Proxima: How Firms Balance Sustainability and Sourcing Risks

Global supply chains are undergoing rapid change and with them comes heightened environmental and ethical scrutiny.

A new Global Sourcing Risk Index developed by procurement consultancy, Proxima, in collaboration with Oxford Economics, offers a sustainability lens on where and how companies should consider sourcing their goods and services.

The index examines 20 leading global economies and 10 rapidly developing markets, representing 85% of global GDP and 65% of international trade.

It assesses these nations across 10 industry sectors and eight risk categories, covering climate vulnerability, geopolitical tensions, governance challenges, human rights risks and supplier concentration.

The findings give procurement leaders visibility over high-risk supply chain combinations and practical ways to respond.

Navigating trade-offs in high-risk destinations

Countries like Mexico, Turkey and Russia rank as the riskiest sourcing locations, according to the index. The main factors in these locations include exposure to climate disruption, weak governance and regional concentration of supply.

These risks do not suggest organisations should avoid sourcing from such locations entirely. Instead, the message is to weigh the risk trade-offs against the economic benefits they might bring.

Procurement decisions are rarely black and white. European countries, while more stable, also come with substantially higher sourcing costs.

"This really is key," says Simon Geale, Executive Vice President at Proxima

"There is risk in every relationship and a businesses 'risk appetite' will dictate just how much of that risk they are prepared to take for the price paid or relationship put in place."

For businesses aiming to reduce carbon emissions or meet social governance benchmarks, risk management often requires additional investment.

"Generally speaking managing risk gets incrementally more expensive and not all companies have the economic means to support this, margins could be too low to take on this cost internally, or customers might have a ceiling price which means it can't be passed on, or both.

"Step one is to be informed of potential risks in a location, step two is to agree the balance or risk, cost, reward (or appetite), and then step three is to take any associated managing or mitigating steps.

"There are a lot of tactics that can be deployed to mitigate or manage risk, they will vary by location, sector and risk type, they could include, policy, process, technology, collaboration, innovation, re-engineering or even cost optimisation."

Sustainability now central to sourcing strategy

The index identifies five forces reshaping global sourcing, with sustainability playing a central role for 70% of companies surveyed in 2024.

However, progress is not consistent across regions.

Europe continues to legislate aggressively on environmental and ethical standards, whereas policy in the United States remains mixed.

Alongside sustainability, the index tracks other major trends:

• Reindustrialisation: Manufacturing is shifting closer to home, especially in high-value sectors. Investment in onshoring and domestic production is projected to hit US$4.7tn in 2025, up from US$3.4tn in 2024.

• Digitisation: Technologies such as artificial intelligence, automation and digital twins (real-time virtual models of physical systems) are enabling dynamic supply chain oversight, including real-time risk mapping. This pushes some businesses to favour shorter, more local supply chains.

• Risk and resilience: Predictability and stability now take precedence over cost-cutting. Businesses are rethinking how to sustain operations under multiple stress scenarios, from climate to conflict.

• Geopolitical reorientation: Trade routes are shifting in response to global tensions. In 2023, Mexico overtook China as the United States’ largest trading partner, showing the growing interest in nearshoring and friendshoring, sourcing from politically aligned or nearby countries. Countries like Poland, India, Brazil and Colombia stand to benefit from this shift.

For US companies in particular, the sustainability risk is uneven. "The US as a sourcing destination fares mid-table in our report," says Simon, citing high risk in labour cost and certain climate-exposed regions.

He adds that while the country has strong capacity to adapt to climate risk, sectors such as logistics and manufacturing are under pressure due to rising labour costs and immigration limitations.

Supply chains realigning, not collapsing

While the pace of globalisation slows, trade continues.

International trade as a proportion of GDP has stabilised, but global trade flows remain deeply connected.

Every region still depends on imports for a minimum of 25% of critical goods, materials or services.

Institutions like the IMF and World Trade Organisation still forecast moderate growth in global trade volumes, highlighting realignment rather than retreat.

The index challenges traditional sourcing wisdom.

Simon points out that "at an aggregate level the top five countries in the index are Mexico, Turkey, the Philippines, India and Russia."

While these locations present strong investment potential due to cost or access to resources, they also come with environmental, political and operational risks.

"The global sourcing risk index tells us that while they may have huge economic advantages, they are definitely not without risk," explains Simon.

"If we are trading one set of risks for another, we must understand why this is the right course of action, something we can do through strategy and sourcing."

There is now growing executive appetite for greater resilience, even if it comes at the expense of short-term profits.

"When we talk about reducing reliance on more risky locations, who is your plus-one? When we talk friendshoring, who is your friend?" he asks.

Businesses must re-evaluate their global partnerships and consider which risks can be managed and which cannot.

"We have always been aware of risk as part of sourcing decisions, but as the world becomes more volatile, it should get greater consideration in strategic conversations around supply."

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