CONTENTS
- 1. ESG Regulation | ESG Management Obligations Extended to the Supply Chain
- - ESG Expanding Into the Supply Chain
- 2. ESG Regulation | Supply Chain ESG Operating as a Condition of Contracts and Transactions
- - Entering the Stage of Applying ESG Evaluations
- 3. ESG Regulation | Supply Chain Carbon Management and the Response Challenges for SMEs
- - Opportunities and Risks for SMEs
- 4. ESG Regulation | Implications of the Spread of Supply Chain ESG for Companies and Points of Preparation
- - Evaluation Centered on Management Level
- - ESG Evaluation Items Related to Contracts and Transactions
- - Companies’ Preparation Tasks
- 5. ESG Regulation | Without Preparation Now, It Becomes a ‘Supply Chain Risk’
- - Practical Implications for Companies Presented by the Analysis of Practices
1. ESG Regulation | ESG Management Obligations Extended to the Supply Chain
ESG regulation now extends beyond a company's internal operations to encompass its suppliers and its overall transaction structure as objects of management.
According to the 「2025 Analysis of Supply Chain ESG Management Practices among Large and Mid-Sized Enterprises」 released by the Korea Federation of SMEs, the rate at which domestic large and mid-sized enterprises meet supply chain ESG management activity standards has risen for three consecutive years since 2023, and in 2025 it was recorded at a level exceeding half.
This shows that supply chain ESG is structurally shifting beyond declaratory principles toward the stages of evaluation, management, and application.
Year | Supply Chain ESG Management Activity |
2023 | 39.1% |
2024 | 42.7% |
2025 | 50.4% |
ESG Expanding Into the Supply Chain
Behind the strengthening of ESG regulation around the supply chain lies a shift in the international regulatory environment.
Supply chain due diligence regulations, led by the EU, require companies to identify, manage, and disclose the environmental, human rights, and labor risks of suppliers that they do not directly control.
As a result, large and mid-sized enterprises can no longer control regulatory risk through their own ESG response alone, and supply chain ESG management, including a system for managing suppliers, is taking hold as a core component.
2. ESG Regulation | Supply Chain ESG Operating as a Condition of Contracts and Transactions
ESG regulation now operates as a criterion that determines not ‘whether a company reports’ but ‘whether a company can transact.’
According to this analysis of practices, the proportion of companies that directly reflect suppliers’ ESG evaluation results in their contracts and transactions was recorded at 58.3% as of 2025.
Entering the Stage of Applying ESG Evaluations
Whereas supplier ESG evaluations were once closer to reference material, they now function as a substantive criterion for deciding whether to maintain or expand a contract.
: business opportunities such as contract renewal and priority access to new projects, financial and lending support such as bid allocation and reductions in performance guarantees, and capacity-building and consulting support
∙ Suppliers with weak ESG performance
: suspension or stoppage of transactions, and restrictions on bidding
In particular, the proportion of companies using suppliers’ ESG evaluation results to provide incentives rose markedly, from 31.7% in 2023 to 45.4% in 2025, which shows that companies have begun to connect suppliers’ ESG capabilities to actual management incentives rather than leaving them as a mere evaluation.
In addition, the proportion of hardware-based support, such as equipment and systems, increased from 18.1% to 28.9%, which shows that supply chain ESG response has moved beyond the level of education and recommendation into a stage of actual investment and management.
This reflects a change in companies’ awareness aimed at substantively raising the ESG level across the entire supply chain.
3. ESG Regulation | Supply Chain Carbon Management and the Response Challenges for SMEs
The core axes of ESG regulation are carbon and the supply chain, and at their center lies Scope 3 management.
A company's greenhouse gas emissions are typically divided into Scope 1, 2, and 3, and as the scope expands, management responsibility likewise extends across the entire transaction structure.
: direct emissions from facilities that the company directly owns or controls
∙ Scope 2
: indirect emissions from the use of energy purchased externally, such as electricity and heat
∙ Scope 3
: other indirect emissions arising across the entire supply chain that the company does not directly control, such as raw material procurement, supplier production, logistics, and the use and disposal stages
Among these, Scope 3 is regarded as the core object of management under supply chain ESG regulation, in that it includes emissions arising across suppliers’ production activities and the overall transaction structure.
Because the responsibility for data collection, verification, and management extends even into areas the company cannot directly control, it is regarded as the area carrying the greatest burden and risk among carbon management items.
This analysis likewise found that the proportion engaged in supply chain carbon emission management activities increased by about 10 percentage points from the previous year, expanding to around 25% as of 2025.
This means that carbon regulation has begun to be recognized not as the problem of an individual plant but as a risk factor for the entire transaction structure, and it clearly shows that SMEs, too, become indirect objects of regulation the moment they are included in the supply chain.
Opportunities and Risks for SMEs
ESG regulation can be a burden for SMEs, but it also operates as a competitive factor that governs the maintenance of transactions and access to the market.
As supply chain due diligence regulations are strengthened, large corporations and global companies are including suppliers’ environmental, labor, human rights, and ethics risks within the scope of management, and that impact is being transmitted directly to the SMEs within the supply chain.
In particular, under a structure in which a substantial portion of carbon emissions arises in the supply chain (Scope 3), a supplier's level of ESG response transfers directly into the regulatory and reputational risk of the prime contractor.
Accordingly, SMEs, too, are shifting into a structure in which they may gain opportunities to expand transactions depending on their ESG response or, conversely, become exposed to the risk of being excluded from transactions.
Category | Risk When ESG Response Is Inadequate | Opportunity When ESG Response Is Secured |
Transaction Relationship | Suspension or reduction of transactions, restrictions on bidding | Maintenance and expansion of transactions, long-term transactions possible |
Contract Terms | Unfavorable contract terms, demands for additional guarantees | Priority negotiating partner, contractual stability |
Evaluation Result | Lower-tier ESG evaluation grade | Selection as a supplier with strong ESG performance |
Cost Structure | Cost burden from after-the-fact improvement demands | Support opportunities such as equipment and consulting |
Market Access | Restrictions on transactions with global buyers | Entry into overseas and new markets |
Corporate Trust | Perception as a company carrying ESG risk | Trust secured as a sustainable partner |
In the end, supply chain ESG operates for SMEs as a criterion that, beyond regulatory response, divides survival from growth.
What matters is establishing the minimum ESG management system needed for transactions, rather than an elaborate strategy.
4. ESG Regulation | Implications of the Spread of Supply Chain ESG for Companies and Points of Preparation
This analysis of supply chain ESG management practices shows relatively clearly both the supply chain management items on which companies are already being evaluated and, among them, the areas most likely to be converted into legal and institutional regulation in the future.
Specifically, companies are being evaluated not on the mere fact of an ESG declaration but on ‘management level’–centered items, such as ▲the existence of a supplier ESG evaluation system, ▲whether evaluation results are reflected in contracts and transactions, ▲whether substantive support is provided to improve suppliers, and ▲whether a supply chain carbon (Scope 3) management structure is in place.
These items currently lie closer to companies’ voluntary management, but if mandatory ESG disclosure or supply chain due diligence regulations expand in the future, they are regarded as areas highly likely to be converted into items subject to regulatory review in themselves.
In other words, this analysis of practices does not abstractly suggest “what companies should prepare going forward”; rather, through concrete evaluation items where review has already begun, it clearly reveals the direction of future regulatory risk.
Evaluation Centered on Management Level
The fact that supply chain ESG activity has increased for three consecutive years means that companies have entered a stage in which those that respond to regulation proactively, rather than those preoccupied with ESG reporting, create the gap in growth.
The following features, in particular, appear clearly.
: clear differences arise in the existence of supplier evaluation criteria and procedures, whether evaluation results are reflected in contracts and transactions, and whether supply chain carbon (Scope 3) data can be managed
∙ The existence of many companies that fail to meet certain core indicators
∙ A shift in the method of managing suppliers from a document-centered approach to an execution- and support-centered approach
This shows that ESG regulation is operating in a direction that no longer permits a merely formal response.
ESG Evaluation Items Related to Contracts and Transactions
Taken together, the results of the analysis of practices show that companies are already being evaluated on their level of supply chain ESG regulatory response in the following items.
∙ Whether evaluation results are reflected in contracts and transactions
∙ Whether substantive support is provided to improve suppliers
∙ Whether a supply chain carbon (Scope 3) management structure is in place
These are areas highly likely to be converted directly into items subject to regulatory review if mandatory ESG disclosure or supply chain due diligence regulations expand in the future.
Companies’ Preparation Tasks
The preparations that companies should review immediately in order to respond to supply chain ESG regulation are as follows.
Area of Preparation | Company Review Points |
Supply Chain Management System | Clarifying supplier ESG evaluation criteria and procedures |
Contract Structure | Clauses for demanding improvement and adjusting transactions when ESG criteria are not met |
Data Management | Whether supplier ESG and carbon data can be collected and managed |
Method of Support | Reviewing equipment and system support beyond education and consulting |
Internal Verification | Advance legal and financial review before responding to disclosure or external demands |
Use of Evaluation Results | Setting out in writing the criteria for reflecting supplier ESG evaluation results in incentives and transactions |
What matters is not confining ESG response to ‘preparing a report.’
ESG regulation is already entering the structures of contracts, transactions, costs, and risk management, and the level of preparation for it is directly connected to a company's transactional stability.
5. ESG Regulation | Without Preparation Now, It Becomes a ‘Supply Chain Risk’
The three consecutive years of increase in supply chain ESG activity are a clear signal that ESG regulation is not a future yet to arrive but a present standard that is already being implemented and evaluated.
ESG response is now shifting from a question of “when to prepare” to a question of “up to what point does failing to respond turn transactional risk into reality.”
∙ Failure to respond = reduced transactions and declining trust
∙ Proactive response = long-term competitiveness
Taken together, the results of the analysis of practices confirm that supply chain ESG is not a task only for particular industries or leading companies but a structural trend that is spreading regardless of industry or company size.
Supply chain ESG management is being led primarily by the manufacturing industry, but the need for ESG management is also expanding rapidly in industries with complex and diversified supply chains, such as telecommunications and digital infrastructure, and management levels are rising together not only among large corporations but also across mid-sized enterprises and public enterprises.
In particular, items such as supplier ESG evaluation, the reflection of incentives and penalties, hardware support, and Scope 3 carbon management are items that many companies have already entered into the implementation stage, and they are areas highly likely to be converted into core review elements of future disclosure and due diligence regulation.
Practical Implications for Companies Presented by the Analysis of Practices
This analysis of practices goes beyond a simple diagnosis of the current state and clearly shows the direction in which supply chain ESG response is being advanced.
Taken together, the analysis results indicate that supply chain ESG is likely to take hold in the following directions.
∙ ESG evaluation results are directly reflected in contracts, the maintenance of transactions, and incentives and penalties
∙ A move from a penalty-centered approach to a partnership model centered on incentives and support
② Supply chain carbon management expands into a structure that includes Scope 3
∙ Suppliers are required to have the capacity to calculate, verify, and reduce emissions
∙ Carbon management performance is reflected in supplier selection and contract terms
③ ‘Tailored support’ for small and mid-sized suppliers becomes a core means of supply chain management
∙ Expanding support for equipment, systems, and transition investment beyond education and consulting
∙ Forming a structure in which ESG improvement efforts are connected to financial benefits and improved procurement terms
This means that ESG response is moving beyond the level of an individual company's internal management toward a supply chain–level management system in which the government, financial institutions, and large corporations share roles.
Considering the implementation of the EU CBAM reporting obligation and the phased application schedule of the CSDDD, supply chain ESG regulation is closer to a fixed regulatory environment than a “scheduled future.”
If you need to organize your supply chain management system, review your contract structure, or manage ESG data, 🔗Schedule a Corporate Legal Consultation to obtain a preliminary diagnosis and review your regulatory risk in advance.
Daeryun supports the resolution of cases through the systematic strategies of legal professionals across various fields.
