OneStream, a financial and ESG planning software provider, has revealed that 90 per cent of FTSE 100 companies will now only work with suppliers that share their Environmental, Social and Governance (ESG) credentials.
The data comes after OneStream analysed the 2022 Annual Reports of all the FTSE 100 companies to identify those that have established ESG reporting requirements from their suppliers. The company also found that a further three per cent will introduce ESG requirements for their suppliers in the next year.
When broken down by industry, companies in the energy, retail, and consumer goods sectors set the bar high, with 100 per cent of companies expecting suppliers to align with their ESG commitments. Increasing pressure from shareholders to address ESG practices appeared to increase across all industries – forcing businesses to make changes quickly.
The banking, finance, and insurance sectors followed closely behind, with 90 per cent of banking and finance companies and 85 per cent of insurance companies requiring ESG alignment from their suppliers.
Matt Rodgers, general manager of EMEA at OneStream, commented: “We’ve seen a significant shift in public opinion towards ESG concerns, with shareholders, regulators, and customers all exerting pressure on the UK’s largest companies to establish and deliver clear ESG commitments. In response, these firms are now pushing the ESG message down their supply chains by requesting evidence from suppliers of their ESG commitments as part of the tendering process.”
ESG principles crucial if suppliers “want to win big”
OneStream found that FTSE 100 companies often require prospective suppliers to disclose their commitments to improving ESG targets, including their adherence to proper human rights practices, commitment to reducing their carbon impact and encouraging diversity in the workplace.
Despite this, research from PwC shows only 20 per cent of business leaders agree that current levels of reporting on ESG are of good quality, so suppliers are faced with a challenge if they want to accurately report their ESG metrics to businesses.
The EU’s Corporate Sustainable Reporting Directive (CSRD) also comes into play in January 2024. It will require UK businesses to meet the EU’s reporting standards if they have a net turnover in the EU of over €150million for each of the last two consecutive financial years and have either an EU subsidiary which has securities listed on an EU-regulated market or an EU branch which has generated a net turnover of more than €40million in the previous financial year.
Rodgers also explained: “The pressure is on for suppliers to get their reporting right if they want to win lucrative contracts with large companies.
“However, this could be a daunting task for some firms. To succeed, businesses need to adopt modern software solutions that collect and unify financial, operational and ESG data and provide timely and actionable insights based on specific organisational needs. By implementing these solutions, firms of any size can effectively manage and report their ESG targets and metrics.
“Suppliers who want to work with industry leaders will need to ensure they have the necessary resources to align with their ESG commitments if they want to win big.”
