Do Your Contractors Fit in with Your ESG Strategy?

Environmental, Social and Governance, or ESG, is a set of standards for measuring a business’s impact on the environment and society, as well as its level of transparency and governance in terms of leadership, internal controls and ethical standards.

ESG has become a focal point in many organizations’ overall compliance strategy, corporate social responsibility programs, and employer value proposition. In fact, two-thirds of investors consider ESG factors when investing in a company, according to research by CBI. Meanwhile, job seekers also prefer sustainable companies; nearly half of millennials have decided to work for an organization because of its sustainable practices.

For companies, a clear ESG strategy can demonstrate that your organization is actively taking steps to reduce supply chain risks. This means that when working with contractors and suppliers, procurement decision-makers should consider the following ESG criteria:

Environmental criteria

• Greenhouse gas (GHG) emissions
• Waste management
• Factors that contribute to climate change

Social criteria

• Human rights
• Corporate social responsibility
• Employee engagement and satisfaction

Governance criteria

• Financial performance
• Corporate governance issues
• Risks for fraud and bribery.

How to find contractors that fit into your esg strategy

If you already have an ESG strategy, the next step is to assess your supply chain and determine your desired compliance level for existing and potential contractors and suppliers.

For instance, if you're a business, you may need your contractors to have — at the very least — a health and safety policy. This is where prequalification comes in. Apart from helping you know whether a contractor can complete a job or provide the necessary supplies, prequalification can help you:

1. Review a contractor’s payment history on past projects
2. Review a contractor’s credit history
3. Get feedback from other subcontractors
4. Find more information about their subcontracts
5. Learn about their corporate social responsibility initiatives
6. Learn about their environmental and sustainability practices

A prequalification questionnaire (PQQ) will enable you to ask contractors and suppliers specific questions to determine whether they meet your organization’s ESG criteria. 

What are the benefits of having ESG-compliant contractors?

Businesses have always been required to manage their impact on the environment and communities around them. But in recent years, legislation such as the Environmental Act 2021 has put increased pressure on companies to demonstrate compliance with stringent guidelines.

But ESG isn’t just about complying with standards and legislation. There are tangible benefits to ensuring your contractors align with your ESG strategy. These include:

1. Improvements to your reputation

Integrating ESG into your company can improve and safeguard your reputation in different ways. For example, demonstrating genuine support for equality and diversity in your organization can make you more likely to attract top talent — 80% of workers want to work for companies that value equality, diversity and inclusion.

2. Reduced costs

Sustainability initiatives that revolve around waste reduction and using more sustainable materials can go a long way toward reducing costs. For example, reducing energy and water consumption and managing waste more effectively contribute to cost savings. Similarly, working with contractors that know how to use energy and water efficiently ensures your operations are as cost-effective as possible.

3. Attract more customers

Let’s face it – much of the push for sustainability and socially responsible business practices is fueled by consumer demand. Case in point: 74% of consumers report being willing to pay more for sustainable product packaging. Of that number, 25% are willing to pay 10% or more.

A more transparent and sustainable supply chain puts you in a better position to generate consumer interest and attract customers and clients who want organizations to align with their personal beliefs and values.