While ESG skepticism and “greenhushing” often dominate headlines, global ESG regulations are still surging ahead—and compliance is proving to be an uphill battle for many companies. The regulatory landscape, from the EU’s Corporate Sustainability Reporting Directive (CSRD) to California’s climate disclosure laws, is forcing companies to assess and transform supply chains under tight timelines and increasing scrutiny. These policies are particularly challenging for industries like food & beverage, consumer goods, apparel, and retail where supply chains are complex, fragmented, and often opaque.

Achieving compliance is daunting. Non-compliance can come with steep penalties, including fines, legal liabilities, and reputational damage. Many companies struggle to map their suppliers beyond the first tier, let alone address carbon emissions, human rights risks, or environmental degradation buried deep in their value chains. Addressing these challenges requires significant financial investment and expertise, which are often unavailable in-house.

Strategic partnerships with social sector actors—particularly those with co-investment capabilities—can provide businesses with the support they need to meet compliance challenges while driving innovation and sustainability across their supply chains. These partnerships offer significant potential, but win-win relationships like these require both businesses and social sector organizations to evolve their approach.

Navigating the Complexities of ESG Compliance

Strategic partnerships with social sector actors—such as development finance institutions (DFIs), bilateral donors, and philanthropies—offer companies a way to meet compliance requirements more efficiently. These actors bring funding, expertise, and access to networks that can help companies navigate the complexities of regulatory alignment while even creating core business opportunities.

1. Reduced Costs and De-Risked Investments

Co-investment partnerships help distribute the financial burden of implementing costly compliance measures. DFIs, bilateral donors, and philanthropies can provide concessional funding, grants, or guarantees that reduce risks for businesses.

For example, IDH – The Sustainable Trade Initiative is partnering with The Apparel Impact Institute (Aii) and Clean Energy Investment Accelerator (CEIA) to pilot an innovative rooftop solar energy program for Vietnam’s apparel supply chain. Supported by brands like Lululemon, Target, Gap Inc., and Arc’teryx, the aim is to aggregate clean energy procurement needs from multiple suppliers, thereby streamlining procurement, reducing project costs, and scaling adoption of renewable energy. As a philanthropic funder and convener, IDH was well-positioned to drive a sector-wide effort, de-risk investments, and ultimately help apparel players make progress on common supply chain decarbonization obligations.

2. Accelerated Innovation

Social sector actors often fund research, pilot programs, and early-stage technologies that businesses can later scale. This enables companies to adopt cutting-edge solutions while minimizing upfront investment risks.

An example is the Innovative Finance for the Amazon, Cerrado, and Chaco (IFACC), a collaboration led by The Nature Conservancy, UNEP, and Tropical Forest Alliance, works with banks, asset managers, and major agribusinesses to develop and scale innovative financial solutions for sustainable soy and beef production. By mobilizing capital for practices like sustainable intensification on degraded lands and the protection of native vegetation, IFACC enables companies to meet deforestation-free commitments while ensuring climate resilience. With the EU Deforestation Regulation (EUDR) delayed by one year, in part because of a recognition of a lack of business readiness, partnerships like this demonstrate what action through partnerships can look like.

3. Expertise and On-the-Ground Insights

Social sector partners bring critical expertise, local knowledge, and technical capabilities that help businesses address complex regulatory requirements. From understanding local environmental policies to designing effective supply chain interventions, these partners are invaluable in navigating compliance challenges.

For instance, Nestlé is partnering with Swisscontact and the CoHonducafé Foundation to promote human rights, prevent child labor, and empower women in Honduras’ coffee sector. The project, which is part of a program co-financed by the Swiss Agency for Development and Cooperation, aims to educate thousands of Honduran coffee producers on adopting socially inclusive and sustainable practices that align with global regulations and consumer demands for ethically sourced coffee.

Unlocking Co-Investment Opportunities

One of the most underutilized resources for corporate compliance is the capital available through social sector actors. Donors and DFIs are increasingly willing to co-invest in sustainability initiatives that align with their impact goals. There is a clear opportunity for businesses to make their resources go further through this kind of partnership.

For example, Olam Food Ingredients is partnering with USAID, Rainforest Alliance, and local stakeholders in Ghana and Côte d’Ivoire to co-invest in sustainable cocoa farming practices that aim to increase tree cover, help reduce greenhouse gas emissions, and improve livelihoods for cocoa farmers. The program is also working in partnership with large buyers such as Mars Wrigley, Mondelēz International, and Costco who see an opportunity to enhance the sustainability and resilience of their supply chains through this collaboration.

Building a Competitive Advantage

Partnerships don’t just help with compliance—they also offer companies a pathway to competitive advantage. Businesses that proactively invest in sustainable supply chains are better positioned to navigate future regulations, reduce risks, and build trust with stakeholders.

For instance, Microsoft partnered with the International Finance Corporation (IFC) to accelerate decarbonization of tech supply chains in emerging markets. This collaboration not only reduces carbon emissions but also bolsters Microsoft’s competitive edge by improving operational efficiency, enhancing supply chain resilience, and elevating its brand reputation.

Overcoming Barriers to Collaboration

Despite their potential, partnerships face challenges. Companies often lack the capacity or common language to engage effectively with social sector actors, while donors and DFIs may hesitate to appear as if they are subsidizing private corporations. Concerns around perceived anti-trust issues further complicate partnerships that span multiple businesses.

Bridging these gaps typically requires four things outlined in the visual below:

Compliance with ESG regulations is no longer optional—it’s essential for companies seeking to thrive in a rapidly changing world. However, the complexity and cost of meeting these requirements demand a collaborative approach. Strategic partnerships with social sector actors enable companies to leverage external expertise, access funding, and scale solutions across their supply chains—but are too often not being harnessed.

By embracing these collaborations, companies can turn compliance challenges into opportunities for innovation, resilience, and growth. Partnerships not only reduce costs and enhance impact but also position businesses for long-term success in a sustainability-driven market. As the regulatory landscape continues to evolve, aligning supply chain practices through strategic partnerships will be a critical driver of competitive advantage and lasting societal impact.

Engage with Jeff to gain insights on strategic partnerships in ESG: