SMEs ‘unequipped’ to meet ESG supplier goals

22 August 2022

Businesses must support SMEs to ensure carbon target benefits are felt across the entire supply chain, a report has said. 

Just under half of businesses (44%) were deemed to have “insufficient” carbon management in their supply chains, an analysis of 15,000 suppliers by EcoVadis has found.

However, the report also indicated SMEs represented a “disproportionately” large proportion, with three-in-five (61%) of those deemed insufficient being small businesses, while large organisations only accounted for 19%. 

The Carbon Maturity Report 2022 said SMEs are often “unequipped” to produce high-quality emissions data, and buyers and business partners must provide the support needed to “cascade their own climate efforts upstream”.

It continued: “SMEs are an integral part of global supply chains and must be key stakeholders in the decarbonisation dialogue. When climate leaders start tackling their supply chain emissions, it is essential that engagement is not limited to just suppliers and business partners with advanced data capabilities. Instead, active engagement must occur at scale to gain insight into how to address the bulk of these emissions.”

The most common way companies reported reducing their carbon footprint was through using renewable energy sources (cited by 26.5% of suppliers), followed by training employees on energy conservation and climate actions (21.5%), upgrading/using technology or equipment to improve energy efficiency (19.5%), and reporting in energy consumption (7.9%). 

Additionally, it found only 14% of companies disclose their emissions publicly, “indicating that there is still a great deal of room for improvement in terms of communicating with external stakeholders”. Just 8% verify their greenhouse gas data through a third party, while only 2% are performing lifecycle analyses for carbon reduction.

An effective procurement strategy is fundamental to meeting ESG goals, the report said. “Placing climate action at the heart of procurement strategies through ambitious actions, such as integrating sustainability criteria into purchasing processes, setting targets for buyers and creating performance incentives for suppliers, enables buyers to scale their impact far beyond their own operations.”

How companies can better manage carbon in their supply chains:

1) Assessing suppliers

An “essential first step” procurement teams must make in meeting their carbon goals is assessing suppliers to gain insights into their carbon management maturity and establish baselines.

“These insights can then be leveraged to engage suppliers based on their maturity levels and drive improvements throughout their own operations and supply chain. An important final step in this cyclical journey is reporting on any progress made and communicating it widely.”

2) Science-based targets

The report noted “not all targets are created equally”. It said research showed companies with science-based targets reduced their emissions by 29% over a six-year period from 2015 to 2020.

Targets are considered science-based if they are in line with what the latest climate science deems necessary to meet the goals of the Paris Agreement – limiting global warming to 1.5°C above pre-industrial levels.

Approximately 14% of large companies have either committed to or set targets for science-based targets (with a roughly 50/50 split between these actions). However, this percentage dropped to 4% when all company sizes were considered. 

“This gap highlights the need for science-based climate tools that are accessible to SMEs, as a large portion of global greenhouse gas emissions cannot be reduced without their active commitment,” it said.

3) Collaboration

“Supply chains are areas where collaboration on decarbonisation has immense potential,” the report said. 

Sylvain Guyoton, chief rating officer at EcoVadis said: “Large corporations are the chief orchestrators of complex webs of suppliers that stretch around the planet, and finding new ways to engage and collaborate with these partners to scale emission reductions will be one of the keys to halting climate change.”

The most common approach to driving climate action through Tier 2 supply chains and beyond was through the promotion of GHG reduction efforts in supplier communication tools, such as supplier codes of conduct, contract clauses and supplier awards.

4) Training

Over 20% of companies analysed had implemented training programs on energy conservation and/or climate actions. “Employee awareness is crucial to ensuring that the company’s carbon reduction goals are reflected in day-to-day operations and decision-making.”

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