How Corporations Use Sustainability Ratings

[5 MINUTES]

The following guest blog post was composed by Lucas Lopez-Videla of EcoVadisIt is intended solely for informational purposes. It is not an endorsement or recommendation and should not be construed as such. The views and opinions expressed are those of the author and do not necessarily reflect the opinion of Supplier Connection, its members, or its regional growth partners.

The post is intended to provide small and diverse suppliers with an introduction to how some large corporate and organizational buyers use sustainability ratings.

 

Sustainability and Corporate Social Responsibility (CSR). You may or may not be an expert on these terms, but surely you have noticed their growing prevalence over the years.

Indeed, the importance of sustainability has grown tremendously and has become a key consideration for many businesses and even a lever for business growth and brand longevity. What began decades ago as a defensive exercise among a handful of large companies has evolved into a rich discipline, with much broader scope, and propelled by numerous drivers across industries and geographies.

In the last decade, the supply chain has come into the spotlight, and today sustainability is a key dimension of buyer-supplier relationships.

Understanding the field of sustainable procurement — including its history, areas of focus, drivers and leading approaches — is an important step for any stakeholder in a corporate supply chain, and particularly for any supply-side company aspiring to do business with large corporate buying organizations.

Overview of CSR and Sustainability

CSR refers to an organization’s responsibility for the impacts of its activities on society and the environment. In general, this is achieved through transparent and ethical behavior that:

  • Contributes to sustainable development, including health and welfare of society and environment
  • Takes into account expectations of stakeholders (shareholders, employees, civil society)
  • Is in compliance with laws and regulations and consistent with international norms of behavior
  • Is integrated throughout the organization and implemented in its relation(ships?)

The scope of CSR and sustainability (and sustainable procurement) encompasses a broad range of issues from ethical labor practices to reducing greenhouse gas emissions to anti-bribery practices.

It is worth noting that focus areas of CSR programs can shift over time as risks, regulations and other internal/external factors produce new and changing areas of concern. In recent years, there has been an increased focus on eliminating forced labor and corruption.

In general, concerns related CSR are generally organized into three main categories:

  1. Environment

Operations

  • Energy
  • Water
  • Biodiversity
  • Pollution
  • Waste

Product

  • Product use
  • Product end of life
  • Customer safety
  • Advocacy

2. Social/Labor

Human Resources

  • Employee Health & Safety
  • Working Conditions
  • Social Dialogue
  • Career Management

Human Rights

  • Child & Forced Labor
  • Non-Discrimination
  • Fundamental Human Rights

3. Ethics/Governance

  • Corruption & Bribery
  • Anti-Competitive Practices
  • Responsible Marketing

Factors driving sustainable procurement

The factors that are driving action on sustainable procurement within large enterprises have grown over the years and continue to evolve as one area of concern is addressed and new factors become more prominent. Increasingly, proactive drivers aimed at up-side business benefits are driving action, particularly within companies that are leaders in sustainability.

Consider the following factors:

  • Brand reputation: protection of brand from reputational risk associated with poor CSR practices
  • Risk reduction: reduction of supply chain disruptions (e.g. noncompliance with regulations)
  • Cost reduction: reduction in total cost of ownership (e.g. reduced energy costs)
  • Market advantage: competitive advantage and differentiation with customers demanding responsible supply chains
  • Revenue growth: additional revenue from innovation of eco-friendly products/services

In terms of market advantage, small and diverse businesses seeking to become suppliers to large enterprises are expected to be aware of CSR and help support their CSR goals. A supplier that is able to demonstrate their focus on CSR may find it a competitive advantage when compared with other suppliers lacking this focus and awareness.

Evolution of CSR and sustainability tools

While many large enterprises have long endeavored to be good corporate actors, increased concerns about labor ethics and environmental impacts motivated more of the world’s companies to expand their focus on sustainability.

Large multinational companies began elaborating their policies on labor ethics and environmental stewardship into supplier codes of conduct and enforcing these in contract terms.

Self-assessment questionnaires began to proliferate as a method for collecting data from suppliers. Since then, numerous third-party tools have surfaced to help augment and streamline internal efforts for CSR data gathering, analysis, qualification, ranking/rating and performance monitoring.

Below are the main categories of these, one or more of which you will likely encounter when doing business with a large buying organization.

  • Self-assessment questionnaires: a survey issued by a buying organization to suppliers for collection of data on CSR performance.
  • Prequalification and screening services: used for prequalifying environmental, health, and safety criteria for subcontractors.
  • Comprehensive CSR ratings: third-party platforms for supplier CSR ratings, based on diverse sources of data, offer third-party validation, enable performance monitoring, offer platform for buyer-supplier collaboration.
  • Industry initiatives: companies align with industry peers on a common set of requirements to ease the burden on suppliers and increase leverage to drive improvements. Examples include TfS in chemicals, Railsponsible in the rail industry, GeSI-E-TASC in telecom/ICT, Higg Index in apparel, EICC in electronics and AIM-Progress in food/agriculture.

Learn more about CSR/sustainability and sustainable procurement at the EcoVadis Academy or visit the EcoVadis Library for free case studies, guides and white papers to help further educate and prepare you for your sustainability journey.

Lucas Lopez-Videla is a marketing associate at EcoVadis, a collaborative platform that provides sustainability ratings and performance improvement tools for global supply chains. EcoVadis’ CSR scorecards help companies monitor suppliers’ environment, ethical, and social practices across 150 purchasing categories and 110 countries.