European Firms Lead the Pack on Supply Chain Sustainability

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It may not come as much of a surprise, but it looks like European organizations are leading the rest of the world when it comes to supply chain sustainability. Defined as the embedding of environmental, social or corporate governance considerations as raw materials are sourced, converted to products and delivered to market, supply chain sustainability is important because both the production and transport of goods can create significant impacts on the environment.

Supply chain sustainability can also protect the environment, improve the lives of those involved with the supply chain and increase economic efficiency for businesses. For these and other reasons, organizations across the globe are striving to make their supply chains more sustainable. They’re also making moves that ensure those networks have a positive, lasting impact on the environment, society and economy.

Key Sustainability Efforts

In the race to create more sustainable supply chains, no other region in the world is making progress like the European Union (EU) is. A political and economic union of 27 member states, the EU has put in place numerous regulations and directives focused on supply chain sustainability, including:

• The Corporate Sustainability Due Diligence Directive (CSDD): this requires companies to identify and assess the environmental and social impacts of their supply chains.
• The Sustainable Products Initiative: a proposal that would create a new EU framework for sustainable products. 
• The European Green Deal: a plan to make the EU climate neutral by 2050. The plan promotes sustainable supply chains.

These and other efforts are helping to make the EU’s supply chain more sustainable. And while there is still work to be done in this area, a new report from EcoVadis reveals that European firms are adopting sustainable business practices “much faster” than their global counterparts. In its recently-released Business Sustainability Index, the company says that with an overall average score of 55 points in 2022, Europe has outranked other regions and solidified its leadership position.

Companies in Northern America, the second-best region, are averaging 47.9. Latin America & the Caribbean (LAC) and the Middle East and Africa (MEA) follow with 45.9 and 43.6 points, respectively. Companies in MEA have improved the most, according to EcoVadis, gaining 1.7 points since 2021 and 5.7 since 2018. “This indicates that they are building momentum on improving their sustainability management systems and are poised to gain more ground on the other regions,” the company says.

Faster Adoption Rates

The report found that European countries are much faster at adopting sustainable business practices and taking steps to address sustainability challenges. EcoVadis says government spending and clear political will are driving the change.

“Many European countries have set sustainability goals enshrined in domestic legislation, like Finland’s carbon neutrality target for 2035,” it points out. “On top of national laws, the EU is implementing extensive measures to make Europe a climate-neutral continent by 2050.”

In addition, Europe’s focus on net-zero targets has yet to be matched by any other country or region. This focus transcends right down to the individual company level. “It’s clear that the climate transition requires sweeping transformation on all levels,” EcoVadis says. “We see that approach reflected in the performance of European companies as they have consistently improved their overall performance across all assessment themes.”

Digging into the Numbers

According to EcoVadis, the progress made on the supply chain sustainability front in Europe is largely a result of what it calls “relatively strong performance” of small and mid-sized enterprises (SMEs). For example, medium-sized companies gained 2.8 points since 2018, while small companies improved by 2.2 over this period. By contrast, large companies increased their average by 1.3 points.

Half of all European companies are performing at a Good or Advanced level (45+) and only 2% had Insufficient scores in 2022. By contrast, 27% of companies in Northern America and 20% in LAC crested the 45-point threshold in 2022. The two remaining regions, MEA and Asia-Pacific, have a similar share of companies in the upper-performance categories; however, a third of companies in each region are at an Insufficient (high risk) level.

Going forward, EcoVadis says that a confluence of factors, from increased regulatory pressure to growing stakeholder demands, will further incentivize companies to improve their social and environmental performance. “Companies will have to be increasingly proactive to stay ahead of rapidly evolving sustainability challenges and regulatory changes,” it adds.