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Report: SMEs Perform Better in Corporate Sustainability Ratings

Size, as it turns out, does matter, at least when it comes to success in corporate social responsibility.

Small and medium-sized enterprises (SMEs)—defined as those that employ fewer than 1,000 employees—generally performed better than their larger, unwieldier counterparts, according to a new report by EcoVadis, a global firm that uses a rating system to help businesses manage risks and drive performance.

Drawing data from more than 42,000 assessments of 33,000-plus companies, EcoVadis noted that scores of SMEs “improved consistently” across three years in six out of nine divisions: light, heavy and advanced manufacturing; food and beverage; construction and information and communication technologies (ICT). “Large companies demonstrated the same result only in three industry divisions (heavy and advanced manufacturing and ICT),” it wrote.

It’s probably no coincidence that SMEs make up some 80 percent of the organizations EcoVadis assessed. “This likely mirrors the nature of most economies around the world, with small and medium-sized enterprises making up the majority of businesses in each country,” the report noted.

The area that showed the most improvement? Business ethics, which includes criteria like corruption and bribery and information security. Heightened engagement was likely the result of efforts by companies to comply with national and international legislations such as the EU’s General Data Protection Regulation, EcoVadis said. Meanwhile, the themes of labor practices and human rights, along with sustainable procurement, “stayed level.”

“Given that some 40 million people are still caught up in the grip of modern slavery, lack of improvement here begs the question of whether enough is being done to eradicate it,” the report asserted. “This suggests that business are still at risk and may find that modern-slavery victims are present among their labor force.”

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Environment-wise, business outcomes proved to be a mixed bag. Monitoring of greenhouse-gas emissions, EcoVadis claimed, went down in most geographic regions, suggesting that companies are struggling to fulfill the goals laid out in the 2015 Paris Accord. Gaps still abound, the organization said, between emissions reductions needed for the so-called “two-degree scenario” and what countries have pledged to achieve.

“It appears that most businesses still do not see the climate agreement as an opportunity to redesign their activities, and are therefore not improving their environmental impact,” EcoVadis wrote.

Despite the United States’ much-ballyhooed withdrawal from the agreement, plus a series of rollbacks in environmental regulations, efforts by American corporations to mitigate climate change showed an uptick.

But it’s European firms that continue to outperform the rest of the world across all four themes. Latin American businesses were only “slightly behind” North American ones, which means they could potentially outpace their competition if they pass stronger anti-corruption and anti-bribery legislation, EcoVadis said.

Again, in terms of company size, SMEs in Latin American and Europe “improved consistently” but large companies failed to follow suit in any of the regions.

Still, there is at least one place where size doesn’t appear make a difference: China. While the country has stepped up environmental regulation enforcements, shutting down thousands of offending factories, “companies of all sizes in Greater China continued to lag in environmental performance,” the report noted.

China fell behind all other regions in the themes of business ethics, sustainable procurement and labor and human rights across all industries, too.