The Great Disconnect: Why Supply Chain Sustainability Stalls at Tier 2

PARIS and NEW YORK – July 01, 2026 – A major new study reveals a critical flaw in global supply chains, exposing a dangerous gap between corporate sustainability goals and the reality on the ground. While top-tier suppliers are making documented progress on climate and human rights within their own four walls, that progress vanishes just one step deeper into the value chain. A staggering four out of five (80%) of these key suppliers have no formal process to manage sustainability risks within their own supply networks, creating a vast and unmonitored blind spot for the multinational corporations who depend on them.

These findings come from the 10th edition of the EcoVadis Sustainability Ratings Index, a sweeping analysis of nearly 200,000 assessments conducted between 2021 and 2025. The report paints a picture of a system where sustainability efforts are concentrated at the surface, leaving deeper tiers opaque and unmanaged. This “transparency bottleneck” means that for every step a product takes away from the final buyer, the visibility into its environmental and human impact dims, posing significant reputational, regulatory, and operational risks to even the most sustainability-focused brands.

The Illusion of Progress

On the surface, the news appears positive. Companies directly supplying major brands—the so-called Tier 1—are demonstrably improving. According to the EcoVadis Index, environmental scores saw the largest gain of any theme, rising an average of 9.6 points over the past four years. The share of these companies achieving an “Advanced+” rating (a score of 65 or higher on a 100-point scale) more than doubled, from 17% in 2021 to 38% in 2025. Progress is also evident in climate action, with 46% of rated suppliers now purchasing or generating renewable energy.

These suppliers also perform best on Labor & Human Rights, with a global average score of 59.5. A strong majority have formal Diversity, Equity, and Inclusion (DEI) policies (80%) and employee health and safety policies (78%). This data suggests that when pressure is applied and performance is measured, these companies respond. However, this progress is largely confined to their own operations.

The moment the lens shifts to their suppliers—the Tier 2, 3, and beyond of the global economy—the picture deteriorates dramatically. The report reveals a systemic failure to cascade these standards downward. A shocking 73% of rated companies conduct no reporting on their upstream Scope 3 emissions, the carbon footprint of their supply chain. An even greater number, 77%, fail to track downstream emissions. Furthermore, only 2% have an external grievance mechanism that workers deeper in the supply chain can actually use to report human rights abuses, leaving the most vulnerable with no voice. Verification practices remain stubbornly weak, with 42% of companies still relying on unverified supplier questionnaires and a mere 20% conducting on-site audits—a figure that has barely budged in four years.

The Data Chasm Meets the AI Dream

The disconnect is thrown into even sharper relief by the rush to adopt artificial intelligence. A companion report, the EcoVadis Barometer 2026, finds that 68% of corporate buyers have already deployed AI tools in their sustainable procurement programs. For many, the primary goal is to validate carbon data and automate ESG reporting. Yet this technological ambition is colliding with a harsh data reality.

The supply base is fundamentally unequipped to feed these sophisticated systems. The barometer reveals that 30% of suppliers provide no carbon data at all, and another 26% offer only aggregated estimates, which are of little use for granular analysis or regulatory disclosure. Fewer than 1% of suppliers are capable of reporting the kind of decision-grade sustainability data that AI tools are designed to leverage.

“Organizations have built sophisticated tools to analyze supplier sustainability data. The suppliers either don't have that data or can't report it in a form the tools can use,” said Sylvain Guyoton, Chief Rating Officer at EcoVadis. “Better software does not close that gap. The measurement problem lives in the supply base itself, and closing it requires sustained engagement over time: structured assessment, scored performance, and documented follow-through.”

A Rising Tide of Regulation Forces a Reckoning

For years, this deep-tier opacity was a hidden risk. Now, it is rapidly becoming a legal liability. A wave of new legislation is forcing companies to take responsibility for their entire value chain. Germany’s Supply Chain Due Diligence Act (LkSG), which now applies to companies with over 1,000 employees, explicitly requires them to analyze risks not only in direct suppliers but also in indirect suppliers where they have “substantiated knowledge” of a potential violation.

More consequentially, the forthcoming EU Corporate Sustainability Due Diligence Directive (CSDDD) will mandate that large companies identify, prevent, and mitigate adverse human rights and environmental impacts throughout their global value chains. These regulations effectively outlaw the “out of sight, out of mind” approach that has long characterized global sourcing. They turn the 80% gap identified by EcoVadis from a statistical red flag into a direct threat of non-compliance, fines, and legal action.

This regulatory pressure is creating a market split. Companies that can provide verifiable, granular data are becoming premium partners, while those who cannot risk being relegated to competing on price alone, if they are not excluded from value chains altogether.

From Compliance to Collaboration: The Path Forward

While the challenges are immense, the EcoVadis data also contains a clear blueprint for success. The single most powerful driver of improvement is sustained engagement. The report finds that suppliers who have undergone multiple EcoVadis ratings outperform those being assessed for the first time by an average of 12 points (63.2 versus 51.5). This performance gap is proof that a structured, iterative process of assessment, feedback, and corrective action works.

This points to a necessary evolution in procurement strategy—away from a transactional, compliance-based mindset and toward a collaborative, long-term partnership model. It requires moving beyond simply sending a code of conduct and demanding a signature, and instead investing in the capabilities of the supply base through training, shared goals, and a clear roadmap for improvement.

“Companies willing to treat supplier engagement as an ongoing process, rather than a one-time compliance exercise, close the distance between what they intend and what they can actually verify,” Guyoton added. As regulatory demands intensify and stakeholder expectations rise, the ability to foster and document this deep-tier progress will no longer be a mark of leadership, but a fundamental requirement for doing business.