As regulatory pressures build against companies to improve their overall environmental, labor, ethics, and human rights practices, corporate social responsibility matters are taking on more importance not just for chief ethics and compliance officers, but for supply chain and procurement leaders as well.
Broadly speaking, corporate social responsibility (CSR) concerns the continuing commitment by companies to act responsibly by integrating social and environmental considerations into their operations. CSR goes beyond regulatory compliance by focusing on how companies manage their economic, social, and environmental impacts, as well as their relationships with stakeholders—such as customers, employees, and their suppliers.
To help companies benchmark their own CSR efforts, Paris-based sustainability-ratings provider EcoVadis publishes annually its Global CSR Risk & Performance Index. Now in its third year, the latest index illustrates the CSR performance of more than 30,000 companies globally, covering calendar years 2016 through 2018.
EcoVadis defines an effective CSR management system as one that has in place policies, actions, and reporting on the results of CSR issues relevant to each company. When assessing a company’s CSR management system, EcoVadis evaluates each company against 21 CSR criteria across four themes: environment, labor practices and human rights, business ethics, and sustainable procurement.
Each company then receives a cumulative score, based on a scale of zero (no tangible policies, actions, or reporting practices) to 100 (practices are comprehensive and innovative). The methodology and criteria used in the index align with international CSR standards, like the Global Reporting Initiative, UN Global Compact, and ISO 26000.
The idea is that chief ethics and compliance officers, as well as supply chain and procurement leaders, can use the index to benchmark their own CSR performance and better understand where their industry or operations around the world are most susceptible to sustainability issues to mitigate this risk.
Overall, sustainability and risk scores have remained consistent over the past three years, with roughly half of companies receiving scores of 45 or higher, representing “advanced” sustainability performance. This is to say that each has policies, actions, and reporting of actions on most CSR issues relevant to the activities, size, and the region of the company’s operations. “Unless all of these indicators are sufficiently addressed, we would not be able to consider a management system ‘advanced,’ ” says Pia Dewitz, a sustainability analyst with EcoVadis.
Just 5 percent scored above 64, signaling they take a structured and proactive approach to CSR. Comparatively, companies that score about 85 are considered to have “outstanding” CSR performance, meaning a company has in place truly innovative practices. “There is a lot to learn from these companies, because they obviously understand what it means to drive improvements over the years,” Dewitz says.
While the index does not name specific top-performing companies, EcoVadis issues “gold” ratings to those with advanced or outstanding CSR management systems. Diamond Packaging, for example, ranked in the top 2 percent of suppliers assessed by EcoVadis, especially in the environment category. Diamond’s “greenbox sustainability initiative” to research, design, and implement innovative and more sustainable packaging solutions is just one of many CSR projects the company has underway. “The core of the initiative—designs, materials, and methods—represents a comprehensive approach to packaging that minimizes environmental impact throughout the supply chain,” the company stated.
Mitsubishi Electric is another company that received a gold rating for its CSR management system, scoring especially highly in the categories of environment and sustainable procurement. Sukano, too, received a gold rating for its CSR efforts, particularly in the areas of sustainable procurement and labor rights. Other global companies across industries to have received EcoVadis’ gold rating for their CSR efforts—and, thus, those with CSR efforts to emulate—include Canon, BIM Kemi, and Novio Packaging.
Among the four themes assessed, labor and human rights saw the largest score increase overall, with an average score of 46.7 compared to 45.4 the previous year. This is likely explained by the fact that labor and human rights encompass a wide variety of CSR criteria—things like modern slavery, health and safety, anti-discrimination, anti-harassment, and much more, Dewitz says.
Also, for the first time this year, EcoVadis devoted an entire section of the index to diversity, anti-discrimination, and anti-harassment measures. Here, the assessment found 68 percent of companies globally still don’t have any measures in place to promote equality and inclusive working environments. By region, it may not be surprising to hear North American companies lead with the most measures in place (56 percent) on these matters.
Sustainable procurement—which addresses how companies engage with their suppliers on CSR practices—remains the poorest performing area, emphasizing the need for companies to improve visibility into their suppliers’ CSR efforts. “Private-sector commitment to sustainability continues to build, as evidenced by initiatives like the recent Business Roundtable statement on corporate purpose,” said EcoVadis co-CEO Pierre-Francois Thaler. “While we’re seeing slight year-on-year improvements across most themes … this year’s analysis shows companies remain mostly stagnant around supply chain sustainability.”
When left unmanaged, supply chains can expose companies to serious issues, like forced labor, poor working conditions, corruption, and more. “With most global enterprises spending 50 to 70 percent of revenue in the supply chain, it’s the most natural and effective foundation for driving the structural change these commitments are intended to create,” Thaler said.
According to the index, sustainability performance varies greatly not only by industry, but also among companies of different sizes, whose areas of CSR focus tend to vary. Among industries analyzed in the report, the food and beverage and manufacturing industries lead the way in CSR efforts overall. By company size, small- and medium-sized enterprises (SMEs) (26-999 employees) achieved the highest score in the food and beverage industry, whereas in the heavy and advanced manufacturing sectors, large companies (1,000 or more employees) achieved the highest score.
Here’s a closer look at some industry trends:
Food and beverage. The food and beverage industry saw the greatest score increase overall, likely driven in part by stringent health and safety regulations and growing consumer demand for things like sustainable food and packaging and animal welfare. SMEs have seen steady scores of about 45 over the past three years, whereas large companies increased their score from 39.2 in 2017 to 43 in 2018.
Also, in the food and beverage industry labor and human rights saw the greatest improvement among large companies, jumping from a score of 38.5 in 2017 to 43.9 in 2018. “Given that the sector has traditionally seen high labor turnover, high accident rates, poor working conditions, and general vulnerability to modern slavery, this is a very encouraging change,” the report noted.
Manufacturing. The index also assessed the CSR performance and risk areas of companies across three sectors in the manufacturing industry—advanced, light, and heavy. Advanced manufacturing encompasses companies that require advanced manufacturing processes and technology. In the automotive industry, for example, environmental concerns—such as energy consumption and greenhouse gas emissions—is a big risk area. Here, large companies received a score of 50.2 in 2018, signaling “advanced” practices, whereas small companies scored 43.7.
By comparison, ongoing labor exploitation and the ecological impacts of fiber production, as well as deforestation, are a few CSR risks posed by light manufacturing, encompassing the production of textiles, footwear, lumber, and paper products. In this sector, considerable pressure to provide more transparency on working conditions is, in part, driving improved CSR scores in the area of labor and human rights.
Those in the heavy manufacturing sector—like raw material and chemical-manufacturing companies—are subject to strict environmental and health and safety regulations and stakeholder pressure to improve their sustainability footprint. In these areas, both large companies, as well as SMEs, have achieved scores above 45 over the last three years.
Construction. In the construction industry, CSR risks include environmental pollution, health and safety matters, child and forced labor, as well as corruption risk linked to land acquisition, construction permits, and various other approvals. Despite these risks, companies in this industry scored below the all-industry average last year. SMEs received a score of 40.3 (compared to an average score of 42.1), whereas large companies received a score of 39.5 (compared to an average score of 41.3).
Transport. The main CSR risks in this sector—which encompasses companies with activities around land, water, and air transport, as well as warehousing, storing, and other related services—are fuel consumption, greenhouse gas emissions, working conditions, and employee health and safety. As with other industries, companies scored highest in matters pertaining to labor and human rights and the environment, with large companies receiving a score of 41.5, and SMEs scoring 42.7. For the past three years, SMEs have clearly been outperforming their large counterparts with scores of nearly five points higher, the research showed.
Information-communication technology. The ICT industry includes companies whose main activities are publishing and broadcasting content. Here, the main sustainability issues companies need to address relate to ethics—especially responsible information-security management practices. This industry scores well in ethics and labor and human rights.
The index is designed to serve as a useful tool not only internally to help companies benchmark their own CSR performance and win contracts, overall, but also externally to encourage those in the supply chain to improve their own CSR practices, Dewitz says. Prudent chief ethics and compliance officers, as well as supply chain and procurement leaders, can also use the index to better understand where their industry or operations around the world are most susceptible to CSR issues to mitigate their unique risks.