Promoting Sustainable Supply Chains with KPMG

Why KPMG is targeting supply chain sustainability

KPMG International has made sustainable supply chains a central part of its global advisory work. The firm now helps businesses embed environmental, social, and governance factors across sourcing, production, and distribution networks. This shift reflects growing pressure from regulators, investors, and customers who expect companies to demonstrate ethical practices and climate accountability throughout their operations.

For UK SMEs, this matters because supply chain expectations are changing fast. Large buyers increasingly require suppliers to report carbon footprints, prove ethical sourcing, and comply with emerging EU regulations. Businesses that supply into Europe or work with major UK corporates face new due diligence requirements. Meanwhile, operational risks from climate disruption and geopolitical instability make supply chain resilience a commercial priority, not just a compliance box to tick.

KPMG’s approach focuses on practical tools: mapping supplier networks, assessing ESG risks, measuring carbon emissions, and building compliance frameworks. These services address real challenges that UK businesses encounter when trying to meet tender requirements or respond to customer questionnaires about sustainability performance. Understanding what KPMG is doing reveals where the market is heading and what standards are becoming normal expectations.

Regulatory pressure reshaping supply chain management

Supply chains now face scrutiny that extends far beyond cost and delivery speed. Businesses must consider labour conditions, climate impacts, resource use, and transparency across multiple tiers of suppliers. This change accelerated after COVID-19 exposed vulnerabilities like single-supplier dependencies and sourcing disruptions. Climate events and geopolitical tensions have since added further pressure.

European legislation drives much of this shift. The Corporate Sustainability Due Diligence Directive requires companies to identify and address human rights and environmental harms in their supply chains. The EU Deforestation Regulation bans products linked to deforestation and demands full traceability for commodities like soy, palm oil, and timber. The Battery Regulation sets strict standards for raw material sourcing and recycling.

These rules apply to UK businesses in two ways. First, any company selling into the EU market must comply regardless of where it operates. Second, major UK buyers are adopting similar standards to manage their own compliance obligations. Consequently, SMEs in affected sectors face indirect requirements even without direct EU exposure. A 2018 KPMG report highlighted early challenges: most businesses had limited visibility beyond their immediate suppliers and struggled to map deeper networks where sustainability risks often hide.

For example, a UK food manufacturer might source ingredients from a direct supplier who buys from farmers three steps removed. Understanding conditions on those farms matters now because regulations and customer contracts increasingly demand that level of transparency. Similarly, businesses using batteries or electronics must trace raw materials back to mining operations to prove compliance with social and environmental standards.

Services and tools KPMG provides to clients

KPMG offers a range of services designed to help businesses meet these new expectations. Supply chain mapping identifies all suppliers across multiple tiers, creating visibility into where materials originate and which partners handle production. Risk assessments then examine those networks for ESG concerns including carbon intensity, water use, biodiversity impacts, and labour practices.

Decarbonization strategies form another core service. KPMG helps businesses measure carbon footprints across their supply chains and engage suppliers on reduction targets. This work often feeds into Scope 3 emissions reporting, which covers indirect emissions from purchased goods and services. Many businesses find Scope 3 the hardest part of carbon reporting because it requires data from external partners.

Due diligence tools help companies screen supplier networks for compliance gaps. These assessments identify where practices fall short of EU regulations or customer requirements. KPMG also supports sustainable sourcing decisions by evaluating procurement processes and helping businesses integrate ESG criteria into supplier selection.

Real examples demonstrate the scope of this work. KPMG analyzed over 20,000 social audit reports for a global business association, developing a scoring system to improve audit reliability and identify trends in supplier performance. The firm helped IKEA identify social and environmental risks in raw material supply chains. For UK retailers, KPMG created a soy traceability tool to assess deforestation risks and support zero-deforestation commitments.

These case studies illustrate common challenges. Businesses often lack systems to collect supplier data consistently. Audit quality varies widely, making it hard to compare performance or spot genuine risks. Traceability becomes exponentially harder with each additional tier in the supply chain. KPMG’s tools aim to address these practical obstacles rather than simply producing reports.

What research reveals about implementation challenges

A report from MIT on supply chain sustainability, sponsored by KPMG, found that executives struggle with visibility and mapping despite increased ESG scrutiny. The research positioned supply chain transparency as essential for broader organizational change. Without knowing who supplies your suppliers, you cannot manage risks or demonstrate compliance effectively.

In Canada, KPMG polling identified supply chain complexity as the biggest barrier to achieving sustainability goals. This concern ranked higher than technology gaps or budget constraints. The finding suggests that organizational and process challenges outweigh purely technical limitations. Businesses know what they need to do but cannot easily implement changes across fragmented, global networks.

These research findings align with what UK SMEs report when facing new sustainability requirements. Gathering data from suppliers proves difficult, especially when those suppliers serve many customers and lack incentive to prioritize one buyer’s requests. Smaller businesses often lack dedicated sustainability staff, making it hard to coordinate complex mapping exercises or risk assessments.

Nevertheless, the market is moving forward. Tender documents increasingly require carbon footprint declarations. Major retailers impose sustainability standards on suppliers. Banks ask about climate risks when assessing lending. Consequently, supply chain transparency is shifting from voluntary best practice to competitive necessity.

Technology and circular economy practices

KPMG emphasizes technology applications for ESG management. Artificial intelligence can help analyze supplier data, identify patterns in audit results, and flag potential risks. Data harmonization tools address the challenge of collecting information in different formats from diverse suppliers. These technologies aim to make complex analysis more manageable and less resource-intensive.

Scope 3 reporting tools help businesses calculate emissions from purchased goods and services. This calculation requires data on what suppliers buy, how they manufacture products, and how goods travel through the supply chain. Technology platforms can automate some of this data collection and perform standardized calculations.

Circular economy practices feature prominently in KPMG’s recent work. These approaches focus on reducing waste, designing for reuse, and rethinking packaging. For manufacturers, circular principles might mean designing products that can be easily disassembled and recycled. For retailers, it could involve take-back schemes or packaging reduction initiatives.

KPMG also addresses network redesign for ESG resilience. This work evaluates whether supply chain structures create unnecessary risks and how businesses might reconfigure sourcing strategies. Additionally, the firm promotes total cost of ownership analysis that includes ESG factors alongside traditional financial metrics. This approach recognizes that a supplier with lower sustainability performance might create hidden costs through regulatory risk, reputational damage, or operational disruption.

How EU regulations affect UK businesses

Between 2024 and 2025, attention has focused on EU regulations amid rising geopolitical tensions. KPMG has addressed these rules in events and advisory work. The Corporate Sustainability Due Diligence Directive requires companies above certain size thresholds to conduct human rights and environmental due diligence. However, the rules also affect smaller businesses in those companies’ supply chains.

The EU Deforestation Regulation prohibits placing products on the EU market if linked to deforestation after December 2020. Covered commodities include cattle, cocoa, coffee, palm oil, soy, wood, rubber, and derived products. Businesses must conduct due diligence and provide geolocation data for production areas. UK exporters selling these products to the EU must comply fully.

The Battery Regulation introduces requirements for responsible sourcing, carbon footprint declarations, and recycled content. It applies to batteries placed on the EU market, affecting UK manufacturers who sell into Europe. The regulation also creates extended producer responsibility for battery collection and recycling.

For UK businesses, these rules create several practical implications. Export markets may require new documentation and proof of compliance. UK buyers serving the EU market will push similar requirements down their supply chains. Even purely domestic businesses may face pressure from customers adopting these standards voluntarily to stay competitive or manage reputational risk.

KPMG’s 2024 sustainability reports highlight procurement oversight as critical for avoiding environmental impacts like water overconsumption. This emphasis reflects growing recognition that businesses must monitor suppliers actively rather than assuming compliance.

Core facts about KPMG’s supply chain sustainability work

• KPMG provides supply chain mapping and ESG risk assessment services covering carbon emissions, water use, biodiversity, and labour practices across supplier networks.
• The firm has analyzed over 20,000 social audit reports for clients, developing scoring systems to improve audit quality and supplier performance tracking.
• Research sponsored by KPMG found supply chain complexity ranks as the top barrier to achieving sustainability goals, ahead of technology or budget constraints.
• Services now include due diligence tools for EU regulations including the Corporate Sustainability Due Diligence Directive, EU Deforestation Regulation, and Battery Regulation.
• KPMG uses AI and data harmonization technology for Scope 3 emissions reporting and ESG data analysis across complex supplier networks.
• The firm emphasizes circular economy practices and network redesign to build climate resilience into supply chain structures.

Strategic implications for UK businesses

Sustainable supply chains represent a fundamental shift in how businesses manage operations. This change creates both risks and opportunities for UK SMEs. Failure to adapt can mean lost contracts, regulatory penalties, and reputational damage. Success builds resilience, meets customer expectations, and opens access to tenders requiring sustainability credentials.

Large buyers increasingly use sustainability criteria in supplier selection. Public sector procurement already includes carbon reduction requirements through PPN 06/21. Private sector buyers follow similar paths, driven by their own reporting obligations and stakeholder pressure. Therefore, businesses without adequate sustainability practices face shrinking market access.

Financial impacts extend beyond lost sales. Investors now scrutinize supply chain risks as part of ESG due diligence. Insurance costs may rise for businesses with vulnerable supply chains. Conversely, businesses demonstrating strong practices can access green finance and attract sustainability-focused investors.

Operational resilience matters as much as compliance. Climate disruption affects supplier reliability through extreme weather, water scarcity, and changing regulations. Businesses with diversified, well-mapped supply chains can respond faster to disruptions. Those dependent on single suppliers or opaque networks face greater vulnerability.

Nevertheless, implementation remains challenging for smaller businesses. Mapping suppliers requires time and expertise. Collecting data from partners who lack systems or willingness creates friction. Skills shortages make it hard to hire people who understand both sustainability and supply chain management. These barriers explain why many businesses know what they should do but struggle to make progress.

KPMG’s market position illustrates where corporate advisory is heading. As regulations tighten and customer expectations rise, demand for supply chain sustainability services will grow. UK SMEs can either build internal capabilities or engage specialists. Either path requires investment, but the cost of inaction is rising faster than the cost of compliance.

Support available through SBS compliance services

UK businesses facing these challenges can access practical support through SBS compliance services for ESG and carbon reporting. We help SMEs understand which regulations apply to their operations and what evidence buyers expect. Our approach focuses on proportionate action that meets requirements without unnecessary complexity.

For businesses needing to measure and reduce supply chain emissions, our net zero program provides carbon footprint assessment and supplier engagement strategies. We work with companies to collect Scope 3 data, identify reduction opportunities, and build reporting frameworks that satisfy both regulatory requirements and customer demands.

Additionally, SBS sustainable procurement services help businesses integrate ESG criteria into sourcing decisions. This work includes developing supplier questionnaires, creating assessment frameworks, and building procurement policies that balance cost, quality, and sustainability considerations. The goal is commercial viability alongside improved environmental and social performance.

Where to find authoritative guidance

The European Commission’s Corporate Sustainability Due Diligence page provides official information on the CSDDD, including scope, timelines, and compliance requirements. Businesses selling into the EU should review these details to understand their obligations.

For the EU Deforestation Regulation, the European Commission’s dedicated EUDR page explains covered commodities, due diligence requirements, and implementation deadlines. UK exporters dealing with soy, palm oil, timber, or other covered products need to understand these rules.

The Carbon Trust offers practical guides on supply chain sustainability, including measurement methodologies and engagement strategies. These resources suit businesses beginning their sustainability journey and those looking to improve existing practices.

Finally, the UK government’s Greening Government Commitments outline public sector sustainability requirements. Businesses supplying central government should review these commitments to understand what contracting authorities will expect from suppliers.