“What is ESG and what do I need to do about it?” In the spring of 2019, an executive leader from a midcap industrial supplier called us and asked that very question. He wasn’t the first, and he certainly hasn’t been the last. Since 2019, we’ve seen a rapid acceleration of B2B suppliers across sectors embedding environmental, social and governance (ESG) issues into their core business. Facing growing expectations from customers, employees, investors, and regulators to integrate ESG, the C-suites and boards of midcap and smaller suppliers have taken notice. ESG has become a business imperative.
Today, the question has evolved to: “How can ESG help us become suppliers of choice and strategic partners to our customers?” And, for the bold, forward-looking leaders: “How do we innovate along the value chain for new business models that are circular, low-carbon, and more just and equitable?”
There is plenty of data to reflect this trend. From 2019 to 2020, the Carbon Disclosure Project (CDP) recorded a 24% increase globally in large scale purchasers asking suppliers to disclose environmental data. And from 2020 to 2021, the number of CDP supply chain members increased by over 30%, from 150 to 200+, representing an increase in combined purchasing spend from $4 trillion to $5.5 trillion.
While investors, ratings and rankings, regulation and talent attraction and retention are growing drivers for B2B companies to prioritize ESG, the key driver remains customers. Through our work around the world, we see a spectrum of supplier ESG approaches emerging.
- A seat at the table: Expanding customer base and developing new relationships
In 2020, a privately owned beauty packaging company needed to demonstrate credibility as a sustainable packaging producer, in order to become a category challenger and secure a seat at the table with large, well-known beauty brands. Consumer demand for sustainable beauty products was clear, and brands had passed on this imperative to their suppliers.
Corporate Citizenship partnered with the company to assess which claims would be most valued by their target customers, looking at current and future trends. We evaluated the validity of sustainability claims for select product attributes, focusing on lightweight, recycled content, bio-based, and mono-material packaging. We built a bespoke product analyzer tool and demonstrated measurable improvements for their sustainable products compared to alternatives, including for one product 85% fewer emissions per piece, and for another 19% less plastic. Finally, we trained their sales team to be able to speak to sustainability clearly and credibly and worked with their R&D team to embed sustainable thinking into the innovation process.
By aligning proof points of sustainability attributes to customer needs, they successfully landed a seat at the table with their top customer target, broadened their customer base and established themselves as a category challenger.
- Strategic partner on sustainability: Leveraging the power of ESG data and insights to expand customer relationships
Data, analytics and AI are driving a shift among suppliers, turning them from providers of products into strategic partners, bringing insights and integrated solutions.
As an example, Corporate Citizenship recently worked with a food processing company, who had repositioned from a seller of machinery to a partner that, alongside selling machinery, provides insights, data and analytics about food processing. Using data, they provide key ESG metrics about safety, quality, water reuse and energy use. They now work with customers to incorporate ESG into the broader data and analytics they harness through their machines, which in turn provides them with the visibility to support ESG targets and improve performance.
This is a trend we are seeing across industries. For example, a procurement lead at a Fortune 100 oil and gas company recently stated that “We want our suppliers to be our strategic partners, helping us to define our sustainability targets.”
In a context where suppliers continue to navigate numerous customer surveys, data requests, and expectations alongside established customer metrics, this may seem counter-intuitive. But, in practice, customers are tackling challenges across E, S, and G that they cannot solve alone, and they value suppliers ready to step up as partners with solutions.
- Innovate along the value chain for new business models: Leading the way toward a future where society and the planet thrive
Adding to what we’ve discussed above, some B2B companies want more than just a seat at the table or a strategic partnership. Some leaders are innovating to completely redefine business models along the value chain.
While many are industry disruptors through their products (e.g. companies producing alternative protein, wearable medical devices, apparel made from recycled fibers), others are evolving how they work along the value chain to deliver new business models that are circular, low carbon, and/or working toward worker health, equity and wellbeing .
Delivering on this work depends on extensive collaboration with customers and organisations beyond traditional supply chains to change practices and processes. Not all customers are ready to engage with a single supplier across a full closed loop offering. Many are reluctant to give up the leverage that comes from splitting aspects of a process across multiple suppliers, but forward-thinking organisations recognize the potential it offers to drive down costs long-term and ultimately deliver against sustainability targets.
Expectations and scrutiny of midcap and smaller B2B companies’ ESG performance will continue to rise. When it comes to embedding ESG into operations as well as offerings for customers, it is essential for B2B suppliers to understand their own ESG maturity and where to capture added value based on customers’ own drivers and expectations. It is our belief that, in the coming years, we will see more strategic partnerships and more ambitious innovation as we accelerate toward a circular, low-carbon, just and equitable future – but the first step is to get a seat at the table.