In its fifth year, the 2021 Sustainability Risk and Performance Index examines the sustainability performance of more than 46,000 companies assessed by EcoVadis during the period 2016-2020 and provides critical insights into trends in environmental, social and ethical practices across diverse regions and industries. The comprehensive dataset underpinning the newly published 2021 Index Report reveals a complex and varied portrait of sustainability performance among rated companies.
Overall Improvement in Sustainability Performance
The EcoVadis Index examines the sustainability ratings of companies who have been assessed by EcoVadis. This comprises an overall, total score, as well as ratings derived from research organized across four themes: 1) Environment, 2) Labor and Human Rights 3) Ethics; and 4) Sustainable Procurement. You can read more about the EcoVadis ratings methodology and how scoring works in our comprehensive guide.
The fact that overall average scoring increased in 2020 despite the unprecedented challenges posed by the COVID-19 pandemic is an unambiguous cause for optimism. During a period when it was anticipated widely that the twin, short-term imperatives of economic survival and business continuity would supersede ESG considerations atop the corporate agenda, sustainability performance broadly held steady across regions and industries and, in several significant cases, improved.
The continuing, rapid increase in scoring among companies based in North America, alongside performance improvement in Latin American and the Asia, Middle East and Africa region, is particularly encouraging in this respect, while Europe consolidated its status as a global leader in sustainability performance. Companies located in Greater China recorded a modest increase in overall scoring, though the region remains some way off from achieving parity with the global average. Overall scoring across industries also improved on 2019 averages, with some industries, notably Construction and Light Manufacturing, achieving growth in overall average scoring in excess of a full score point.
Reassessed Companies Emerged as Leaders
In this regard, it is particularly striking to observe how companies that have undergone three or more EcoVadis assessments have succeeded in establishing themselves as a distinct cohort of sustainability leaders, demonstrating how deep and ongoing engagement with the rating process creates a strong platform to implement meaningful reform and drive performance improvement. Furthermore, as outlined in the recent EcoVadis Network Impact Report, such engagement is essential to scaling impact and accelerating the growth of sustainable business practices across the globe.
In addition to illustrating the depth of the sustainability commitment that has emerged across regions and industries in recent years, these gains also reflect a growing recognition among business leaders that sustainable practices yield a tangible competitive advantage by enabling companies to more effectively mitigate risk, build resilience and drive performance. Indeed, the wide-ranging survey data analyzed in another recent EcoVadis report, the Sustainable Procurement Barometer 2021, makes clear that procurement leaders are increasingly coming to regard sustainability and resilience as two sides of the same coin. It was precisely companies that most effectively integrated sustainability throughout their supply chains and business operations who proved best equipped to navigate the disruption caused by the pandemic.
Supply Chain Vulnerabilities Persist
Nevertheless, the continuous decline in scoring observable under the fourth theme of the EcoVadis ratings methodology, Sustainable Procurement, is a grave cause for concern – as discussed in detail in the Deep Dive section of the Index Report.
According to recent research, the supply chain generates far greater social and environmental costs than a business’s internal operations, accounting for upwards of 80% of greenhouse gas emissions and over 90% of the average consumer company’s impact on air, land, water, biodiversity and geological resources. The supply chain, consequently, holds the key to unlocking the full potential of any sustainability program. It is, ultimately, only by incentivizing and working with suppliers to integrate sustainability considerations into the procurement function throughout the entirety of the upstream value chain that companies can maximize impact and meaningfully scale results.
While there has been a moderate increase in the implementation of certain actions intended to monitor and improve sustainability performance through the supply chain, effective sustainable procurement practices are still deeply lacking across regions and industries. This reality is certain to enhance businesses’ exposure to risk as extreme weather events grow increasingly commonplace internationally and as due diligence regulation expands across jurisdictions to account for an ever-widening set of ESG considerations.
As cascading national lockdowns slowed and, in many cases, halted the flow of raw materials and finished goods around the world, the COVID-19 crisis exposed uncomfortable truths regarding society’s ability to deal with high-impact global events. The experience of the pandemic, consequently, produced valuable learnings for business leaders committed to mitigating the risks posed by the intensifying climate crisis.
Foremost among these, perhaps, is the imperative that companies acquire an intimate familiarity with their supply chains and proactively implement actions to ensure that sustainability considerations are integrated into the procurement function throughout the entirety of the upstream value chain, mitigating risk and enhancing resilience. In practice, this means identifying choke points, mapping risk exposure ahead of time, and working closely with suppliers to formalize mechanisms for identifying, mitigating and addressing adverse social and environmental impacts in the value chain.
Whether sourcing globally or locally, the sustainability of any company is fundamentally contingent upon the performance of its suppliers: from direct partners in the first and second tiers of the value chain, to those embedded in its uppermost reaches. Therefore, it is ultimately only by cascading due diligence practices throughout the value chain, and supporting suppliers in integrating sustainability considerations into the procurement function at every tier, that businesses can maximize sustainable impact, build resilience and drive results.
Read more about the latest trends in business sustainability across regions and industries in the 2021 Sustainability Risk and Performance Index: Insights from Global Supply Chain Ratings.
About the AuthorMore Content by Sean Donnelly