The stakeholders pressuring companies to be more sustainable.
The stakeholders pressuring companies to be more sustainable.
A surprising result
Original content provided by BDO Belgium.
Despite the numerous new legislative requirements on corporate sustainability, it is surprising to note that companies feel the strongest pressure to act on sustainability coming from their clients and employees, rather than governments.
A recent survey conducted by BDO Belgium and Mercuri Urval among 150 European companies from different sectors revealed that clients are becoming increasingly interested in companies' sustainability strategies and performance. In particular, the study showed that:
Despite the numerous new legislative requirements on corporate sustainability, it is surprising to note that companies feel the strongest pressure to act on sustainability coming from their clients and employees, rather than governments.
A recent survey conducted by BDO Belgium and Mercuri Urval among 150 European companies from different sectors revealed that clients are becoming increasingly interested in companies' sustainability strategies and performance. In particular, the study showed that:
- 67% of respondents say that the stakeholders from whom they experience the biggest pressure to become more sustainable are their clients, followed by employees and future talent (51%) and public authorities (50%). The pressure of banks / insurance companies, suppliers, industry federations and NGOs is indicated as significantly less
- 78% of respondents have already received sustainability-related questions from clients, followed by employees and future talent (58%), public authorities / governments (55%) and investors (40%).
This shows that a growing number of clients are considering their values when choosing products and services. This holds true in the B2B context as well, as companies are expected to demonstrate responsibility across their entire value chain. As value chains expand globally, companies must ensure that their suppliers, sub-contractors and providers adhere to high environmental, social and governance standards.
This trend is also driven by the growing legislative obligations focusing on the value chain, both at national (e.g. in Norway, Germany, and France) and EU level (such as, the Corporate Sustainability Reporting Directive, the Conflict Minerals Regulation, the Regulation on Deforestation-free Products as well as the proposed Corporate Sustainability Due Diligence Directive, and the Forced Labour Regulation, if eventually adopted by the European institutions).
These new laws create a trickle-down effect from big multinational companies (directly impacted by the legislations) and their suppliers. Therefore, as a result of changed client expectations and requests, it is not only big companies that are affected, but everybody.
This trend is also driven by the growing legislative obligations focusing on the value chain, both at national (e.g. in Norway, Germany, and France) and EU level (such as, the Corporate Sustainability Reporting Directive, the Conflict Minerals Regulation, the Regulation on Deforestation-free Products as well as the proposed Corporate Sustainability Due Diligence Directive, and the Forced Labour Regulation, if eventually adopted by the European institutions).
These new laws create a trickle-down effect from big multinational companies (directly impacted by the legislations) and their suppliers. Therefore, as a result of changed client expectations and requests, it is not only big companies that are affected, but everybody.
Why is the value chain important?
A company should focus on the value chain because its most severe environmental and social impacts typically come from upstream or downstream activities. A few examples:
- According to the GHG Protocol, Scope 3 emissions can represent up to 70% of a company’s carbon emissions. These emissions are generated by activities beyond a company's direct control, such as those of suppliers and customers
- Severe human rights violations, such as child labour or forced labour, often occur across the global value chain of European companies, especially in industries such as textile and electronics. Children in third-world countries are often employed in hazardous working conditions, working long hours for little pay, and are denied access to education.
By not taking responsibility for their value chain, companies risk being associated with environmental and social issues that could harm their reputation and lead to legal and financial consequences. Therefore, companies should prioritise sustainability in their value chain and work collaboratively with their partners to ensure sustainable practices are implemented throughout the chain.
How can you approach this? What should you consider?
Companies can approach sustainable procurement in three ways: at product level, supplier level and with a collaborative approach.
- Product-level approach: Colruyt (a Belgian budget supermarket chain) is a well-known example. They generated the eco-score which rates how sustainable a product is. Their sustainability performance assessment encompasses many different environmental impacts, which are brought together under one label. Through this transparent approach, Colruyt offers the possibility to their customers to choose more sustainable products
- Collaborative approach: Companies can work collaboratively with others to maximise their impact on the value chain. One example is the Global Platform for Sustainable Natural Rubber (GPSNR), which gathers stakeholders from across the natural rubber value chain, including producers, processors, traders, tyre makers and NGOs. The GPSNR has developed a set of standards and policies that members must adhere to, including commitments to responsible land use, human rights and environmental protection
- Supplier-level approach: Companies should have a Supplier Code of Conduct that sets mandatory expectations concerning environmental, social and governance conditions. A possible example is Henkel, which developed a 100% Responsible Sourcing Strategy to achieve climate-positive, circular economy and social progress through their procurement methodology. This strategy involves a six-stage Responsible Sourcing Process that identifies risks and defines measures to minimise them. Henkel uses supplier sustainability performance assessments to improve their sustainability performance continuously. The company also collaborates with suppliers to increase their knowledge on process optimisation, resource efficiency and environmental and social standards.
Ideally, companies should consider implementing all three approaches and focus on helping more vulnerable suppliers through capacity-building activities and financial incentives. By taking a holistic and collaborative approach, companies can make significant strides towards sustainable procurement and contribute to a better future for all.
“I found it interesting that, even though we are faced with unprecedented changes in regulations concerning transparent and reliable sustainability reporting, the main sustainability driver for companies was their clients, rather than public authorities or banks. This is due to higher expectations concerning large companies’ responsibility for their value chains, which then trickle down to smaller and smaller companies – we are seeing it already in the market here in Finland.”
Heikki Mäki
Director Sustainability & Development, BDO Finland
“I found it interesting that, even though we are faced with unprecedented changes in regulations concerning transparent and reliable sustainability reporting, the main sustainability driver for companies was their clients, rather than public authorities or banks. This is due to higher expectations concerning large companies’ responsibility for their value chains, which then trickle down to smaller and smaller companies – we are seeing it already in the market here in Finland.”
Heikki Mäki
Director Sustainability & Development, BDO Finland
Make your value chain more sustainable
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