New research from Canadian financial services firm BDC finds that since almost every large company requires ESG reporting from their suppliers, small businesses that are unable to meet ESG requirements will soon miss out on opportunities to win big contracts.
The firm’s new study, ESG in Your Business: The Edge You Need to Land Large Contracts, surveyed major buying organizations in the public and private sectors about their use of environmental, social and governance criteria.
No ESG report means no contracts with big buyers
Across the world, the ESG reporting rate for large companies has seen a staggering increase from 18 percent in 2002 to 79 percent in 2022. As these companies include supply chains in their ESG performance reports, they are passing along ESG performance requirements to their suppliers.
The study finds that the proportion of major buying organizations that currently require their suppliers to disclose some form of ESG information (82 percent) is expected to reach 92 percent in 2024.
In addition, 75 percent of these large organizations plan to increase the number of ESG criteria requirements, such as reduced energy consumption, the hiring of managers from diverse backgrounds and procedures to manage environmental risks, in the next five years.
“Sustainable procurement is now unavoidable, many small businesses are acting like the house isn’t on fire despite seeing their sales go up in smoke without ESG reporting” said Pierre Cléroux, VP of research and chief economist at BDC, in a news release.
“Far too many small businesses are still missing the point: adopting ESG practices benefit their business,” Cléroux added. “Our study shows that entrepreneurs leading by example are reaping the rewards: new business opportunities (50 percent), a positive influence on employees, promoting a sense of belonging (32 percent) and easier access to financing and investment (31 percent).”
Who is playing with aces in the ESG race?
Entrepreneurs from diverse backgrounds are more likely to believe ESG is beneficial to their business; the LGBTQ2+ community (90 percent), Indigenous people (87 percent) and people living with a disability (86 percent) welcome ESG requirements.
Download the full report here.
The study is based on a survey of 121 large companies or public-sector organizations that source from Canadian SMEs, followed by a survey of 1,251 SMEs that supply large private- or public-sector contractors in Canada. Both surveys were conducted online in the Fall of 2022.
