5 Recommendations From a Compliance Expert for Building an ESG Framework

‍Article Highlights:

• To get a better sense of how original equipment manufacturers (OEMs), importers, and other businesses can implement a robust, reliable ESG framework in their organization, we spoke with Kelsey Dozier, Z2Data’s internal compliance expert.
• One of the most effective ways to move a company toward greater ESG alignment is to embed sustainability principles and priorities throughout the design, engineering, and manufacturing stages of a product lifecycle.
• A fair number of companies focus on the ESG variables that are wholly within their control—product design, manufacturing processes, energy usage, internal labor practices. But the reality is that many of the sustainability issues businesses face take place further up their supply chain, with second or third tier suppliers who don’t have nearly as much oversight. 
• Because of the requirements these regulations and reporting frameworks entail, including sustainability data, supply chain traceability, evidence trails, minerals sourcing, and worker protection policies, among other obligations, ESG compliance demands structure and ownership across company hierarchies. 

Though it’s faced some resistance over the past year or so, ESG has emerged as a significant priority for businesses over the course of this decade. While the U.S. may be dithering on sustainability regulations like the SEC climate reporting rules, the European Union continues to move forward apace. On January 1 of this year, it expanded the scope of its Corporate Sustainability Reporting Directive (CSRD) to cover large businesses operating in the economic bloc. And on December 30, the E.U. Deforestation Regulation (EUDR) will officially enter into force. 

The Trump administration notwithstanding, global businesses and their executives say that their stakeholders are continuing to emphasize the importance of sustainability reporting. In fact, a recent PwC survey found that over half of the companies it reached out to felt stronger pressure in 2025 to submit sustainability reporting and related data than they did the previous year. Only seven percent of firms, meanwhile, reported a decrease in that pressure. Even with a number of administrations across the globe deemphasizing ESG and embracing a more deregulatory policy stance, these directives and the stakeholders championing the environment, social, and governance principles are not going away. 

To get a better sense of how original equipment manufacturers (OEMs), importers, and other businesses can implement a robust, reliable ESG framework in their organization, we spoke with Kelsey Dozier, Z2Data’s internal compliance expert. Kelsey issued five key recommendations for building an effective sustainability program.

What Does ESG Due Diligence Mean?

Before delving into Kelsey’s recommendations, it’s worth taking a moment to define what we mean when we talk about due diligence in the context of ESG. According to SAP, supply chain due diligence is a “process in which a company researches and investigates potential suppliers to identify any risks associated with those businesses. Typically these risks will range from legislative and governance issues to ethical and environmental concerns.” 

Supply chain due diligence refers to the ways that companies vet their direct suppliers, sub-tier manufacturers, and other actors along their supply chain for risks. ESG due diligence indicates the same process, only within the specific context of ESG. For example, when a U.S. OEM maps their supply chain to ensure that it’s not sourcing from a company banned by the Uyghur Forced Labor Prevention Act (UFLPA), they are conducting a form of ESG due diligence. Alternatively, an organization is carrying out ESG due diligence when it calculates its scope 1 and 2 emissions and submits the figures to the Carbon Disclosure Project (CDP). ESG due diligence encompasses the full sweep of activities companies participate in to adhere to the environment, social, and governance pillars.

5 Recommendations for Building an Effective ESG Due Diligence Framework

1. Build ESG Into Product Design

For many businesses, ESG considerations are compartmentalized alongside other compliance concerns. This strategy leaves the framework marginalized and off to the side, rather than integrated throughout operations. One of the most effective ways to move a company toward greater ESG alignment, however, is to embed sustainability principles and priorities throughout the design, engineering, and manufacturing stages of a product lifecycle. “Think of compliance like building a house: it’s way easier if the foundation is solid,” Dozier said. “If you design products with ESG in mind from day one, you save yourself a ton of headaches later.” 

Incorporating ESG concerns during the design phase can take a number of forms, including but not limited to:

• Avoiding hazardous substances like those prohibited by REACH and RoHS.
• Observing PFAS restrictions in product formulations.
• Thinking through recyclability and circularity processes.
• Strategizing ways to reduce carbon emissions during the manufacturing process. 

One real-world example Dozier cited is how some electronic companies are currently redesigning their products to use more recycled metals in order to cut emissions and meet circular economy goals. “By doing this up front, they’re reducing the risk of costly redesigns when stricter material-use rules roll out,” she said. 

2. Carry Out Due Diligence Throughout Your Supply Chain

A fair number of companies focus on the ESG variables that are wholly within their control—product design, manufacturing processes, energy usage, internal labor practices. But the reality is that many of the sustainability issues businesses face take place further up their supply chain, with second or third tier suppliers who don’t have nearly as much oversight. “Honestly, most ESG problems don’t happen in your company, they happen in your supply chain,” Dozier said. “That’s where you see risks like forced labor, deforestation, conflict minerals, or giant carbon footprints.”

“Honestly, most ESG problems don’t happen in your company, they happen in your supply chain,” Dozier said.

To combat these ESG hazards, OEMs need strong visibility into their direct and sub-tier suppliers. Ideally, they should be able to look into the raw materials going into their supply chain, the suppliers at the tier 2 and tier 3 levels, and the conditions at those suppliers’ production sites. One example Dozier referenced was the EU Deforestation Regulation (EUDR), which becomes effective later this year and will require in-scope businesses to trace commodities like wood, rubber, and palm oil to their source to prove they didn’t originate on deforested land. Whether it’s the EUDR, the CSRD, or the CSDDD, ESG obligations and supply chain due diligence are becoming increasingly intertwined. “Transparency is everything with these new regulations,” she said. 

3. Standardize Data

It may not be the first thing that comes to mind when individuals think about sustainability, but data is essential to ESG compliance. Many of the world’s major ESG regulations require data submissions for in-scope businesses, and voluntary sustainability reporting (including those administered by the International Sustainability Standards Board, or ISSB) typically have a significant data component, too. “Data is the essence of ESG compliance,” Dozier said. Data requirements for ESG compliance often include things like:

• Product formulations
• Scope 1, 2, and 3 emissions
• Chain-of-custody documentation
• Traceability paperwork and materials
• Certificates of compliance and declarations of conformity
• Responsible mineral certificates
• Supplier labor policies

In order to effectively comply with all the emerging standards and regulations, organizations need to have consistent, standardized methods for collecting data, and an easily accessible repository for storing it. In addition, utilizing a digital platform can go a long way in helping businesses track all the information and documentation that’s often required for compliance. “Software helps a lot here by keeping version histories, building audit trails, and making sure the info isn’t scattered across spreadsheets that nobody remembers to update,” she said. 

“Software helps a lot here by keeping version histories, building audit trails, and making sure the info isn’t scattered across spreadsheets that nobody remembers to update,” she said. 

4. Stay Ahead of Regulatory Changes

Businesses cannot—and should not—expect to be able to execute ESG due diligence once and be completely finished with their compliance responsibilities. Sustainability regulations are evolving yearly and sometimes even monthly, and organizations need to be prepared to add new compliance measures to their operations on a regular basis. “ESG rules are moving fast: PFAS phase-outs, stricter packaging take-back rules, mandatory carbon disclosures,” Dozier said. “You name it, someone’s probably out there drafting it.” 

This level of dynamism in the ESG space requires companies to be agile and proactive in their approach. One of the best ways to do that is by developing and implementing a system for tracking regulatory changes and responding to them in a timely fashion. This internal system can take a myriad of different forms—as long as it consistently and reliably tracks regulatory developments and gives the organization the lead time so crucial to achieving compliance. “It could be one person on your team who owns compliance, a subscription to a trusted news source, or software that tracks it for you,” she said. 

The alternative—in which companies wait until a new ESG regulation is about to enter into force to mount a full response—is courting disaster. “If you wait until a new law is already in effect to react, you’re too late.”

5. Make ESG Compliance Part of Internal Governance

One overarching insight that Dozier consistently returns to is how ESG compliance shouldn’t be shunted to the side or relegated to “one person’s side project.” Because of the requirements these regulations and reporting frameworks entail, including sustainability data, supply chain traceability, evidence trails, minerals sourcing, and worker protection policies, among other obligations, ESG compliance demands structure and ownership across company hierarchies. One way to do that is by embedding ESG goals into departments like procurement, engineering, and compliance, where sustainability goals can become woven into regular processes. “That way, it’s not just ‘compliance’s problem,’ but is rather baked into how the business runs,” she said. 

Equally important is having executives support their company’s ESG framework and hold their teams accountable. “When leadership backs it, it’s easier to get resources for things like supplier audits, new compliance tools, or training programs,” she said. Ultimately, baking ESG priorities into the internal structure of a company empowers individuals and their teams to pursue the other four steps. “Think of governance as the glue that keeps the other four points from falling apart.”

Let Z2Data Lead Your ESG Due Diligence

Between the growing landscape of ESG regulations, evolving stakeholder expectations, and the reputational risk associated with flouting sustainability, companies have a strong incentive to seek ESG compliance. And as the PwC survey attests, temporary changes to those in power have a surprisingly small impact on these forces. Organizations that want to carry out Dozier’s recommendations, including conducting due diligence, standardizing internal data, and consistently monitoring regulatory changes should consider utilizing a supply chain risk management (SCRM) platform. 

SCRM solution Z2Data has a comprehensive suite of compliance features, including:

• Supplier due diligence campaigns
• Out-of-the-box risk analysis
• Data normalization 
• FMD analysis
• Data validation

With new regulations entering into force every year and stakeholders continuing to pressure businesses to prioritize ESG, firms with industry-leading compliance resources will enjoy a competitive advantage in the years to come. To learn more about Z2Data’s compliance and sustainability solution, schedule a free trial with one of our product experts.