EcoVadis: Why Businesses Must Address Supply Chain ESG Risks

Supply chain insurance is on the rise, with almost half of companies now protected against major disruption, according to The BCI. 

Despite growing awareness of the financial fallout of supply chain risks, relying on insurance without proactive risk mitigation can be expensive and short-sighted.

With ESG pressures increasing, companies that take action before disruption happens could be setting themselves up to win. 

Nicole Sherwin, Chief Impact Officer at EcoVadis, told Sustainability Magazine's sister title Supply Chain Digital why businesses need to rethink their entire approach to risk.

How is the rise in supply chain insurance shaping risk management strategies?

The rise in supply chain insurance reflects the growing complexity and volatility of global supply chains, where environmental, political and social disruptions are becoming more frequent. As a result, insurance is playing an increasingly important role in helping companies recover from losses.

However, insurance alone is a reactive, post-incident measure — it helps manage the fallout but doesn’t address the root causes. To build true resilience, companies must pair insurance with proactive strategies that reduce exposure in the first place. This means improving supplier management systems, particularly around labour standards, ethics and environmental practices.

A robust risk management framework enhances early risk detection, increases supply chain visibility and fosters deeper supplier engagement. By focusing on prevention and long-term performance, businesses can reduce overreliance on insurance and create more resilient, future-ready supply chains.

What makes parts of the supply chain potentially uninsurable – and how can companies prepare?

The global supply chain is increasingly difficult to insure due to the rise of natural disasters, labour issues, cyberattacks, geopolitical instability and more across the globe. Supply chains are uniquely complex and acutely feel the impacts of macroeconomic shifts. This isn’t just an insurance issue — it’s a signal that the underlying risk environment is more complex than ever

Due to these risks, insurance providers can no longer offer comprehensive coverage, or premiums have skyrocketed. This trend forces supply chain and risk management leaders to look themselves in the mirror and realise the need to uplevel their preparation for the next big event. 

In some cases, companies may be relying too heavily on insurance — paying higher premiums to paper over unresolved issues or to shortcut more difficult, structural improvements.

Regardless of insurance strategy, organisations that build robust risk management systems are better prepared for the next “Black Swan” event. That means developing proactive, pre-emptive resilience strategies — especially for ESG-related risks. Companies should focus on improving supply chain visibility, identifying priority suppliers and actively engaging them to strengthen practices and reduce incidents over the long term.

Why do companies hesitate to invest in proactive risk management and how can they shift priorities?

When it comes to labour, ethical and environmental risks, many companies hesitate to invest in proactive risk management, not because they don’t see the need or value, but because they lack the tools, expertise or visibility to take effective action. These risks are complex, often deep in the supply chain and difficult to measure, making them easy to overlook or deprioritise.

However, in today’s complex, volatile environment, this short-sightedness can be costly. The reality is that failing to address risks proactively can lead to much larger financial, operational and reputational damage down the line, particularly with increasing ESG pressures.

To shift priorities, companies must rethink risk management as a strategic enabler rather than a cost. This involves integrating sustainability and risk management into core business processes, establishing a strong risk management culture and embedding resilience into day-to-day operations. 

With greater visibility into supply chain risks, businesses can make more informed decisions, prioritise areas of improvement and build a forward-thinking risk management framework. Companies that embrace this proactive mindset will better navigate disruptions and remain competitive in a rapidly changing world.

What’s the business case for investing in transparency and due diligence tools?

The business case for investing in transparency and due diligence tools is clear: these investments are directly linked to stronger financial performance and long-term resilience.

Our research found that companies that prioritise ESG investments, including in their risk management strategies and due diligence capabilities, are more profitable than their peers. 

Environmental visibility also translates into operational gains. In sectors like natural resources, transport and industrial goods, companies with high EcoVadis ratings use more renewable energy and see higher EBITDA margins.

Natural disasters, cyberattacks, labour strikes and other macroeconomic events are not going away. The fragility of the supply chain puts an onus on business leaders to expand their risk management strategies beyond just buying insurance. Companies that use AI to map the risks across their supply chains and engage with their suppliers to address those risks will be better positioned to navigate the complexities of the modern supply chain.

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