Sustainability in business has reached beyond gathering metrics and pleasing stakeholders. It’s become a mission unto itself. This sentiment was embodied in the statement that Richard Eyram, chief customer officer at EcoVadis made when he was appointed to his current position. “We have a once-in-a-lifetime opportunity to transform businesses across the globe into a force for good,” he said. He sees the role of his company, to “engage and inspire an entire generation of business leaders to make sustainability a priority and drive the positive impact our plant and society desperately need.”
And it seems he’s not alone in this quest, as a recent survey from Gartner released in November of 2022, revealed that a majority of companies (80%) surveyed plan on increasing their investment in sustainability over the next two years.
Why this level of investment? “A number of forces are putting this pressure on companies, explains Eyram, “Investors, customers and employees, especially Millennials, as well as government agencies including regulators. No one is willing to wait for something to happen; they are forcing this change. And it’s important to understand that this is not a fad, it’s how we will conduct business in 2023, 2024, 2025.”
Business Sustainability Risk & Performance Index
This message is getting through to companies who are improving their sustainability performance, especially over the past five years as measured by EcoVadis’ Business Sustainability Risk & Performance Index, which in October 2022 saw a 61% growth in the number of assessments from 2017-2021. And more than half of the companies reported doing multiple assessments.
This Index, which is based on the sustainability performance data from 83,000 ratings of nearly 53,000 companies across 800 value chains between 2017 and 2021, showed that more than 65% of companies are achieving a performance level of Good or better, up from 50% in 2017. Meanwhile, the share of companies with Partial sustainability performance fell from 45% in 2017 to 32% in 2021.
Looking at the data from a sector perspective, while no industry group scored above 50 in 2017, five have since crossed this threshold. Finance, Legal and Consulting firms (53.4) jumped to the top of the industry rankings due to their strong performance on both Labor & Human Rights and Ethics. Next is Construction (51.5), followed by Food & Beverage (51.4), Heavy Manufacturing (50.5) and Light Manufacturing (50).
Additionally, small and medium-sized companies, which account for over 70% of global supply chains, outperformed large companies over the five-year period. Although large companies achieved their strongest result yet, their rate of improvement was less than SMEs by around 2 points. (For more information see Five Key Sustainability Trends from the Latest EcoVadis Index Benchmark Report.)
Digging into the components of the index, the October report found that “the pace of sustainability progress is steadily accelerating, with companies showcasing a higher level of maturity on social and environmental topics in 2021 than ever before. "
Companies have made exceptional year-on-year progress in the Ethics category, increasing their average by 2.5 points in 2021 (the largest gain across any category). However, with the average of 46.8, 2021’s scoring on Ethics is lower than on the Environment and Labor & Human Rights categories. The 2022 performance on Labor & Human Rights was the highest across all categories, with companies averaging 52.5. All regions scored above the 45-point mark (Good performance) – a first for any EcoVadis assessment category.
Is ROI Driving Results?
As with every initiative taken by companies, there needs to be a return on investment. Even with many stakeholders asking companies to invest in sustainability measures, companies are still looking closely at the ROI, says Eyram. “Efforts in sustainability can be measured in so many ways as it allows companies to achieve savings in their ability to respond to market uncertainty, disruption, and change. Sustainable practices can increase efficiency and operational standards. But how do you quantify those benefits? We are seeing trends in terms of procurement and that improves their index scores. (EcoVadis has a whitepaper on Return on Sustainability: The Value and ROI of Sustainable Procurement.)
Global Regulations
Another trend companies are watching closely is that of regulations. “Companies have facilities across the globe, so we need to be aware of regulations that are changing in other countries,” says Eyram. He provides the example of a new law in Germany called the Act on Corporate Due Diligence Obligations in Supply Chains, called LkSG, which became effective on Jan. 1, 2023. The regulation includes due diligence obligations related to human rights and environmental risks and violations. Included are the protection of the labor force in terms of issues of forced labor, adequate wages and the ability to form trade unions. Also included are environmental concerns such as the production of certain chemicals as well as import and export of hazardous wastes.
“Everyone is watching this legislation as it will cover companies that have more than 3,000 employees in 2023 but then moves to companies that have 1,000 employees in 2024, so that includes a lot of businesses. And Germany’s economy is manufacturing-based so the implications will be global.”
Human Rights in Supply Chain
As the German law has a heavy emphasis on protecting human rights in the supply chain, Eyram said he has found in visiting companies and employees across the U.S. many are asking to partner with EcoVadis to help them with traceability in their supply chain when it comes to sources of labor. He notes that a wine company said it has expectations from its customers to be able to know what employee picked that grape that went into pressing that went into a particular bottle of wine. Another client said that he was asked which employee worked in the mine that extracted a chemical that was used on a piece of electrical equipment that would eventually go into a building in order to run the building’s electric system.
Force for Good
This question of traceability is directly aligned with the Millennial generation which by the end of 2025 will represent 75% of employees across the globe. “This generation is hyper-connected through the advancement of the fourth industrial revolution. They have the world’s information at their fingertips. They are able to research the supply chain of the products they want to purchase. And it's not just the products they purchase based on sustainability but what companies they will work for based on that same criterion. Companies that have sustainability programs across their entire supply chain achieve better attraction and retention of employees. It reflects a better culture and thus leads to a strong reputation for the company both internally and externally.”
And that push, along with investor, regulation and customer focus on sustainability will influence the future trajectory of ESG says Eyram. “This will be a culture where we can all do well and do good at the same time. We can have financial success and ensure ESG goals are met. And this won’t be a few organizations that are on this journey it will be all organizations.”
