Small businesses left out of big contracts without ESG reporting: BDC study

Key findings:

• The proportion of major buying organizations that require their suppliers to disclose ESG information is expected to reach 92% in 2024. Over the next five years, these organizations will also increase the number of ESG criteria suppliers are required to report on.
• One-third of SME suppliers that do not currently need to report on ESG believe they will have to do so within the next five years.
• SME suppliers say adopting ESG is good for business, because it leads to new business opportunities (50%), makes it easier to recruit and retain employees (32%) and improves access to financing and investment (31%).

Montreal, March 30, 2023 – A new BDC study finds almost every large company requires ESG reporting from their suppliers, and small businesses unable to meet ESG requirements will lose the opportunity to win big contracts.

As part of its commitment to help Canada and its entrepreneurs create a prosperous, inclusive, green economy, BDC today launched a new study entitled “ESG in Your Business: The Edge You Need to Land Large Contracts,” which surveyed major buying organizations in the public and private sectors about their use of environmental, social and governance (ESG) criteria.

No ESG means no contracts with big buyers

Across the world, the ESG reporting rate for large companies has seen a staggering increase from 18% in 2002 to 79% in 2022.¹ As these companies include supply chains in their ESG performance reports, they are passing along ESG performance requirements to their suppliers. BDC’s study finds that the proportion of major buying organizations that currently require their suppliers to disclose some form of ESG information (82%) is expected to reach 92% in 2024. In addition, 75% of these large organizations plan to increase the number of ESG criteria requirements, such as reduced energy consumption, the hiring of managers from diverse backgrounds and procedures to manage environmental risks, in the next five years.

“Sustainable procurement is now unavoidable, many small businesses are acting like the house isn’t on fire despite seeing their sales go up in smoke without ESG reporting” says Pierre Cléroux, Vice President, Research and Chief Economist, BDC. “Far too many small businesses are still missing the point: adopting ESG practices benefit their business. Our study shows that entrepreneurs leading by example are reaping the rewards: new business opportunities (50%), a positive influence on employees, promoting a sense of belonging (32%) and easier access to financing and investment (31%).”

ESG brings the bottom line up

“Market forces, social issues and environmental concerns are putting more and more pressure on businesses to shift toward sustainability,” adds Sandra Odendahl, Senior Vice President and Head, Sustainability and Diversity, BDC. “Canadian entrepreneurs need the knowledge, tools and capital to turn that pressure into a business advantage, and that’s where we come into play. We are committed to helping them meet today’s challenges while growing the sustainable companies that buyers want to do business with.”

BDC’s commitment to sustainability starts internally. It was the first financial institution in Canada to be a certified B Corp and is also a founding member of OECD’s Platform on Financing SMEs for Sustainability. Since 2018, it has maintained gender parity in its workforce, and is working to improve diversity and inclusion across the Bank. BDC is committed to supporting Canada’s 2030 and 2050 climate targets and will be carbon neutral in its operations by 2025. Across the Canadian venture capital industry, BDC is a leader in cleantech investing, with $1 billion of cleantech and climate tech VC Funds. BDC has made significant efforts to enable better ESG reporting, recently launching a DEI and ESG reporting template for VC and private equity funds. It is also working with partners to increase the financing and capital available to diverse and underserved groups.

Who is playing with aces in the ESG race?

Entrepreneurs from diverse backgrounds are more likely to believe ESG is beneficial to their business; the LGBTQ2+ community (90%), Indigenous people (87%) and people living with a disability (86%) welcome ESG requirements.

Obtaining or maintaining specific diversity certifications (such as the ones provided by the Canadian Aboriginal and Minority Supplier Council or WBE Canada) can facilitate access and introductions to new buyers and contracts, markets, and differentiation from other companies providing the same services.

BDC’s study presents a structured approach for a business to implement an ESG plan and improve ESG performance. Entrepreneurs will also find a list of key environmental, diversity and ESG certifications they can apply for to take ESG to the next level.

The study is based on a survey of 121 large companies or public-sector organizations that source from Canadian SMEs, followed by a survey of 1,251 SMEs that supply large private- or public-sector contractors in Canada. Both surveys were conducted online in the Fall of 2022.

About BDC

As Canada’s bank for entrepreneurs, BDC is a partner of choice for all entrepreneurs looking to access the financing and advice they need to build their businesses and tackle the big challenges of our time. Our investment arm, BDC Capital, offers a wide range of risk capital solutions to help grow the country’s most innovative firms. We are one of Canada’s Top 100 Employers and Canada’s Best Diversity Employers. For more information on BDC’s products and services and to consult free tools, templates and articles, visit bdc.ca or join BDC on social media.

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1 KPMG, Global Survey of Sustainability Reporting