Now in its seventh edition, our recently published Business Sustainability Index draws upon data from more than 100,000 EcoVadis ratings conducted between 2018 and 2022 to provide compelling insights on the state of global supply chain sustainability. While the Index report has a broad focus, this blog takes a closer look at the sustainability performance of North American suppliers. It highlights the solid progress US and Canadian companies are making on de-risking their operations and explores how they are measuring up against their European peers.
A rapidly growing number of North American (NA) companies are using our ratings and platform to evaluate their sustainability performance and build stronger relationships with regional and global customers. More than 8,000 companies in North America – across size categories and a broad range of industries – were assessed at least once between 2018 and 2022. The 4,000 regional assessments conducted in 2022 alone represent a 26% increase from the previous year and account for 13% of total ratings across the network. Roughly 3,600 of these were of US companies, with Canada accounting for the rest (Mexico is included in our “Latin American & Caribbean” region). Procurement teams from a growing number of NA companies – and hundreds more across the world – are tapping into this increasingly robust regional data set to benchmark supplier performance and identify trading partners that meet their sustainability and compliance needs.
North American Companies Making Consistent Progress – SMEs Lead the Way
NA companies continue to make headway on sustainability, with their overall average rising to 47.9 in 2022. This puts the typical company just above the 45-point threshold on the EcoVadis scoring scale that indicates the presence of a more structured sustainability management system and policies and actions on key challenges. Much of the rise in the overall average since 2018 is being driven by small and medium-sized enterprises (SMEs). Small companies (under 100 employees) have gained 8.1 points over the past five years while their medium-sized (100-999) peers have tacked on 4.7 – significantly outperforming large companies (1,000+), which have gained just 3 points. This performance disparity by size is even more pronounced in Canada than in the US.
NA company scoring by size (2018-2022)
These averages only tell part of the story. In 2022, SMEs in North America outscored their larger counterparts by 10 points on their initial EcoVadis assessment, an indication that they entering the network further along on their sustainability journey. However, among those assessed for the second time or more in 2022, large companies improved by 7 points – 1.5 points more than SMEs. This shows that, although they face different challenges, NA companies of all sizes are capable of making solid progress on sustainability once they engage in a consistent cycle of benchmarking their performance, implementing best practices and reporting on progress.
The Sustainability Leadership Gap Between Europe and North America Persists
Despite these positive steps, NA companies have a long way to go to close the performance gap between them and their European counterparts. In 2022, North America’s overall average rose to 47.9 and nearly two-thirds of the region’s companies reached either the “Good” (57%) or “Advanced” categories (6%). This indicates a significant amount of risk reduction and improvement since 2018, when only 45% of companies were at or above the Good threshold. North America remains ahead of the three assessment regions (see below) but trails Europe by more than 7 points overall. Spurred on by intense stakeholder pressure, increasingly robust ESG legislation and a growing awareness of the value-creation potential of sustainability, European companies also lead the way on all four EcoVadis assessment themes: Environment, Labor & Human Rights, Ethics and Sustainable Procurement.
Regional scoring and improvement (2018-2022)
The gap is widest on the Environment theme, where European companies are outperforming their NA peers by an average of 11.2 points (56.3 vs. 45.1). North America has also trailed Latin America & the Caribbean on this theme since 2020. According to strength and improvement data aggregated from thousands of scorecards, many NA suppliers assessed in 2022 lacked robust and well-documented environmental policies and failed to report their energy consumption and emissions data. Over 50% of NA suppliers – compared to just 20% in Europe – are scoring at the “Partial” level or below (>45) on the theme, which indicates that their operations have higher environmental risks. By contrast, the bulk of European companies have moved into the “Good” performance threshold and 28% are now at “Advanced” environmental maturity (65+). KPI data from 2022 assessments provides a glimpse into what these scoring differences translate to in practice. In Europe, 34% of companies purchased or generated renewable energy (vs. 19% among NA companies), 29% trained their employees on energy and climate topics (13%), and 26% (12%) conducted energy/carbon audits of their operations. Large companies in both regions are significantly more likely to implement these measures.
Regional share of companies at each performance level on the Environment theme (2022)
North American Companies Need to Be Proactive on Sustainable Procurement
Our data shows that sustainable procurement remains a distinct challenge for companies across the network. Many are still in the early stages of their own sustainability journey and, as a result, struggle to look beyond their direct operations. After years of decline, global scoring on the theme rebounded in 2021 and continued to rise over the past year. NA companies are currently averaging 37.7, trailing European companies by 7.1 points. Europe’s significant edge on this theme is unsurprising given the wave of supply chain due diligence legislation that has surged across the continent in recent years. From Norway’s Transparency Act to Germany’s LkSG, these laws are requiring companies to look deeper into their supply chains to systematically identify and address social and environmental impacts. Many European companies not yet impacted by national laws are looking ahead and preparing for the EU’s upcoming Corporate Sustainability Due Diligence Directive (CSDDD). NA companies operating in the region, as well as those supplying EU-based companies, must also be proactive. While the exact number that will fall within the CSDDD’s scope is unclear, it may be roughly in line with the 3,000 US companies and 1,000 Canadian ones expected to be impacted by the EU’s Corporate Sustainability Reporting Directive.
In comparison, North American regulators have been slow to act on mandatory due diligence. Canada’s recently passed “Fighting Against Forced Labor and Child Labor in Supply Chains” act is a sign that this is changing, however. Entering into force at the start of 2024, it will require in-scope companies based or doing business in Canada to report on efforts to eradicate modern slavery from their supply chains. While the act lacks the due diligence and remediation components found in many new European laws, it is still a positive step forward. Laws like this one and the US’ Uyghur Forced Labor Prevention Act provide a foundation for regional progress on sustainable procurement but will likely not be enough to start closing the performance gap with Europe. By preparing early, forward-looking NA companies can ready themselves for more stringent regional legislation, keep pace with their European counterparts and use their ESG maturity as a competitive edge.
Going Beyond Compliance Pays Off
Compliance is just one benefit of taking a proactive approach to sustainability throughout your operations and supply chain. Our recent joint study with Bain & Company found compelling links between ESG leadership and financial performance. Network leaders (top 10%) on renewable energy usage and carbon maturity are not only decarbonizing faster but are seeing average profitability margins roughly 4 percentage points higher than those of their mid-field peers (middle 70% of companies). On DEI, companies in the top 25% of the network in terms of gender equity at the executive/board level have significantly higher growth and profitability rates than those in the bottom 25%. Maturity on the Sustainable Procurement theme was also found to be closely linked with financial outperformance, particularly among companies in Europe and North America. Although less pronounced, many of these findings hold true for those that are not yet “leaders” but have been able to progress out of the Insufficient/Partial categories.
Nearly half of all NA companies rated in 2018 were performing at a Partial (25-44) level or below on sustainability. The chart below shows the impact of multiple assessments. In 2022, the share of companies at the Partial level plummeted to 20% and the number at the Advanced level tripled. Most of the companies that reached Advanced performance in 2022 came from the level below, but a small yet committed group was able to move up from the Partial category.
Progression of NA companies rated in 2018 and again in 2022
A growing number of committed NA companies in the EcoVadis network are discovering that, with the right insights and support, they can consistently reduce risks throughout their operations and turn sustainability challenges into opportunities. Doing so is helping them signal to customers, both in North America and beyond, that they are ready to meet expanding regulatory requirements and help their partners move from simply risk management to improvement and value creation. These are just a few takeaways from this year’s Index – read the full report for a global perspective and more insights by region, theme and industry.
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