (BMO) optimized its audit process with digital workflows, reducing the cycle time for risk assessments by 75% while increasing operational agility and employee productivity (Coupa).
Measurable Results with Clear Metrics
Companies should measure their progress using clearly defined environmental metrics and report regularly. A sustainable procurement strategy requires clear goals, processes, and KPIs.
In 2023, 99% of S&P 500 companies published sustainability reports. Companies with strong ESG performance achieve growth and valuation margins of 10–20%. Products with ESG-related claims saw average growth of 28% over five years, compared to 20% for products without such claims (McKinsey).
Success Stories from Practice
Francois Rousselot, Group Head of Procurement at Hikma, emphasizes:
“We have a duty of care to patients, our employees, and the environment, and are committed to making our entire supply chain more energy efficient and environmentally friendly. Having our GHG emissions data at high granularity at our fingertips is a key differentiator and will accelerate our goal to reduce our environmental impact.”
Another example comes from Microsoft: By using Coupa’s Supply Chain Design and Planning Tools and a digital twin, truck emissions in North America were reduced by 60% compared to projected baseline values (Coupa).
Recommendations for Getting Started
It’s worthwhile to start with a few key metrics and gradually expand data collection.
After implementing comprehensive LCA methods and careful supplier selection, the use of digital technologies is the next logical step in a holistic ESG strategy. These technologies are fundamentally transforming supply chain management and laying the foundation for more sustainable business practices. A recent QIMA survey shows that more than half of companies know less than half of their suppliers, highlighting the vast potential for improvement, especially in reducing environmental impacts (QIMA).
Real-Time Monitoring with IoT and Blockchain
Technologies like IoT and blockchain enable precise real-time traceability and improve data collection. Environmental data can be continuously gathered and automatically analyzed for improvement opportunities.
AI for Risk Detection
Artificial intelligence helps identify ESG risks early and supports decision-making through predictive analytics. According to Gartner, by 2027 about 70% of professional developers will use AI-powered coding tools—a significant increase from less than 10% today (Gartner).
Digital Product Passports as Information Sources
Digital Product Passports (DPPs) provide detailed product information, including manufacturer, material composition, potentially harmful chemicals, usage instructions, CO₂ footprint, and end-of-life options.
John Wu, CEO of Novalis, describes the importance of this initiative:
“We believe sustainability is a journey, not a destination. Every day, we try to improve our products in different ways. Digital Product Passports, our latest initiative, will be a key element in making our product and our future more transparent and sustainable. We hope all our colleagues and friends will join us on this journey.”
Automated Compliance Processes
Digital solutions simplify compliance by automating analyses and centralizing supplier data management. This ensures continuous oversight of evidence and standards while optimizing compliance workflows.
Tobias Albers, a supply chain and sustainability expert, explains:
“But supply chains will benefit from the law—because the law will make them overall more transparent, sustainable, and resilient.”
Specialized Software Solutions
The osapiens HUB for Due Diligence helps companies digitally and legally comply with the requirements of the German and European Supply Chain Due Diligence Act (osapiens).
Integrated Risk Management Systems
Low-code and no-code technologies enable companies to quickly and resource-efficiently implement integrated risk management solutions. Risks can be shared across subsidiaries and departments, and supplier performance can be evaluated using measurable metrics.
Step-by-Step Approach
Using GenAI and no-code development can accelerate innovation. It’s advisable to start with a few key metrics and gradually expand data collection.
Measurable Performance Metrics
Objective metrics are essential for consistently and transparently evaluating supplier performance. Real-time monitoring systems provide continuous insights and enable quick responses to potential risks.
Success Stories from Practice
Retailers using advanced analytics tools have increased profitability by up to 25%. Global spending on digital transformation is expected to reach $3.4 trillion by 2026 (IDC).
Joost Luhmann, Sustainability Manager Europe at Novalis, emphasizes:
“Product transparency and traceability is one of the key elements of our sustainability strategy. We are convinced that the Digital Product Passport is the most important factor for creating a true circular economy.”
The German Supply Chain Due Diligence Act (LkSG) and upcoming EU regulations bring new requirements for companies. Since 2024, the LkSG applies to companies with at least 1,000 employees in Germany—affecting around 2,900 companies (LkSG).
Obligations under the Supply Chain Act
The LkSG requires companies to establish comprehensive risk management, conduct regular risk analyses, and appoint a human rights officer. Clear principles for protecting human rights must be defined. Due diligence obligations extend along the entire supply chain—from raw material extraction to final delivery. While proactive measures are required for direct suppliers, violations by indirect suppliers must be specifically addressed.
The Upcoming EU Directive
From 2026, the Corporate Sustainability Due Diligence Directive (CSDDD) will replace the LkSG and extend due diligence obligations to the entire supply chain. Unlike the German law, the EU directive also introduces civil liability for companies. These changes require companies to adapt their control mechanisms in good time (Fiegenbaum).
Implement Risk Management Systems
Companies must set up systems that continuously monitor and analyze risks.
Prevention and Corrective Actions
Based on risk analyses, preventive and corrective measures should be implemented, such as targeted supplier selection, introduction of codes of conduct, regular training, and sustainable contract design.
Establish Complaint Mechanisms
A written mechanism allows affected parties to report potential risks or violations. The effectiveness of these measures should be reviewed annually.
Felix Ahlers, CEO of Frosta AG, emphasizes:
“Personally, I do not associate sustainability and human rights with competitive disadvantages.”
In addition to complying with legal requirements, it is crucial to regularly assess progress.
Reporting Obligations and Documentation
Companies must submit annual reports to the Federal Office for Economic Affairs and Export Control (BAFA) documenting all due diligence measures. From January 1, 2026, BAFA will begin reviewing these reports.
Monitoring with KPIs
Key Performance Indicators (KPIs) help monitor the effectiveness of measures, identify problematic suppliers, and detect new risks early. Companies subject to the Corporate Sustainability Reporting Directive (CSRD) can postpone BAFA reporting until after completing their CSRD report (BAFA).
Sanctions and Consequences
For companies with annual revenues over €400 million, violations can result in fines of up to 2% of revenue. In severe cases, exclusion from public tenders for up to three years is possible.
Rekha Kumari, a sustainability expert, explains:
“The German Supply Chain Act is not just about legal compliance. It encourages companies to adopt sustainability and ethical behavior. By proactively implementing robust risk management systems, companies can mitigate legal risks and enhance their reputation.”
Tips for Implementation
Companies should analyze industry-specific best practices and review BAFA report requirements early. Integrating cross-departmental data can also significantly increase the value of information.
After introducing digital transparency solutions, the focus now shifts to transitioning to closed material loops. The circular economy offers opportunities to make supply chains more efficient while optimizing resource use. In Germany, only 13% of raw material consumption currently comes from secondary materials—a figure highlighted in the National Circular Economy Strategy as a starting point for better resource utilization (BMUV).
Implementing circular economy practices can significantly reduce environmental impact. Repair, refurbishment, and remanufacturing are at the core. By moving from linear to circular business models, not only is waste avoided, but resource use is also optimized. The use of sustainable materials and the avoidance of single-use packaging further minimize waste.
An example from Saxony shows how this works in practice: Since November 2023, a repair bonus program there covers 50% of repair costs for private electrical and electronic devices—up to a maximum of €200 per repair. The National Circular Economy Strategy aims for a fundamental shift toward a circular economy that not only protects the environment but also increases economic resilience.
On December 4, 2024, the National Circular Economy Strategy (NKWS) was adopted, aligning Germany with a comprehensive circular economy. This strategy is closely linked to the EU Circular Economy Package and the EU Circular Economy Action Plan. By 2030, Germany aims to double the share of secondary raw materials and increase the recycling rate for strategic raw materials to 25% (EU Circular Economy Action Plan).
This creates concrete requirements for companies: From May 1, 2025, bio-waste in Germany may contain a maximum of 0.5% plastic. Digital Product Passports (DPPs) will become mandatory to meet EU requirements and unlock new business opportunities. The “Circular Rural Regions” initiative (2024–2027) also supports rural areas in developing circular economy concepts—funded by the Federal Ministry for Housing, Urban Development, and Building.
Companies can pursue various approaches to make their supply chains more circular. Cross-industry cooperation and close partnerships along the supply chain are essential to drive innovation in the circular economy. At least three of the five principles for fundamental change can be integrated: addressing root causes, changing behavior, enabling access, fostering collaboration, and creating transparency.
Technological innovation and digital solutions also play a key role. Digital tools allow tracking of material flows and product life cycles, enabling a transparent view of the entire product life cycle. At the same time, companies should consider social aspects to fully realize the potential of the circular economy.
Measuring the success of circular economy initiatives requires specific methods and metrics. Tools such as Material Flow Analysis (MFA), Life Cycle Assessment (LCA), or Product Environmental Footprint (PEF) help assess the impact of circular strategies. The EU Circular Economy Monitoring Framework provides a structured foundation, covering topics such as production, consumption, waste management, secondary raw materials, and global sustainability (Eurostat).
Key Value Indicators (KVIs) are particularly suitable for assessing progress toward a circular vision, as they go beyond traditional linear economy metrics. Various reporting tools help companies communicate their actions transparently. Providers such as Circularise, Provenance, Circulor, TraceX, and Reath play an important role by integrating traceability and transparency into supply chains and operations.
After introducing circular economy practices, climate tech technologies open new paths for building sustainable supply chains. These developments are fundamentally changing business models and offer companies the opportunity to deploy targeted technologies that further reduce emissions. Especially in Germany, wind and solar technologies play a key role, as the country is a global leader in these areas. By integrating climate tech solutions, companies can measure, monitor, and specifically reduce emissions along their supply chains (IEA).
Technologies from the climate tech sector have enormous potential to reduce CO₂ emissions. For example, AI systems could reduce global emissions by more than 4% by 2030 (Capgemini). There are already impressive examples of such technologies in action: AMP Robotics uses machine learning to sort waste 70% faster. In Shenzhen, 16,000 buses were converted to electric drive, saving more than 1.35 million tons of emissions annually.
A large share of greenhouse gas emissions—about 80 to 90%—comes from Scope 3 emissions, i.e., indirect emissions along the supply chain. Climate tech solutions help measure these emissions more accurately and reduce them in a targeted way. One example is Anaergia in California: The company converts food waste into renewable natural gas, supplying more than 13,000 households annually.
Around one-third of Forbes 2000 companies have already set net-zero targets—a clear driver for demand for climate tech solutions. To meet growing regulatory requirements, companies need reliable systems to monitor environmental standards and fulfill reporting obligations. These technologies enable precise carbon data collection, integration of suppliers into emissions targets, and compliance with standards such as SBTi and CBAM (CBAM).
Given the increase in natural disasters, it’s becoming ever more important for companies to understand and manage supply chain risks. Climate tech solutions offer preventive approaches, such as improved weather forecasting and detailed risk assessments.
To meet regulatory requirements, companies must implement concrete measures. Climate tech solutions build on digital transparency measures and take CO₂ reduction strategies to the next level.
The key to successful implementation is precise emissions measurement to identify problem areas and initiate targeted actions. For example, Climatiq received €6 million in funding in October 2022 to further develop its carbon intelligence solution (EU-Startups). Such technologies make it possible to embed sustainability as a fixed component in supply chain optimization decisions.
Focusing on specific industries is particularly effective. This enables economies of scale in data collection and improves the accuracy of deployed algorithms. Collaboration with partners along the supply chain is essential to reduce emissions together.
Companies investing in climate tech report impressive results. Since 2019, PUMA has achieved a 30% absolute carbon reduction, even as revenue nearly doubled. In 2021, IKEA used only renewable electricity in its factories, and Beiersdorf reduced greenhouse gas emissions by 19% from 2018 to 2023 while increasing revenue by 36%. These examples show that companies leveraging digital technologies can successfully achieve their sustainability goals while also benefiting economically (PUMA, Beiersdorf).
Investors also see great potential in climate tech: 70% expect rising capital flows into this area. At the same time, 60% of companies anticipate increased M&A activity over the next two to three years. To ensure the success of such investments, companies should integrate greenhouse gas targets into key KPIs and link them to executive incentives (PwC).
Sustainability measures only have a long-term impact if companies regularly measure and adjust them. This requires well-thought-out metrics systems that not only meet regulatory requirements but also make real progress in environmental performance visible.
Key metrics include reduction of CO₂ emissions (in kt), energy and water consumption, and waste minimization. Scope 3 emissions are particularly in focus, averaging 11.4 times higher than a company’s direct emissions. Yet only 41% of companies track emissions for at least one Scope 3 category (SBTi Report).
An example of the need for action: The global shipping industry, which handles nearly 90% of world trade, produces about 940 million tons of CO₂ annually—over 2.5% of global emissions. The shift to a circular economy could reduce global CO₂ emissions by 45% by 2050 (Ellen MacArthur Foundation). Companies should therefore incorporate metrics such as material efficiency and the share of recycled materials into their systems, especially with regard to key suppliers and risk areas.
These measurable factors are essential for regulatory compliance and continuous improvement.
Continuous monitoring enables targeted actions for prioritized problem areas or violations. The German Supply Chain Act (LkSG) and comparable EU directives require companies to regularly review their supply chains for human rights violations and environmental standards.
“We cannot build our prosperity permanently on the exploitation of people, which is why this law is an important step.” – Hubertus Heil, Federal Minister for Labor and Social Affairs
In 2023, the federal agency BAFA conducted 486 audits of affected companies, especially in industries such as automotive, chemicals, pharmaceuticals, mechanical engineering, energy, furniture, textiles, and food and beverages. These audits highlight the importance of a reliable performance management system. Companies must also submit annual reports documenting their compliance measures, identified risks, and collaboration with suppliers (BAFA).
To achieve the goals mentioned above, scalable systems for performance measurement are necessary. These systems must be flexible enough to respond to future changes without compromising operational efficiency. Companies should focus on supply chain transparency, supplier evaluation, and performance monitoring.
Key steps include:
Digital supply chain management solutions create transparency and traceability by capturing and analyzing data on audits, certifications, and supplier performance indicators. Technologies such as automation and AI simplify reporting processes and enable targeted actions based on insights gained.
Meaningful KPIs are based on a triple bottom line approach, considering environmental, social, and economic factors. Companies that integrate sustainability into their financial strategy achieve 6% higher results annually compared to competitors (BCG).
“Measuring sustainability helps track progress, assess the effectiveness of actions taken, and communicate goals.” – Sievo (Sievo)
| KPI Category | Examples |
|---|---|
| Environmental | CO₂ reduction (kt), energy consumption (kWh), water consumption (m³), waste reduction (m³), material efficiency (MIPS) |
| Social | Compliance with Code of Conduct/UN Global Compact, share of suppliers audited to CSR standards, staff development (learning hours) |
| Governance | Percentage of suppliers meeting ESG criteria |
This structured approach enables companies to systematically pursue and continuously optimize their sustainability goals.
The seven measures differ in terms of effort, benefits, and challenges. The following table provides a compact overview of the key aspects to help companies choose the right strategy.
| Measure | Main Benefits | Key Challenges | Investment Required |
|---|---|---|---|
| Lifecycle Assessment (LCA) | Identifies environmental hotspots along the entire value chain; provides data-driven basis for improvements; enables informed statements on environmental performance | Extensive data collection from suppliers required; data quality and availability often insufficient | Medium to high |
| Supplier Collaboration and Sustainability Qualification | Reduces risks through better standards; fosters collaboration and supplier willingness to optimize | Difficult to implement with indirect suppliers; requires ongoing monitoring | Medium |
| Digital Tools for Transparency | Provides real-time insights into the supply chain; improves risk management and traceability | High technology investment; requires employee training | High |
| Compliance with Supply Chain Act and EU Regulations | Avoids fines of up to 2% of annual revenue; ensures legal compliance | Complex and costly implementation, especially for smaller companies; high administrative effort | Medium to high |
| Circular Economy Practices | Reduces waste and resource consumption; strengthens sustainability and resilience | Requires fundamental changes in business models and supply chains | High |
| Climate Tech and Innovative Solutions | Leads to long-term cost savings; increases competitiveness; 18% higher return on capital with climate-friendly planning | High initial investment; resistance to system changes | Very high |
| Performance Measurement and Optimization | Supports continuous improvement; creates transparency for stakeholders | Requires clear metrics and reliable data | Medium |