OECD Supply Chain Resilience Review

4.  The digital transformation, environmental objectives and international supply chains

Abstract

In many economies, the digital transformation and efforts to achieve environmental objectives are profound drivers of change. This chapter explores opportunities to improve supply chain efficiencies and sustainability (both environmental and social), as well as the potential associated risks.

Supply chain managers seek to adapt to constantly evolving challenges, uncertainties, emergencies, and other disruptions. Supply chains can also shape the global context in which they operate – including through the provision of products needed to implement digital and sustainability policies, and by contributing to environmentally and socially sound practices in economies and businesses along the chain. On the other hand, these twin transitions raise new risks for the resilience of supply chains, including geopolitical fragility, and the unintended divergences in the regulatory environment for sustainability. This chapter explores these dynamics in detail.

4.1. The digital transformation and the pursuit of environmental sustainability objectives introduce both opportunities and vulnerabilities

Supply chains evolve in a changing environment and both digitalisation and efforts to transition to more environmentally sustainable supply chains are important catalysts of this change. While this twin transition leads to new opportunities to increase the resilience and agility of supply chains, particularly through digitalising supply chains, it can also be a source of vulnerability when not properly managed.

Various environmental requirements and the accelerated pace of digitalisation are adding to the pressures on supply chains, which are already facing substantial challenges from factors such as geopolitical uncertainty, economic fluctuations and the concentration of critical raw materials (CRMs) in certain regions. However, these pressures also open the door to transformative change. By harnessing digitalisation, prioritising environmental sustainability, and meaningfully addressing social risks, supply chains can become more resilient and play an active role in advancing the digital transformation and the shift to low-carbon energy and products.

4.1.1. The digital transition is critical for resilient supply chains, but new risks need to be managed

The role of digitalisation in managing supply chains is extensive and transformative:

• Digital technologies, such as robotics, are increasingly being used to automate international production processes, including sorting, packaging, warehousing and quality control.

• Sensor technology, including Internet of Things (IoT) devices, Radio Frequency Identification (RFID) tags, global positioning systems (GPS), and smart labelling further enable real-time tracking of production along supply chains.

• Digital twin technologies enable virtual modelling of supply chain processes, enhancing optimisation and efficiency.

• Cloud-based communications platforms facilitate seamless communication and collaboration among suppliers, manufacturers, and retailers.

• Blockchain technologies, i.e. decentralised ledgers and smart contracts, ensure secure and transparent transactions along supply chains, including across borders.

• Predictive analytics, which are increasingly powered by artificial intelligence (AI), help manufacturers anticipate and respond to disruptions in upstream markets.

The digital transformation not only makes supply chains more efficient and transparent, it also plays a critical role in enhancing supply chain resilience. This happens by enabling end-to-end supply chain visibility – helping businesses better and more proactively manage emerging risks – or by enabling supply chain managers to monitor real-time information about markets to more efficiently anticipate and react to shocks.

However, while digital technologies bring numerous benefits, they also introduce new sources of pressures and vulnerability. For example, growing reliance on digitally interconnected systems can lead to greater vulnerability to cyberattacks, whose effects could cascade throughout supply chains. Vulnerabilities can also arise from the limited number of global suppliers of digital services. For example, disruptions to cloud-computing suppliers can lead to global outages, as happened with Amazon Web Services in 2020 and Microsoft in 2024, affecting firms’ ability to manage operations (Palmer, 2021[1]; Greenall, 2024[2]). Reliance on a few providers reduces resilience and can be a source of risk in itself.

In terms of environmental impacts, increased digitalisation can lead to growing demand for data centres, with important implications for energy consumption and carbon emissions.

4.1.2. Managing the digital transition can be complex

The digitalisation of supply chain activities, and consequently their ability to use digital tools to increase resilience, rests on a range of factors. Many are internal to the firms operating along the supply chain and include issues around the adoption and efficient use of digital technologies and their ability to analyse data. In this context, lead firms play a critical role in ensuring that the digital thread that ties activities along the supply chain remains unbroken and can be used to rapidly identify and react to disruptions.

However, some factors remain outside the remit of firms. These relate to the regulatory environment in which firms operate and whether or not it is favourable to the wider adoption, deployment and interoperability of digital technologies across international borders.

Governments can take measures to enable greater adoption of digital technologies along supply chains. They can ensure that domestic regulation is transparent, non-discriminatory and does not restrict trade more than is necessary to meet legitimate public policy objectives. For example, when enacting privacy and data protection policies, governments can seek policy solutions that enable open transfers of data while maintaining appropriate safeguards (Section 6.3). Such balanced approaches to data governance can deliver important gains, especially for developed countries. Recent evidence suggests that balanced approaches can lead to increases in GDP of 1.7% and increases in exports of over 3.5%. On the other hand, fragmented approaches to data governance can lead to reductions in GDP of around 4.5% and in exports of 8.5% (OECD/WTO, 2025[3]).

Governments can also engage in wider international co-operation on issues that matter for digital trade. This includes inserting digital trade provisions into trade agreements; including commitments that facilitate digital trade through the adoption of e-contracts, e-signatures and e-transferable records; as well as commitments supporting the non-imposition of customs duties on electronic transmissions. Governments can also support and pursue wider engagement on these issues in plurilateral and multilateral discussions at the WTO. One especially important aspect that can enhance the agility of supply chains is the digitalisation of border processes (further developed in Section 6.1).

While digital technologies offer transformative potential for building more sustainable and resilient supply chains, they are not without risks. Firms seek to adopt balanced approaches that leverage digital technologies while also addressing the new vulnerabilities these technologies introduce. Among other things, this requires investing in digital infrastructure and cybersecurity, diversifying technology providers, and managing broader social and environmental implications of digital transformation in supply chains.

4.1.3. Supply chains and the achievement of environmental sustainability objectives

Supply chain resilience can contribute to the achievement of environmental sustainability objectives. Trade through supply chains: (1) serves as a vehicle for trade in environmental goods; (2) strengthens environmental performance, for instance by ensuring resilience to negative environmental impacts, such as those caused by extreme weather events; (3) disseminates technologies that support environmentally sustainable production processes; and (4) allows economies of scale for the adoption of practices that promote a more circular economy. Environmental sustainability therefore requires that supply chains remain resilient to enable trade in environmentally sustainable goods and services, the development of the renewable energy sector and other instruments that increase environmental performance, as well as the integration of circular economy practices.

In an interconnected world with production spread across multiple countries, the pursuit of sustainability objectives can be enhanced by the adoption of more environmentally sustainable inputs. Environmental goods help to achieve this goal as they encompass technologies and products that reduce environmental risks and minimise pollution and resource use,1 ranging from electric accumulators used for energy storage to air pollution control devices, such as catalytic converters for purifying or filtering gases, or clean energy plant inputs such as optical devices used in solar systems.

Evidence based on analysis using the Combined List of Environmental Goods (CLEG) shows that within the production chain, most goods considered as having an environmental purpose are intermediate inputs (47%) and capital goods (49%); final consumption products only represent around 4% of traded environmental goods (EGs) (Moïsé and Tresa, 2025[4]). This fact highlights the important role that trade in EGs may play in moving towards environmentally sustainable supply chains. However, while exports of environmental goods are higher in volume for high and middle-income countries, in the past two decades exports of EGs for low-income countries have more than doubled (Figure 4.1). EG exports across all countries have grown by 30% between 2012 and 2022. Even though tariffs affecting EGs are low due to several trade liberalisation rounds and the growing number of trade agreements over the years, they still remain high for low-income countries, reaching 13% for some products (Moïsé and Tresa, 2025[4]).

Another challenge to accessing environmentally sustainable inputs along supply chains stems from the presence of non-tariff measures (NTMs). Technical barriers to trade (TBTs) are the most common NTMs regulating EGs trade ranging from safety requirements to regulations for mandatory fuel economy labelling schemes for all vehicles under a specific weight or requirements for vehicle manufacturers to perform greenhouse gas emission tests. NTMs can become non-tariff barriers (NTBs) if measures such as technical regulation or conformity assessment procedures are applied unevenly or in a non-transparent manner y, increasing the trade costs of EGs. Trade facilitation measures can significantly reduce costs arising from the diversity of domestic regulations or lack of clarity around them, by streamlining processes that products must undergo to enter a market (Section 6.1).

Many final environmental products, such as solar panels, electric vehicles and wind turbines, require critical raw materials (CRMs) in their production. Such materials feature at different stages of the production of EGs: the upstream stage, which consists of resource extraction; the midstream stage, covering raw material processing and the production of certain components; and the downstream stage, which covers the manufacturing of more complex components, assembly, sales, and end-of-life recycling. Given the concentrated nature of CRMs, not only geographically, but also in terms of ownership and control (Section 4.1.4), trade allows for these important inputs to be deployed to produce many EGs. For example, the production of batteries for electric vehicles (EVs) requires several components, such as lithium, cobalt, and nickel, which are available in only a few countries.

Equally important, supply chains serve as a key channel for making services accessible globally and for spreading the knowledge and technology necessary for environmental sustainability. Services can support both the invention and adoption of environmentally sustainable production methods, contributing to end-of-pipe pollution control, pollution prevention, and cleaner production. While traditional core environmental services (e.g. sewage, refuse disposal, sanitation) are recognised for their direct environmental benefits, a range of other services – such as engineering, financial, and maintenance – are essential to improve the environmental performance of a wide range of economic activities. Preliminary analysis shows that increased access to environmentally related services would result in improved environmental outcomes. Notably, sectors such as telecommunications, maintenance, financial services and other business services play a crucial role in driving these positive environmental outcomes (Beverelli et al., 2025[5])

Supply chains are also important for fostering innovation and diffusing technology that contributes to the achievement of environmental sustainability objectives. Resilience in supply chains is vital for the dissemination of environmental technologies embedded in goods and services, particularly for countries that lack domestic production capabilities. For example, Garsous and Worack (2021[6]) show that trade in wind turbines provides access to more efficient technologies than what would be possible to replicate domestically in the absence of trade.

Finally, as supply chains allow for products to travel, circular solutions become more challenging as polluting products and thus emissions are embedded in global chains. For instance, many harmful plastics products (Box 4.2), are embedded in goods that cross several borders along the supply chain and can harm the environment in various ways throughout their lifecycle, from the carbon footprint of their production, the chemical pollution associated with their manufacture, to leakage into the environment at their end of life (Moïsé and Tresa, 2023[7]). However, through circular economy solutions at different stages of production, and by increasing the economic viability of recycling markets (Box 4.2), supply chains can help to reduce this harm by facilitating processes such as product reuse, repair, refurbishment and remanufacturing, and recycling. These processes help use material resources more efficiently to sustain the global economy and alleviate environmental pressures associated with an increase in material production and consumption. Similarly, scaling up cross-border reverse supply chains (e.g. to recover and reuse critical raw materials embedded in used batteries) can help to deal with pressures coming from a concentration of resources in value chains, as well as the need to achieve environmental sustainability (Yamaguchi, 2022[8]).

Box 4.1. Supply chains are both a challenge and means of addressing plastic pollution

Reducing plastic pollution is an important environmental policy objective. Overall, annual global use of plastics more than tripled between 1991 and 2021 (OECD, 2022[9]). While international trade organised in supply chains has contributed to the increase in plastics, it also offers opportunities to tackle plastics pollution by implementing circular economy solutions.

Plastics production involves several stages, dispersed across many countries. The stages involved include the supply of raw materials, the manufacturing of primary and final plastics, and the end-of-life management and treatment of plastic waste. Findings from input-output analysis using the TiVA database show that on average 40% of the value added used to produce output from the plastics and rubber sector in a country is foreign, highlighting the significance of international supply chains in the plastics industry. The most common use of plastics (by volume) is for packaging. A key difficulty related to the value chains involved in plastics is identifying the flows associated with product packaging or any plastic embedded in products along supply chains, making circular economy approaches more challenging.

While international trade has contributed to the production and dispersal of plastics in different countries, mainly through packaging activities, it also presents an opportunity to tackle plastics pollution. Trade allows for the diffusion of technology and the spread of innovation at different phases of the plastics life cycle in countries where such technologies for recycling are lacking. Furthermore, supply chains may increase the economic viability of recycling markets, including through the diffusion of goods, services and technologies for plastics collection, waste management, recycling, and clean-up; the viability of repair and remanufacturing operations for products that contain plastics; and the viability of markets for environmentally sound and effective substitutes for plastics.

Source: Moïsé and Tresa (2023[7]), Trade policies to promote the circular economy: A case study of the plastics value chain, https://doi.org/10.1787/e36f2d91-en.

4.1.4. Critical raw materials required for the shift to low-carbon energy and products generate supply chain pressures

Extraction and processing of raw materials has traditionally been highly concentrated, not only geographically, but also in terms of ownership and control. This is mainly because the economic viability of the raw material industry requires extraction and processing to take place where these materials are the most naturally abundant, or where the geological and climatic conditions, infrastructure, technology and resources make the extraction and processing most economically viable. However, these natural characteristics of the raw materials industry also provide incentives for market participants and governments to exploit market power dynamics to pursue individual economic and non-economic objectives. For example, export restrictions on unprocessed forms of cobalt, lithium and nickel have been used by some of the main producers of these products to promote the development of domestic processing industries at the expense of their trading partners (Andrenelli et al., 2024[10]). Other forms of state intervention, such as special regulations, state ownership, investment restrictions and subsidies, are also pervasive in the sector.

The production and international trade of CRMs is increasingly concentrated in a handful of extracting and processing locations which account for the bulk of global supply (Kowalski and Legendre, 2023[11]). For example, the three top producing countries in 2022 accounted for 60% or more of the global production of cobalt (78%), lithium (92%), nickel (65%), and rare earth elements (90%) (Figure 4.2) which are used for producing batteries and equipment used in a number of renewable energy technologies such as solar and wind. Concentration of exports is particularly significant for unprocessed forms of cobalt, manganese, borates, chromium, magnesium and lithium (Figure 4.3).

Restrictions on exports of raw materials to favour domestic users to the detriment of foreign users are some of the most contentious forms of state intervention. As they undermine the economic viability and decrease the output of domestic extractive industries, this hampers the global supply of the materials concerned. In addition, if the exporter holds a large share of the market, export restrictions can increase world market prices, creating incentives for other exporters to impose them, resulting in spiralling negative effects on international markets.

The OECD Inventory on Export Restrictions on Industrial Raw Materials, which covers the period 2009-2022 (OECD, 2024[12]), shows that export restrictions on industrial raw materials saw a more than five-fold increase over this period (Figure 4.4). Due to their critical role in the digital transformation and the shift to low-carbon energy and products, and the high degree of trade dependency of most users, the imposition of export restrictions on raw materials risks negative spillover effects cascading down global supply chains.

 

4.2. Promoting social and environmental sustainability along supply chains

The intertwined nature of global production in the form of GVCs has drawn attention to the sustainability of supply chains to the fore of discussions in recent years. In this specific context, sustainability is broadly understood to include protection of the environment, adequate working conditions, and respect of human rights.

Consumers are increasingly concerned about the sustainability of final goods, as well as whether each of the inputs (and the inputs into the inputs and so forth) were produced in a sustainable manner. Public and private sector actors are also alert to considerations resulting from differentiated regulatory standards across jurisdictions.

Figure 4.5 shows, for production taking place in the OECD in selected supply chains, the amount of greenhouse gas (GHG) emissions embodied within the entire supply chain. This includes upstream indirect emissions, or emissions which take place in the supply chain prior to final production. For many sectors, such as food and electrical equipment, much or even most of the GHG emissions occur in earlier stages of production, both in the home economy and abroad.

Equally, although GVC integration can generally support improved job quality (Park, Lundquist and Stolzenburg, 2023[15]), the international fragmentation of production implies that a given final product may incorporate labour from countries with varying levels of worker rights protection. Figure 4.6 shows for selected industries the share of embodied employment used throughout the supply chain that took place in countries categorised into four levels of freedom of association rights. In some sectors, a significant portion of the employment used directly and indirectly to produce the final product is taking place in countries where the protection of unions and the right to organise are relatively weaker.

4.2.1. Implementation of supply chain sustainability laws

Governments that seek to improve the sustainability of the supply chains of firms operating in their market face a challenge: production practices that are harmful to the environment or to workers can be happening abroad, where they do not have direct jurisdiction. In response, a variety of supply chain sustainability laws have been developed in recent years. Each of these laws operates in somewhat different ways, but two main mechanisms can broadly be distinguished.2

The first, most common approach is to impose due diligence requirements on firms that are producing or selling goods within a market, where the due diligence obligations extend to the firm’s activities abroad. Examples of such firm-focused regulations include the United Kingdom’s Modern Slavery Act and the European Union’s Corporate Sustainability Due Diligence Directive. These laws generally require companies to provide documentation on the activities they undertake to ensure the sustainability of their supply chains. In more comprehensive forms, specific due diligence processes and practices can also be required; in a few cases, firms can even be held liable for any failures to prevent damage done to the environment or workers by their suppliers.

In a second set of laws, governments instead ban goods from entering or being sold in their market for which adherence to relevant social and environmental standards in their supply chain cannot be adequately guaranteed. In some cases – such as the European Union’s Deforestation Regulation3 – this requires firms to proactively submit paperwork at the border that documents the sustainability of their supply chain. In other cases, goods are only taken off the market when sufficient concern about their production methods arises, and firms are then required to provide evidence to the contrary to undo the decision. This government-focused approach is commonly used in laws on forced labour, such as the United States’ Trade Facilitation and Trade Enforcement Act or the EU Forced Labour Regulation.4

Over the past decade, supply chain sustainability laws have been adopted in an increasing number of countries. While estimating the extent of economic activities covered by these laws is fraught with difficulties, a set of simplifying assumptions used in recent OECD research focused on worker rights in supply chains allows for a tentative assessment of the potential coverage of these laws. Figure 4.7 provides an approximate indication of the evolution of the share of global output that is associated with countries which have a supply chain sustainability law related to worker rights in place.5 Examining the economic activities in countries with such supply chain laws addressing labour issues, along with the foreign affiliates of firms headquartered in those countries, suggests that nearly half of global output is directly or indirectly connected to these laws.

While sustainable supply chains are an important goal, the resulting regulatory efforts also create pressures. In regulating, governments affect the functioning of supply chains, which are generally complex webs of economic relationships between many inter-connected firms. Potential downsides of such regulation need to be carefully considered in the design and implementation of legislation. Moreover, ongoing uncertainty about the future regulatory environment makes adapting supply chains particularly challenging for firms.

The costs imposed by new regulations might alter patterns of trade flows and supply chains in ways that may not be in line with comparative advantage. There are costs involved in using more sustainable production practices, but additionally the process of verifying and documenting the activities at all stages of a supply chain also involves significant transaction costs. A recent study estimates, for example, that firms will face annual costs ranging from EUR 40 000 to EUR 320 000to comply with the European Corporate Sustainability Reporting Directive as well as one-off costs between 36 000 and 287 000 upon implementation of the legislation, depending on the size and complexity of a firm (CEPS, 2022[18]).6 This may also impact the possibility for developing countries with less developed institutions to benefit from global trade. While trade facilitation tools (Section 6.1) may help smooth the way in reducing frictions at the border, some transaction costs will nevertheless remain.7

As a result of these transaction costs, doing business with foreign suppliers – particularly those located in markets where there is no presumption of adequate enforcement of sustainability laws by relevant authorities – might become more burdensome. In response, firms could choose to reorganise their supply chains to avoid any business partners that might lead to additional paperwork or other regulatory hurdles. These choices are not driven by the quality or price provided by suppliers, but rather by avoidance of the transaction costs or potential uncertainty. Thus, production might be pushed to more inefficient locations and firms, negating the benefits of trade in ensuring that economic activity is allocated on the basis of productivity, as well as potentially reducing the inclusivity of the global economy.

A second challenge is that the costs imposed by supply chain regulations appear unlikely to be distributed equally. In particular, firms in developing countries and small and medium enterprises (SMEs) are likely to find these rules more burdensome to comply with. Although smaller firms are often exempted from supply chain sustainability laws directly, they may nevertheless be impacted as their downstream business partners may be required to report on the activities of their small suppliers. Acquiring familiarity with the relevant reporting schemes, as well as collecting the required information, is largely a fixed cost, which poses a far greater relative burden for those with smaller operating revenues and slimmer profit margins. For some smaller firms and specific firms in developing countries, the financial burden of meeting such requirements could even be too high to sustain participation in supply chains.

Increasing attention has been paid in recent years to the importance of ensuring that trade benefits everyone (OECD, 2017[19]); (WTO, 2024[20]). A major component of these efforts has been enabling SMEs and developing countries to export and to integrate into GVCs, as participation in international markets can be an important driver of economic development. Efforts to promote sustainability should be mindful of potential risks that could undermine the progress achieved towards these goals. Depending on the design of the law, businesses in trade partner countries might benefit from support such as guidance and information, technical expertise, or other forms of assistance to meet environmental and social performance expectations set by regulations.

Third, the current fragmentation and rapid changes of the current policy landscape for supply chain sustainability can create their own pressures. Countries have frequently approached their legislation in ways that may differ subtly or substantially. Regulation in this domain is also changing rapidly, and often considerable uncertainty exists about the implementation and timeline of new requirements. For example, Deconink et al. (2023[21]) demonstrate that variation in and lack of certainty about methodologies and reporting requirements for the environmental impact of food systems are causing a fragmented landscape of environmental initiatives. Similarly, due diligence reporting required by different countries’ laws on social sustainability may differ in its content and format.

When the implementation of laws remains unclear or changes over time, firms are asked to prepare for a wider range of scenarios. This further exacerbates the challenges highlighted above, creating inefficiencies and potentially incentives to pull out of business with certain partners. Similarly, when regulations are not harmonised across jurisdictions, firms may incur administrative costs multiple times. Coordination among countries can be useful in order to avoid regulatory fragmentation, ensure policy coherence, and limit the regulatory burden on firms. Even if national laws differ in scope, terminology and requirements, they are in many cases broadly aimed at addressing similar goals and are often rooted in the same international standards. This offers opportunities to identify synergies and improve policy cooperation.

Lastly, when supply chain laws create significant costs and when they are applied strictly and immediately, they might create incentives for firms to adopt “cut and run” approaches, i.e. cease doing business in markets where risks of sustainability violations exist. Yet, disengagement from a business relationship is meant to be a measure of last resort, either after failed attempts at mitigation, or where the enterprise deems mitigation not feasible, or because of the severity of the adverse impact. For example, market actors reported that due diligence requirements in the minerals sector have resulted in some firms avoiding artisanal and small-scale miners in conflict-affected and high-risk areas (OECD, 2021[22]).

While the creation of supply chain sustainability regulations is motivated by real and pressing concerns, their emergence may also pose an additional stressor to global value chains. Their potential costs and negative impacts need to be carefully weighed against the good they can do, and their design and implementation must take these trade-offs into account. This includes careful consideration of the market failures and other forces that lead to unsustainable supply chain practices in the first place (Park, Lundquist and Stolzenburg, 2023[15]).

As most supply chain sustainability laws have only been adopted relatively recently, their practical impact on the structure of supply chains and the sustainability of production across the world remains largely unexplored. Little is known about the way firms alter their strategies in response to these new legal frameworks. Research aimed at unpacking potential effects is needed in order to ensure sustainability policies benefit the environment and workers while addressing any unintended adverse effects on the efficiency and inclusiveness of supply chains.

4.2.2. Multistakeholder sustainability initiatives can complement regulation, but also add complexity

Supply chain sustainability laws are part of a broader ecosystem for sustainability governance. This ecosystem encompasses various elements, inter alia:

• International legal instruments, such as the ILO International Labour Standards, the Convention on International Trade in Endangered Species and the OECD Guidelines for Multinational Enterprises on Responsible Business Conduct

• National legislation (e.g. environmental protection laws, legislation for sustainability criteria in public procurement, technical regulations specifying sustainability requirements for products’ characteristics or their related processes and production methods, tax concessions or subsidies pursuing sustainability objectives)

• Trade and investment policy instruments, such as trade agreements that increasingly integrate and pursue trade-related sustainability objectives, generalised system of preferences (GSP), and trade and investment promotion tools.

• Sustainability initiatives, which form another critical part of this ecosystem (Box 4.2).

Box 4.2. The wealth of sustainability initiatives influencing global trade

Businesses, governments and non-government organisations (NGOs) engage in sustainability governance through a variety of multi-stakeholder, government-run or industry-led initiatives, including environmental and social certification, environmental labelling and information schemes, voluntary sustainability standards, or other systems to facilitate, evaluate or demonstrate the sustainability performance of economic activities and outputs along supply chains. Most of these initiatives are designed to recognise and incentivise good practice against specific standards, often developed by the initiatives themselves. Many initiatives also support businesses with sustainable and responsible business conduct through promoting collaborative efforts, or providing policies, guidance and tools for assessing and managing sustainability risks or impacts. Examples of well-known sustainability initiatives include Fairtrade International, the Forest Stewardship Council (FSC), and OEKO-TEX for the textile and leather industry.

Unlike mandatory requirements such as due diligence legislations, many sustainability initiatives are voluntary in nature. However, expectations of consumers, investors and firms acting as powerful buyers of inputs may create a situation where choosing not to comply with the requirements of a sustainability initiative would result in exclusion from supply chains or investment (Fiorini et al., 2019[23]).

Most sustainability initiatives have been created within or with strong engagement by the private sector. Their development is partly driven by the actual or perceived failure of public governance alone in achieving sustainability objectives. For instance, the Forest Stewardship Council (FSC) was formed in 1993 after dissatisfaction grew due to the failure to approve a binding international instrument for forest preservation at the 1992 Earth Summit in Rio. A multi-stakeholder sustainability initiative, FSC involves NGOs, the private sector, environmental organisations, and representatives of local communities affected by deforestation in the design of standards for sustainable forestry and of global-reach systems to verify and communicate compliance with these standards (Cashore, Auld and Newsom, 2004[24]). NGOs like the World Wide Fund for Nature (WWF) have applied FSC’s certification model to other commodity sectors, including the palm oil and soy industries (Auld et al., 2007[25]).

Today, sustainability initiatives are nearly as diverse as the combination of sustainability themes, products, and services they focus on, and the stakeholders involved. They are often defined, understood, and valued differently by different actors. They also differ significantly in their quality, design, core activities, scope, governance systems, and levels of transparency. While this diversity reflects the broad range of purposes, users, and uses of sustainability initiatives, it can also lead to confusion and inefficiencies when navigating and differentiating between initiatives.

Against this backdrop, the United Nations’ International Trade Centre (ITC) and the OECD have proposed a flexible and value-neutral typology framework to foster a shared understanding of the complex landscape of sustainability initiatives (OECD/ITC, 2024[26]). Recognising their diverse and multifaceted nature, the ITC-OECD framework provides a structured set of parameters and a common language to help policymakers, private sector actors, NGOs, and other stakeholders differentiate between sustainability initiatives and, ultimately, use them to facilitate and verify the sustainability performance of economic activities along supply chains.

Well-designed and well-governed sustainability initiatives can be a useful tool to support companies’ sustainability performance along global supply chains. Sustainability initiatives are engaged directly with the firms that make up global value chains. This allows them to leverage sector-specific expertise and, in some cases, conduct on-the-ground verification of the compliance of firms with sustainability standards, enabling transparency at a highly specific level. Even where the regulatory framework for sustainability is weak, high-quality and high-integrity initiatives can provide motivation and reward for specific producers to achieve sustainability objectives.

However, the credibility and effectiveness of sustainability initiatives vary widely (Marx et al., 2024[27]). For example, among those initiatives for which data can be analysed, only a select few demonstrate ambitious public commitments to transparency and stakeholder engagement, which are important drivers of an initiative’s credibility (Balaban et al., 2025[14]). Moreover, available data show that the prevalence of sustainability initiatives is uneven along supply chains, varying across sectors, tiers of supply and geographies. Overall, their voluntary nature, the fragmentation and complexity of their landscape, and the potentially high costs associated with voluntary implementation of their sustainability requirements or certification, are important factors that seem to prevent their overall sustainability impact from being transformative.

Despite these challenges, the potential contribution of such initiatives to make supply chains more sustainable has led policy makers to integrate them in a few public policy instruments. In the policy area of public procurement, for example, several jurisdictions have included legal mechanisms to recognise sustainability initiatives as one form of proof of compliance with specific sustainability requirements mandated by the law. Examples of this approach include the 2005 Act on Promotion of Purchase of Green Products of the Republic of Korea, and the European Union’s (EU) Public Procurement Directive (2014/24).

Similarly, some supply chain sustainability laws, mostly in the EU or European countries, also reference sustainability initiatives. These include, among others, the EU Renewable Energy Directive (2009), the EU Conflict Minerals Regulation (2017), the EU Batteries Regulation (2023), the EU Critical Raw Materials Act (2024), and the EU Corporate Sustainability Due Diligence Directive. Sustainability initiatives are also expected to be an important topic in the context of the EU Deforestation Regulation.8 Approaches to integrate sustainability initiatives in supply chain sustainability laws vary significantly, ranging from government-led “recognition of equivalence” models to more nuanced and flexible approaches that allow companies to use those initiatives most relevant to them, but ask them to evaluate the individual scope, alignment and credibility of the initiatives they use. In both contexts, governments have an important role to play in supporting companies and in promoting more credible public information on the scope and credibility of individual sustainability initiatives.

References to sustainability initiatives in these laws can be accompanied by a mechanism to assess the fitness and credibility of specific sustainability initiatives that wish to be recognised under a given legislation. These approaches can prove challenging for governments, particularly within normative frameworks with broad scope and where governments may lack resources. They also risk promoting over-reliance by enterprises and governments on recognised initiatives as an indicator of compliance (Balaban et al., 2025[14]).

Furthermore, there is an emerging trend of incorporating references to sustainability initiatives within trade agreements, in most cases reflecting a recognition of their potential role in advancing environmental sustainability governance. These new provisions are often non-binding or lack strong enforcement mechanisms. A few trade agreements go further and provide guidelines and recommendations setting specific characteristics that sustainability initiatives could follow to maximise their environmental impact while reducing the risk of creating unnecessary barriers to trade. This approach is taken for example in the environment chapter of the Comprehensive and Progressive Agreements for Transpacific Partnership (CPTPP), as well as in the free trade agreements between Brazil and Chile, Chile and Uruguay, Chile and Ecuador, and the United States-Mexico-Canada Agreement (USMCA). More recently, the new Agreement on Climate Change, Trade and Sustainability (ACCTS) signed by Costa Rica, Iceland, New Zealand and Switzerland in 2024 dedicates an entire chapter to introducing new guidelines for voluntary ecolabelling programmes.

Finally, sustainability initiatives can be used in the implementation of conditional trade preferences introduced by trade agreements. This is the case in the Swiss national ordonnance that regulates the implementation of bilateral preferential tariffs granted by Switzerland to Indonesia on products in the vegetable oils sector and listed in the EFTA-Indonesia Comprehensive Economic Partnership Agreement. The agreement makes these preferences conditional on sustainable management of the vegetable oils sector and associated trade (Article 8.10). After benchmarking available initiatives covering palm oil, Switzerland’s State Secretariat for Economic Affairs (SECO) identifies three initiatives to be aligned with the sustainability conditions of the EFTA-Indonesia agreement and accepts their certifications as a sufficient condition for palm oil imports from Indonesia to benefit from the preferential tariff.

Approaches to the design of policy frameworks that align sustainability and efficiency with resilience, in ways that foster long-term economic stability and sustainable development while ensuring the capacity to withstand disruptions are discussed in Chapter 7.

References

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[25] Auld, G. et al. (2007), The Spread of the Certification Model: Understanding the Evolution of Non-State Driven Market Governance, International Studies Association 48th Annual Convention, Chicago.

[14] Balaban, C. et al. (2025), “Towards more environmentally sustainable supply chains: The role of trade agreements and sustainability initiatives”, OECD Trade Policy Papers, No. 293, OECD Publishing, Paris, https://doi.org/10.1787/8bf5cb62-en.

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Notes

← 1.  The definition of environmental goods (EGs) has been the subject of many discussions that will not be covered further in this report (see Moïse and Tresa (2025[4]). Past OECD analysis has defined EGs as goods used “to measure, prevent, limit, minimise or correct environmental damage to water, air and soil, as well as problems related to waste, noise and eco-systems” (OECD and Eurostat, 1999[28]).

← 2.  For a more in-depth discussion on the design and evolution of supply chain sustainability laws, specifically regarding labour rights protections, see Jaax and van Lieshout (2025[17]).

← 3.  Not in force at the time of writing this report – it will come into force on the 30 December 2025.

← 4.  The United States’ Uyghur Forced Labour Prevention Act takes a more far-reaching approach along the same lines, whereby goods made wholly or in part in Xinjiang are presumed to have been made with forced labour unless evidence to the contrary can be provided.

← 5.  The paper from which this figure is drawn (Jaax and van Lieshout, 2025[17]) is focused on supply chain laws regarding social sustainability.

← 6.  Recent proposals to adjust the application of the EU Corporate Sustainability Reporting Directive may impact the accuracy of these estimates.

← 7.  See OECD (2025 forthcoming[29]).

← 8.  The regulation’s article on risk assessment mentions certification or other third-party verified schemes, including voluntary schemes as potential sources of complementary information on compliance with the Regulation (Article 10(n) of the EU Deforestation Regulation).