Small businesses are at risk of losing out on large contracts if they do not report on their ESG performance, according to a new study by the Business Development Bank of Canada (BDC).
The study surveyed major buying organizations in the public and private sectors and found that 82% currently require their suppliers to disclose some form of ESG information, with this proportion expected to reach 92% in 2024.
Moreover, 75% of these organizations have plans to increase the number of ESG criteria requirements over the next five years.
“Sustainable procurement is now unavoidable, and many small businesses are acting like the house isn’t on fire despite seeing their sales go up in smoke without ESG reporting,” said Pierre Cléroux, BDC vice president, research and chief economist.
Cléroux pointed to findings from a separate survey of SMEs that supply large contractors in Canada, where 50% of respondents acknowledged that ESG reporting has led to new business opportunities for them.
In this survey, 32% of SMEs also said that ESG has made it easier to recruit and retain employees, and 31% stated that ESG has improved access to financing and investment.
“Far too many small businesses are still missing the point: adopting ESG practices benefit their business,” Cléroux said further. “Our study shows that entrepreneurs leading by example are reaping the rewards.”
BDC’s study also revealed that entrepreneurs from diverse backgrounds are more likely to see ESG as beneficial to their business, with 90% of the LGBTQ2+ community, 87% of Indigenous people, and 86% of people living with a disability welcoming ESG requirements.
“Market forces, social issues and environmental concerns are putting more and more pressure on businesses to shift toward sustainability,” added Sandra Odendahl, BDC senior vice president and head, sustainability and diversity. “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.”
The BDC study, titled “ESG in Your Business: The Edge You Need to Land Large Contracts,” surveyed 121 large companies or public sector organizations that source from Canadian SMEs, as well as 1,251 SMEs that supply large private or public sector contractors in Canada. Both surveys were conducted online in the fall of 2022.
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