Index 2021: Small and Mid-Size Companies Lead the Pack On Sustainability Performance
The latest EcoVadis Barometer report, a detailed survey of procurement leaders across diverse regions and industries, presented a compelling case for why small and mid-size companies are poised to greatly benefit from integrating sustainability practices throughout their supply chains. Our Business Sustainability Risk and Performance Index 2021, which analyzes data collected from over 72,000 ratings, shows that while mid-size companies consistently outperform larger organizations on sustainability metrics, more focused efforts are still needed in certain areas to scale impact throughout the entire value chain. Read on for key findings from our analysis.
Insights From A Wealth of Data
The fifth edition of the EcoVadis Business Sustainability Risk and Performance Index: Insights from Global Supply Chain Ratings covers the period 2016-2020 and is based on data derived from over 72,000 ratings conducted on more than 46,000 companies. These ratings consider various aspects of a company’s sustainability performance on the following EcoVadis assessment themes: Environment, Labor and Human Rights, Ethics and Sustainable Procurement (SUP).
The Index analyzed this wealth of data, exploring the sustainability performance of companies of all sizes across industries and regions. Overall, sustainability performance of rated companies increased in the past year, rising from an average of 46.6 in 2019 to 47.7 in 2020 (out of a possible 100 points). The 2020 score is on the lower end of “moderate” performance (45-64), while a score of 65 or above is considered “advanced” performance. For more information about our scoring scale, read this article. Outperforming larger companies by an average of 1.7 points, small and mid-size enterprises (SMEs) are playing an integral role in driving this overall increase. A closer look at the data, which you can explore for yourself using My Index Online, revealed the following key takeaways.
1) Globally, SMEs are outperforming larger companies overall and in three of four EcoVadis assessment themes.
SMEs around the world are scoring 1.5 points better overall than large companies, a significant edge that is largely attributable to their strong performance in the Labor & Human Rights assessment category (+3 points). They also outperform larger companies in the Ethics and Sustainable Procurement categories, though this is not as pronounced. Despite strong performance in three of the EcoVadis assessment themes, SMEs are trailing in the Environment theme by over 2 points.
2) While SMEs are outperforming larger companies on sustainable procurement, performance over the five-year period is trending downward.
With an average score of 38.2 on the Sustainable Procurement theme, mid-size companies continue to have the edge over both small and large companies (at 37.0 and 37.2 respectively). However, the SUP score for mid-sized companies has decreased year on year since the first Index was published in 2015 – a concerning trend that holds true for companies of all sizes.
The ability of mid-size companies to outperform larger companies on sustainable procurement is a testament to the effectiveness of the innovative tools and strategies they employ to make up for the wide gulf in available resources. However, with sustainable procurement scores decreasing for a fifth consecutive year, it is clear that mid-size companies still have a long way to go to prepare themselves for the level of transparency and supplier collaboration that emerging due diligence regulations will require.
3) SMEs are performing well across the world and are leading the way in North America, Latin America & the Caribbean (LAC) and the Greater China region.
While SMEs in Europe have a higher average sustainability performance score than those in any other region at 52.1, their performance still lags behind that of large European companies by a slim margin (52.3). In contrast, SMEs in North America, LAC and the Greater China region are outperforming their larger counterparts – and by a significant margin.
On average, SMEs in LAC attained a score of 44.3 in 2020 and are besting larger companies by a staggering 5.3 points. Scoring 37.5 on average, SMEs in the Greater China region have plenty of ground to make up against the global benchmark; however, they are still outperforming larger companies by 3.1 points. In North America, where the performance improvement for large companies was relatively stagnant in 2020 at 0.3, SMEs are powering ahead. Achieving a 1.1 growth in 2020, they scored almost 3 points better on average than larger companies.
4) In the EU, SME performance across all industries is largely positive – though there is still significant room for improvement.
Turning the spotlight on the EU, which has the highest overall SME performance score of any region, reveals several positive trends. SMEs in the food & beverage and transport industries in particular have experienced tremendous performance growth in the past year and are now outperforming their larger counterparts. Both industries have exhibited steady growth since 2018. SMEs in the construction industry remain the top performers with an average score of 54.6 – a nearly 10 point increase since the first Index was published in 2015.
While SME performance continues to lag behind in the manufacturing industries (i.e. light, heavy, advanced), the EU’s large manufacturing companies are some of the top performers on the EcoVadis platform. As such, the fact that SMEs exhibited stronger performance gains in 2020 than their larger peers is promising for the industry as a whole.
SMEs comprise over 70% of global supply chains – in large part due to their position as Tier 1 suppliers to large multinational companies. This puts them in a strong position to drive sustainability practices upstream, reaching Tier 2 suppliers and beyond. Thus, the strides that SMEs continue to make on environmental and social metrics – across a wide range of regions and industries – translates into a very positive outlook for the future of supply chain sustainability.
However, underperformance on the SUP theme illustrates that SMEs must make more concerted efforts to develop and implement effective sustainable procurement programs and strategies. As demonstrated by the dramatic gains they have made in other areas in recent years, particularly on labor and human rights, SMEs are more than capable of achieving this if they commit to it and draw upon their ability to innovate.
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