We spoke to Pierre François Thaler of Ecovadis as he sat in the garden of his house in the French countryside on a beautiful sunny morning. It was as the pandemic lockdown was being slowly relaxed, and we were all familiar with seeing gardens and kitchens on business calls, but this was one of the most attractive views we’ve experienced!
Ecovadis rates companies’ supply chains on sustainability, corporate social responsibility (CSR) and other issues related to ESG (environmental, social and governance). Thaler was truly a visionary, co-founding Ecovadis with Frederic Trinel back in 2007, when “sustainable procurement” was still something of a niche topic.
Scroll forward to 2020, and Ecovadis has grown at 50% annually for the last five years, has 450+ clients, over 65,000 businesses profiled in the platform, and received a “minority investment” of $200 million in January 2020 from CVC Partners and Bain. The firm is moving into new geographies too - Japan and Australia for example in recent times. That is all because Thaler and Trinel saw the “business opportunity to solve a problem”.
Perhaps surprisingly, he says the company has not fundamentally changed in 14 years. “The two-page summary we wrote in 2006 is still very similar to what we are today”, he says. And whilst sustainable and purposeful business has come a long way in that time, “we are still scratching the surface”, he says. Beyond the largest firms that have made strides in areas such as carbon reporting, for the vast majority of firms, “sustainable procurement is still not a priority”.
However, we are gradually seeing change. For instance, Thaler explains, “we are being contacted by mid-sized chemical companies in the US mid-west, who just a few years ago would really not have thought for example about human rights in their supply chain”.
The biggest lever for this growing awareness is the cascade effect. Clients invite their suppliers to join the Ecovadis platform, then suppliers invite suppliers… and so on. “If we start with the biggest firms at the top of the supply chain, then the thinking flows down to the mid-sized firms and beyond”.
We asked whether Thaler is seeing more collaboration between firms. There are opportunities, around innovation, or the circular economy, he says. Whilst again this is not happening everywhere, more companies are embracing it, “and in Europe now, every business really must have a sustainable procurement programme. Firms like Microsoft – who have committed to a carbon negative supply chain - are setting ambitious targets, so collaboration is growing, because it is necessary to achieve these goals”.
Given the Ecovadis business model relies on firms working together and sharing knowledge and data, we were interested whether any hesitate on the grounds that they don’t want to give away or expose their own competitive advantage. “Of course, firms would like to share the risk and keep the opportunities for themselves! But they generally see that they can reduce the risks so much by collaborating, it is worth the sharing aspect”.
The cost advantages in using a shared service are also a major part of the attraction. “When we first started, the budgets for this work were very tight. Even in big firms there were maybe a couple of people and a couple of hundred thousand dollars or euros in the “Sustainable Procurement” budget. That made us decide we had to provide a model that was lean and efficient too. EcoVadis achieved this by creating a business model where costs are shared between all businesses participating in the network, with entry prices of couple of 100 euros for very small businesses Today some large firms have bigger budgets – but we want to help smaller firms to manage this too”.
Moving on to life post-pandemic, we were interested in whether he sees the crisis as positive or negative for sustainable procurement. On balance, he is positive. “There is evidence that during the Jan-April 2020 period the stocks of firms with good ESG ratings are outperforming others even through the crisis. That’s a powerful encouragement for investors – this is not a luxury, it works in the bad times too”. And of course, the pandemic has put the focus on supplier and supply chain risk generally. It is also emerging that the better prepared firms in terms of these issues are coming through in better shape.
How about the opportunities for technology to contribute further in this space? Thaler is excited by the opportunities around big data and AI – “there are more and more data sources and feeds available, including open data. So, there are opportunities to provide better analytics and insight from that”.
Another interesting aspect of new technology relates back to the pandemic. “In the next few years, there aren’t going to be as many auditors and inspectors flying around the world to inspect factories and facilities”. So, concepts of checking and verifying will have to change. Onsite inspection will be replaced by “virtual auditing”, with innovative mechanisms such as virtual reality, smartphone interviews or even drones used to check out suppliers.
Thaler also expects more buyer focus on finding new suppliers post pandemic given that many firms or governments may seek more local supply. There will also be suppliers trying to find new buyers, of course, given the economic effects of the virus. So Ecovadis is developing new features to help this process; as he explains, “It is our responsibility to create connections in this community of like-minded businesses”.
He is somewhat cynical about some of the Davos-type pledges from CEOs – “quantifiable, time-bound pledges can create change but some statements are more for the publicity”. However, he does believe that the world is really changing. He and the firm have close links with top French business school INSEAD, so he talks regularly to other senior executives and “there is an encouraging desire to pursue sustainability amongst leaders. Amongst the younger students that is even stronger”.
That is a hopeful note to finish on – and if sustainability and procurement with purpose do continue to grow in importance, it seems that Ecovadis will play an increasingly important role in helping that process, ensuring that it can be effective and successful for all involved.