Supply chain teams must bridge the divide with ESG to find circularity’s value

Supply chain professionals, typically the owners of circularity initiatives, must break down the siloes between them and their organization’s sustainability team. In doing so, supply chain teams can integrate the wealth of data, analytics, and baselining that ESG reporting efforts generate (and vice-versa, given the impact of supply chains on a company’s sustainability). A major opportunity to achieve positive environmental, social, and governance outcomes exists in the reporting requirements to meet ESG regulation and voluntary disclosure standards. Supply chain teams cannot let that opportunity go to waste.

But realizing these opportunities requires alignment on outcomes and goals, with a common language developed between supply chain and sustainability professionals that, to date, is lacking. HFS Research recently addressed at Circular Supply Chain Network’s London Catalyst event (see Exhibit 1). The non-alignment between supply chain, circularity, and sustainability was brought firmly into light, mirroring past and current data and enterprise stories…

ESG reporting: A hidden opportunity for supply chain teams

Circularity (see also “circular supply chains” or “circular economy”) is an interconnected system that can advance sustainability goals across the environment, people, and economics. Yet, astonishingly, supply chain and sustainability efforts within enterprises are often disconnected. For circularity to drive positive impact and business value, supply chain teams must align their efforts with both sustainability goals (such as the UN Sustainable Development Goals, SDGs) and their own organization’s strategy.

New ESG reporting mandates will soon affect every organization, such as the EU’s Corporate Sustainability Reporting Directive (CSRD), Scope 3 emissions tracking, and labor practice disclosures. Even if a company is not directly required to report, its large customers likely are—and those customers need supply chain data to meet their obligations. Supply chain teams must proactively engage with these efforts rather than passively respond to reporting requests.

Exhibit 1: “Measuring what matters: the circularity opportunity hidden in ESG reporting”—Josh Matthews, HFS practice leader, at Circular Supply Chain Network’s London Catalyst event

Source: HFS Research, 2025

Turning ESG reporting into a circularity catalyst

Supply chain teams can harness the depth of ESG reporting—including data collection, analytics, mapping, and baselining—to identify material spheres of influence across environmental, social, and business objectives.

Success in circular supply chains will depend on how well enterprises build on the momentum of 2025’s focus on ESG reporting. Key circularity initiatives that ESG reporting might enable include:

• Advanced material recovery and recycling
• Product-as-a-Service (PaaS) and sharing models
• Smart packaging and reusability
• Localized and regenerative manufacturing
• AI and data-driven circular optimization
• Incentivized consumer engagement
• Circular agriculture and biowaste utilization
• Government and policy innovations

The ESG reporting shift risks prioritizing compliance solely over the sustainability goals that compliance is supposed to help achieve

HFS Research’s 2024 market analysis of sustainability consulting, technology, and services found a shift in enterprise priorities from supply chain resilience and risk management (the leading demand drivers in 2022) toward ESG reporting. This trend is also reflected in the overwhelmingly increased demand for sustainability services (66%, 126%, and 140% growth over two years for revenues, headcounts, and deal numbers). Many enterprises are scrambling to prepare for CSRD mandates in 2025, often reallocating sustainability resources toward compliance.

A recent HFS-EY study on supply chain AI adoption revealed target outcomes, including visibility and resilience. However, the data included in ESG reporting can serve as an immediate foundation for these outcomes. Organizations must make 2025 “the year of CSRD… AND” by using the regulatory push as a springboard for broader enterprise transformation (see our separate report).

Building a holistic strategy: from compliance to sustainability

With compliance consuming corporate resources, executives must resist treating ESG reporting as a check-the-box exercise. Instead, they should leverage this effort to establish long-term sustainability baselines, execute roadmaps for meaningful change, and align corporate strategies with the SDGs. That alignment must also connect their supply chain and sustainability teams to each other.

Strategic alignment from the chief supply chain officer (CSCO) and chief sustainability officer (CSO) to the chief financial officer (CFO), CEO, and board is essential. Companies should aim for systemic change by:

• Developing integrated cross-functional strategies that align financial, environmental, and social priorities.
• Embedding sustainability into core business operations, from procurement to supply chain execution.
• Using ESG data to enhance visibility, drive efficiency, and reduce waste.
• Engaging in ecosystem-wide collaborations to maximize impact.

Sustainability priorities and their competitive advantage

Despite concerns over the “greenlash”, enterprise leaders recognize that sustainability is still a differentiator. Forward-thinking organizations that got ahead of ESG regulations are using that time and energy to target their most material spheres for sustainability influence and finding new sources of business value.

• Kernel, a Ukrainian agriculture giant: By aligning reporting with the SDGs years’ back, rather than just now working to meet regulatory mandates, Kernel uncovered efficiencies in process plants, supported employee well-being under an ongoing invasion including the reintegration of veterans, and helped strengthen its national economy through its ecosystem of farmers and routing of grain. See our write-up from the COP29 climate summit here.
• Retail Chain: This company developed a tailored sustainability roadmap, prioritizing impactful and cost-effective initiatives in parallel with reporting. This approach secured executive buy-in, optimized resources, and improved sustainability performance alongside financial returns.
• Consumer goods: IBM and L’Oréal’s recent collaboration is one example of how advanced AI models, trained specifically for the cosmetics industry and using L’Oréal’s proprietary data (built on years of data transformation), can streamline product formulation. The collaboration and its models aim to integrate enterprise data into AI architectures to optimize future product formulations for cost, quality, environmental, and social impact. We’ll publish our analysis soon.

The Bottom Line: Break down internal and external silos for supply chain teams to maximize circularity efforts.

Legacy debts—whether technical, data-related, cultural, skills, process, or strategic—hinder collaboration within organizations and across supply chain ecosystems. One key to unlocking circularity’s full potential lies in supply chain teams leveraging the data, analytics, and baselining needed for new waves of ESG reporting to:

• Identify material sustainability opportunities.
• Foster partnerships with suppliers and customers for joint initiatives.
• Influence policy to align industries toward circularity goals.
• Deploy AI and emerging technologies to uncover new business models.
• Integrate circularity into business strategy, starting with alignment to the SDGs.

There is still time to be a leader on sustainability, whether as a supply chain individual, team, or organization.