ESG is a critical link in the supply chain for Canadian companies: KPMG study

In response to growing pressures from their stakeholders, Canadian companies are re-evaluating their entire supply chain to determine the human, environmental, and socioeconomic impacts of their products or services, according to a study by KPMG in Canada.

Almost two-thirds (64 per cent) of small and medium-sized Canadian companies surveyed say they currently factor environmental, social and governance principles including climate change into their supply chain management. Similarly, 63 per cent also said that they have hired, or plan to hire, an "ethical sourcing manager" to ensure their suppliers are aligned to their ESG values in principle and practice. Such a role also entails monitoring supplier non-conformance and helping suppliers become compliant.

"The push in recent years from multinationals and governments to weave ESG into their procurement requirements is having an impact, as more and more suppliers, large and small, are striving to adhere to social and environmental standards," says Jean- François Letarte, partner, supply chain advisory, management consulting at KPMG in Canada. "The global COVID-19 pandemic and Russia-Ukraine conflict exposed the vulnerabilities in supply chains and brought ESG to the forefront of the corporate agenda. The supply chain is no longer a back-office function. The public, consumers, investors, and increasingly, regulators around the world today expect companies to pay more than lip service to ESG."

When asked to identify the challenges or barriers to delivering on their ESG goals, small and medium-sized Canadian businesses surveyed highlighted increased or frequently changing regulations, not having the appropriate technology and tools to effectively measure and track their ESG initiatives and lacking the skills and expertise to implement solutions. This can be especially difficult if you lack proper ESG measures with your suppliers, Letarte said.

As a result, most companies find it difficult to clearly communicate their commitments and demonstrate progress. Fifty-nine percent of small and medium-sized businesses acknowledged that they "struggle to articulate a compelling ESG story" and 61 per cent struggle to overcome stakeholder skepticism, or the perception of greenwashing. A similar percentage (61 per cent) say they expect to rely increasingly on external assurance or validation of their ESG data.

"If companies don't effectively set measures up and down their operations, they won't know if their investments are making a difference – and they'll lose the confidence of their investors, customers and employees," said Letarte. "The bar is being raised on reporting and monitoring, so it is critical that companies get this right and get it right quickly."

KPMG in Canada surveyed business owners and C-suite executives at 503 small and medium-sized Canadian companies from August 16 to Sept. 1, 2022.