ESG Supplier Audits and Requirements

Supplier audits are the backbone of a reliable and resilient supply chain — ensuring quality, compliance, and sustainability while mitigating risks before they become costly failures. With TÜV SÜD's expertise, you can ensure suppliers adhere to your standards and contribute to your goals.

Sara Brandimarti

Global Head of Sustainability - Business Assurance

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• What is a Supplier Audit?

  A supplier audit is an evaluation conducted by an audit firm to assess the capabilities, processes, and compliance of a supplier.

  It helps ensure the supplier is meeting the company’s sustainability standards, regulatory requirements, and/or contractual obligations.

• What are the key objectives of a supplier audit?
  • Verify relevant standards: Ensure the supplier meets required specifications, for example in the field of sustainability and ESG.
  • Assess compliance: Check adherence to relevant regulations, industry standards (e.g. ISO 9001, ISO 14001), and Code of Conduct requirements.
  • Evaluate processes: Examine the supplier’s processes and facilities with a proper on-site visit and supported by documented evidence.
  • Mitigate risk: Identify potential risks in the supply chain, such as poor quality, unethical labor practices, or environmental non-compliance.
  • Improve relationships: Foster collaboration by highlighting areas for improvement and offering support where needed.
• How often should a supplier audit be conducted?

  The frequency of a supplier audit can vary depending on factors such as industry standards, risk level, and contractual obligations. However, here are some general guidelines:

  Typical Audit Frequency:

  1. Annually (once per year) – This is the most common frequency for regular supplier audits, especially for key suppliers or those providing critical components or services.
  2. Bi-annually or quarterly – For high-risk suppliers or where there have been past issues, more frequent audits may be warranted.
  3. Every 2–3 years – For low-risk suppliers with a solid track record and lower impact on product/service quality, less frequent audits may be acceptable.
• What are some of the ESG requirements suppliers should meet?

  When it comes to ESG (Environmental, Social and Governance) requirements, suppliers are expected to meet specific standards that reflect sustainable, ethical, and responsible business practices. These requirements are often based on international frameworks (e.g., ISO standards, GRI, SASB, UN Global Compact) and tailored to the buyer’s industry and risk profile. The following is a breakdown of typical ESG expectations: 

   

  Environmental Requirements

  • Environmental management systems (e.g. ISO 14001)
  • Reduction of carbon emissions and GHG reporting (Scope 1, 2, and sometimes 3)
  • Energy efficiency and use of renewable energy
  • Waste management and recycling practices
  • Water usage reduction and conservation
  • Hazardous substances handling in compliance with local and international regulations (e.g. REACH, RoHS)
  • Climate risk assessments and mitigation strategies

   

  Social Requirements

  • Labor rights and working conditions, aligned with International Labor Organization (ILO) Conventions
    No child labor, forced labor, or excessive working hours
  • Fair wages and benefits in compliance with legal and ethical standards
  • Health and safety programs (e.g. ISO 45001)
  • Diversity, equity and inclusion in hiring and workplace practices
  • Grievance mechanisms for workers
  • Proper due diligence of suppliers and subcontractors on human rights 
    

   

  Governance Requirements

  • Ethical business conduct and anti-corruption policies (e.g. ISO 37001)
  • Transparency in ownership and operations
  • Compliance with applicable laws and regulations
  • Data protection and cybersecurity practices
  • Board diversity and structure (for larger or high-risk suppliers)
  • Whistleblower protection systems
• How can a failed supplier audit be mitigated?

  When a supplier fails an audit, it can challenge the ability to demonstrate proper contractual assurance obligations with its client. But with a structured and proactive approach, the impact can be mitigated effectively. The following is a step-by-step breakdown of how to handle and recover from a failed supplier audit:

  1. Root Cause Analysis (RCA)

  • Objective the supplier failed the audit.why: Understand
  • Tools: 5 Whys, Fishbone (Ishikawa) Diagram, Fault Tree Analysis.
  • Focus Areas: Non-conformities due to lack of documentation, non-systemic approach, inadequate personnel training, etc.

   

  2. Immediate Containment Actions

  • Objective: Prevent further issues while working on the root causes.
  • Examples:
    • Quarantine affected products.
    • Employment of non-regular workers.
    • Removal of safety hazards.

   

  3. Corrective Action Plan (CAP)

  • Objective: Address the root causes and prevent recurrence.
  • Key Elements:
    • Clearly defined actions with timelines.
    • Responsible personnel assigned to each action.
    • Metrics or KPIs to measure effectiveness
  • Approval: Share with the audit firm or client for review and approval.

   

  4. Supplier Development or Support

  • Objective: Help the supplier get back on track (especially if they are critical or strategic).
  • Activities:
    • Provide training on benchmark standards or protocols.
    • Assist in setting up compliant documentation systems.
    • On-site visits or remote coaching by experts.

   

  5. Re-Audit or Follow-up Evaluation

  • Objective: Verify that corrective actions have been implemented effectively.
  • Types:
    • Full re-audit.
    • Focused follow-up audit on failed areas.
    • Desktop review of evidence submitted (documents, photos, test records, etc.).

   

  6. Internal Risk Review

  • Objective: Assess whether continued use of the supplier is viable.
  • Considerations:
    • Severity of non-conformities.
    • Supplier’s responsiveness and attitude.
    • Impact on product safety, brand reputation or regulatory compliance.
  • Outcomes: Continue, downgrade, place on probation, or delist supplier.

   

  7. Documentation & Communication

  • Maintain full records of:
    • Audit findings.
    • CAPs and their effectiveness.
    • Communications with the supplier.
  • Keep internal stakeholders and regulatory bodies (if applicable) informed.

  Preventive Measures

  • Use the experience to tighten your supplier qualification and monitoring process:
    • More robust pre-qualification audits.
    • Better-defined technical specs and compliance expectations.
    • Periodic supplier performance reviews.