In this edition of Sustainability Decoded, Sandra Leyva is joined by co-author Gigi Zapata, former McKinsey consultant and current Sustainability Program Manager of Net Zero Supplier Engagement in Big Tech.
See this article and many more at https://www.sustainabilitydecoded.com/
Behind the scenes, a new ESG currency is quietly reshaping who participates in global trade, who gets financing, and who gets labeled "risky." It's not emissions, water use, or labor practices alone.
It's data.
Specifically: standardized, machine-readable, third-party-verifiable ESG data. That capability is now a prerequisite for credibility (and increasingly, for eligibility). This is of course necessary; without transparency and enforcement, sustainability stalls and greenwashing thrives in ambiguity.
But something else is happening underneath these requirements… The systems designed to accelerate sustainability are quietly determining who is allowed to compete in the first place.
Think about it… Compliance has quickly become a prerequisite for participation, pushing companies to build the data infrastructure needed to qualify. And none of this is inherently wrong; standards matter and enforcement matters. But notice that performance alone is no longer sufficient. Proof (in the correct digital architecture) is.
Take this example. A supplier can reduce water intensity by 40% or a farming cooperative can build measurable soil carbon through regenerative practices. Yet if those outcomes are documented through paper forms, local certifications, or SMS-based tracking, they often fail to register inside global ESG systems.
The problem is no longer only impact, it's legibility... And legibility is not evenly distributed.
When Even the Leaders Can't Keep Up
Before diving into what this means for the most vulnerable actors in global supply chains, it's worth understanding how the system is performing for those best positioned to navigate it.
Even companies with dedicated sustainability teams, external consultants, and board-level mandates are struggling. Not because the work isn't happening, but because the framework keeps changing faster than any organization can adapt to it.
Chart source: https://blog.worldfavor.com/
On top of a tsunami of new ESG regulations report on (an increase of 155% only over tha past decade), the most widely used rating platforms have each overhauled their scoring criteria multiple times in the last five years.
EcoVadis raised its bronze medal threshold from the top 50% to the top 35% of assessed companies and switched from fixed scores to dynamic percentile rankings (meaning standing can fall even when performance holds). CDP introduced a full biodiversity module in 2022 that didn't exist the year before, merged three separate questionnaires into one by 2024, and has plastics and nature disclosures queued for scoring next. MSCI, Sustainalytics, S&P Global have followed the same pattern. New criteria in with old metrics retired. The framework recalibrated, again.
Having a steady budget for reporting beyond non-voluntary disclosures was once an advantage. Now it's the entry fee for continued eligibility for market access in a system that evolves faster than any single organization can follow.
Right now, a company can improve its actual sustainability performance and still watch its rating drop. Not necessarily because performance did not increase, but because the measurement “calibrated” underneath it.
If the best-resourced players in the system can't hold their footing, the pressure doesn't stay contained at the top. It travels down to every supplier, subcontractor, and smaller actor operating beneath them. And that's where the real consequences of this system begin.
The Structural Imbalance Beneath the Surface
For suppliers in emerging economies (where roughly 40% of global supply chain activity originates) that pressure compounds into something more complex. They are being asked to provide deeper traceability, more granular emissions data, and more rigorous certifications, while operating in environments often with limited digital infrastructure, fragmented value chains, and tighter capital constraints.
A textile producer investing in cleaner dyeing processes gets categorized as medium risk because its documentation doesn't meet blockchain-backed traceability standards. A regenerative agriculture exporter with proven outcomes can't get credit for them because local certifications don't map to internationally recognized formats.
Now, while this may sound like a distant reality, many of these requirements are already live. California's SB 253 requires large companies to disclose Scope 1, 2, and 3 emissions, pulling data obligations deep into supply chains across every sector. The EU Batteries Regulation embeds traceability requirements that flow directly to material suppliers and recyclers. And the original design of CSRD and CSDDD (before political rollback reduced their scope by up to 90%) was set to cover 50,000 European companies, each managing supply chains involving millions of SMEs who had never been part of the system's design. The rollback is itself the signal: the cascade pressure was high enough to trigger a continent-wide political response.
Because as verification intensity increases, costs escalate across the value chain and those costs don't disappear. They are absorbed, transferred, or priced in. For large firms, this means routing spend toward a smaller set of compliant suppliers. For smaller firms and emerging market suppliers, it means reduced competitiveness and, in some cases, exit.
Two Things True At Once
None of this is an argument against standards or enforcement. We need credible data, traceability, and most importantly, accountability.
In fact, the evidence introduces a nuance worth sitting with. ESG systems are doing what they were designed to do, creating accountability, rewarding transparency, and giving markets a structured view into non-financial risk.
Research tracking over 3,000 customer-supplier pairs found that when large firms improve their own ESG performance, supplier ESG efficiency improves too, not through audits or exclusion, but through knowledge spillovers and reduced financing pressure along the chain.
On the flip side, the same system is producing an access dynamic it was never designed to address. The fragmentation of frameworks, the pace of recalibration, the infrastructure gap between markets. These, rather than failures of intent, are consequences of scale.
EFRAG and CDP announced significant interoperability between their frameworks in 2024. GRI and the IFRS Foundation are working toward full alignment between their standards.
These are signals indicating that the system is self-correcting. However, the infrastructure to meet ESG standards is currently a condition for entering global trade and it’s definitely adding unprecedented pressure.
The right question
ESG systems are not failing. They are doing exactly what systems do; rewarding what they can see, and scaling toward what they can verify. The data is the new currency. A currency based on something of genuine value: a structured view into non-financial risks that traditional reporting never captured.
The question is whether the capacity to meet these standards will grow as fast (and reach as far) as the standards themselves.
That question doesn't have a simple answer yet. But it is the right one to be asking.
Sources
¹ EcoVadis medal threshold raised from top 50% to top 35%; switch to dynamic percentile rankings, January 2024 B+P Consultants: bp-consultants.de/en/quo-vadis-ecovadis-2024-will-bring-massive-changes · Sunhat: getsunhat.com/blog/ecovadis-medals
² CDP biodiversity module introduced 2022; questionnaires merged into one in 2024; plastics and nature disclosures next CDP Climate Change Questionnaire 2022: guidance.cdp.net · Sustain.life: sustain.life/blog/cdp-questionnaire-changes
³ CSRD directly covers ~50,000 European companies European Commission CSRD documentation: ec.europa.eu · KPMG Survey of Sustainability Reporting 2024: kpmg.com/xx/en/our-insights/esg/the-move-to-mandatory-reporting.html
⁴ Research tracking 3,000+ customer-supplier pairs — supplier ESG efficiency improves through knowledge spillovers MDPI Sustainability, The Influence of Customer ESG Performance on Supplier Green Innovation Efficiency (2025): mdpi.com/2071-1050/17/12/5519
⁵ EFRAG and CDP interoperability announced 2024 Greenscope: greenscope.io/en/interoperability-esg-reporting-standards
⁶ GRI and IFRS Foundation working toward full alignment GRI: globalreporting.org/public-policy/the-reporting-landscape