Now is the Time for Sustainable Procurement: A Rosier Picture of Companies’ Performance

July 7, 2023 EcoVadis EN

Companies that fall behind on sustainable procurement risk losing valuable opportunities, particularly where regulation or capital depends on it. Select companies have begun seriously addressing the topic, however. Our Index data shows that out of 31,000 companies evaluated in 2022, 6% achieved top EcoVadis scores in this area. That’s double the percentage from 2018.

Scores like this take time to achieve. 87% of companies considered Advanced in 2022 on the Sustainable Procurement theme were reassessed at least once between 2018 and 2022. This finding builds on last year’s analysis, where we outlined that sustainability performance increases substantially for companies focused on improving their sustainability management systems over multiple years.

This year, our seventh annual Business Sustainability Index demonstrates that the positive link between this iterative process and better performance holds: When companies embark on a continuous ratings and improvement journey, they see much stronger results.

The Five-Year Improvement Journey

Five years are enough for a good share of companies to improve by a performance level or two. This connection is consistent across all EcoVadis assessment themes, including Sustainable Procurement.

We traced the progression of around 5,000 companies assessed in 2018 and again in 2022. Almost 15% of them were evaluated as either Advanced (65-84) or Outstanding (85+) on Sustainable Procurement (see Figure 1). The majority of these most advanced companies moved up from the Good performance level (45-64), but quite a few rose out of what we consider a risk range (below 45). This shows that while sustainable change has lengthy time horizons – with goals and aspirations often extended to targets in 2030 or 2050 – near-term tangible improvement is possible.

Figure 1: Progression of companies assessed in 2018 and again in 2022 on the Sustainable Procurement theme

Note: Our data enables us to track the progression of companies with one assessment in 2018 and one in 2022. The Sankey chart highlights the movement of companies between the assessment categories. The scores range from zero to 100, with a score below 25 representing a high risk of environmental, human rights, or ethical violations; 25-44 representing medium risk; above 45 representing good performance; and above 64 is advanced.

Companies evaluated for the first time in 2022 scored 35.3 on average. Those with multiple assessments improved to 45.0 that year – 9.7 higher than the first group (see Figure 2). Typically, companies achieve this 45-point mark by their third assessment cycle. It’s clear that reassessments provide companies with opportunities to enhance the sustainability of their supplier ecosystems as the average score for the theme increases steeply with each new assessment – companies averaged a remarkable 59.9 points after five cycles of baselining and improvement (see Figure 3).

Figure 2: Comparison of average Sustainable Procurement scores – companies assessed for the first time in 2022 versus those that underwent reassessment

Figure 3: Average Sustainable Procurement score by number of assessments

Note: The average Sustainable Procurement score rises with each assessment. Those with five evaluations score almost 24 points higher than companies assessed for the first time.

Advanced performance (65+) on this theme demonstrates a company’s ability to integrate sustainability into its procurement function. Leaders are measuring and benchmarking their suppliers. They are implementing actions such as annual performance evaluations to monitor and improve supplier performance over time.

Figure 4: Ten fundamental actions for developing an effective sustainable procurement approach

  1. Sustainability code of conduct for suppliers in place.
  2. Integration of social and environmental clauses into supplier agreements.
  3. Sustainability risk analysis before supplier assessments or on-site audits.
  4. Regularly assessing suppliers on their environmental and social practices through self-assessment questionnaires, documentary audits, or third-party assessments.
  5. Training of buyers on social and environmental issues within the supply chain.
  6. On-site audits of supplier performance on environmental and social issues.
  7. Capacity building of suppliers on social and environmental issues (corrective actions, training, etc.).
  8. Incentives provided to suppliers that perform well on environmental and social issues (supplier awards, preferred supplier program, access to tenders).
  9. Buyers’ performance assessments linked to supplier sustainability performance.
  10. Worker voice surveys among employees or other advanced monitoring practices, such as tier-two supplier audits.

Figure 5: Percent coverage for the ten fundamental actions by company size in 2022

But while the target is clear, the path toward elevated scores is less obvious – most companies (62%) don’t even make the cut to Good performance, scoring below the 45-point threshold in 2022. Of course, this varies by industry, and some categories are gradually starting to roll out of the risk range. Yet, for all, the number of companies in the Partial or Insufficient categories ranged between 50-60% in 2022 (see Figure 6). Companies at these levels are the least advanced on their sustainable procurement journeys and urgently need to define top-line objectives for their procurement base.

Figure 6: Distribution of Sustainable Procurement scores by industry (2022)

Note: EcoVadis uses the United Nations industry classification system ISIC (International Standard Industrial Classification of All Economic Activities) to group our rated companies into nine industry categories. Also, due to rounding, distribution chart totals throughout the article can range from 99 to 101.

A concentration at the lower end of the performance spectrum is expected as we see a bunch of newcomers only starting their baselining. As awareness and pressure around supply chain due diligence grow, more organizations are assessing their suppliers. Overall, we’ve seen massive growth (a 134% increase) in assessments over the 2018-2022 period. In 2022, roughly 14,000 companies were evaluated for the first time while 17,000 underwent at least two evaluations.

Turning the Corner

Finally, after years of scoring decline or stagnation, the global average for Sustainable Procurement reached 40.6 in 2022, with a significant improvement of 1.7 points in just one year – the highest gain across all assessment themes. The average score for large companies is just below 40 points (at 39.8 in 2022), 0.1 points behind small companies. Meanwhile, medium-sized companies are making headway, averaging 41.4 (see Figure 7).

Figure 7: Average Sustainable Procurement scores by company size (2018-2022)

Figure 8: Distribution of Sustainable Procurement scores by company size (2022)

Note: EcoVadis classifies small companies as those with 25-99 employees and medium-sized as those with 100-999.

Small and medium-sized enterprises (SMEs) account for 84% of the total share of companies assessed between 2018 and 2022. Despite their enormous representation, many aren’t fully engaged in driving sustainable change throughout their value chains – around 60% of SMEs had Partial or Insufficient scores in 2022 (see Figure 8).

Change is coming for SMEs, whether they like it or not. Sustainability reporting standards and due diligence regulations are evolving quickly, and companies should start preparing now for future legislative changes.

Sound reasoning would suggest that large companies, generally more exposed to changes in national or international norms, would be naturally more inclined to adapt their supplier management systems (at least far more have fundamental sustainable procurement actions in place – see Figure 5). However, strikingly, almost a quarter are scoring below 25. Since 2018, there has been a 4 percentage point increase in the number of large companies performing at this Insufficient level (see Figure 8).

One of the reasons is that large companies deal with much more complexity in governing their suppliers: While they may work effectively with direct partners, most struggle to reach tier two and beyond. Lower-tier suppliers are usually the least equipped to adhere to required sustainability standards. They often lack the expertise, or may be unaware of accepted social and environmental regulations. They’re also frequently located in regions where such measures are non-existent.

Our analysis lays bare the work cut out for companies of all sizes: SMEs can step up and double down on their sustainable procurement initiatives. Large companies, too, with their reach and exposure, can build momentum to accelerate change at the rate and scale needed.

Realizing the Potential

From consideration to requirement, sustainable procurement is now in the spotlight – over the past few years, emerging ESG regulations and shifting investor and customer expectations have cemented its importance in the corporate world. In this new environment, companies of all sizes need to take a focused approach.

This is happening across the European continent, as no region is as determined to oblige companies to carry out supply chain due diligence. Looking at the average theme scores per country, only a few were close to or above the 45-point threshold in 2022, and all of these countries are located in Europe (see Figure 9).

Figure 9: Top-ten countries by Sustainable Procurement average (2022)

Note: Ranking includes only countries with at least 100 assessments in 2022.

Figure 10: Distribution of Sustainable Procurement scores by region (2022)

Note: European companies are heavily overrepresented, accounting for 55% of total assessments as of 2022. Companies in Asia-Pacific are the second largest group (22%).

Europe is in a league of its own in terms of the percentage of companies in the Good or Advanced performance categories (45+). Northern America and Latin America & the Caribbean are dominated by companies with Partial scores (medium risk). Strikingly, a third of the companies in Africa & the Middle East and Asia-Pacific are at an Insufficient (high risk) level (see Figure 10).

Does regulation drive change? Probably, as exemplified by Europe’s performance. But companies shouldn’t wait for government mandates to act: The growing supplier sustainability risks that underpin those laws threaten business in many ways beyond compliance – such as corporate and employer brand reputation, revenue interruption, and cost volatility. When you frame sustainable procurement as a driver for resilience, impact and growth, you can win more budget - and deliver far bigger results - than as a compliance task alone. Companies need to be shown the business case for adopting sustainability – how embedding it into management processes and procurement correlate with better financial and performance outcomes.

In our recent joint study with Bain & Company, we found connections between sustainability and business results in the area of sustainable procurement. Companies that focus on ethics, environmental and labor practices within their supply chains have a profitability edge, with margins 3 percentage points above those that don’t focus on the ESG credentials of their suppliers (see Figure 11).

Figure 11: Sustainable procurement leaders are more profitable

Profitability (avg. EBITDA margin 2019-2021) 

Note: Sustainable procurement leaders defined as >= 70, laggards: <30, Sample restricted to companies with $1B+ revenues & industries >= 50 observations | Source: EcoVadis; S&P Capital IQ; Bain analysis

Companies that want to lead in this field need to view the push toward sustainability not as a compliance task or a cost of doing business, but rather as an opportunity to create a new value. Companies that do so will find themselves in a much stronger position as the bar for sustainability inevitably rises over time. What qualifies as leading performance today, will likely be table stakes in the future.

The process of performance monitoring will be central to that mindset, allowing companies to assess the degree to which their current value chains create positive social and environmental impacts and to improve that performance over time. We hope that our Index insights, based on a robust analysis, motivate leaders to do more and laggards to catch up. It’s also an invitation for companies to join the EcoVadis network and use our ratings to benchmark their performance and identify opportunities to improve.

This article is intended as a deep dive into performance on one of the assessment themes, published after the 7th edition of the Business Sustainability Index. You can read the summary report here to find out what other trends have emerged from the 2018-2022 analysis. For customizable benchmarks, visit Index Online which allows for free data exploration.

About the Author

EcoVadis EN

EcoVadis is a purpose-driven company whose mission is to provide the world's most trusted business sustainability ratings. Businesses of all sizes rely on EcoVadis’ expert intelligence and evidence-based ratings to manage risk and compliance, drive decarbonization, and improve the sustainability performance of their business and value chain. Its AI-powered risk mapping, actionable scorecards, benchmarks, carbon action tools, and insights guide a resilience and improvement journey for environmental, social and ethical practices across 200 industry categories and 175 countries.

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