UK businesses without sustainable supply chains at financial risk

More than 80% of investment managers now believe businesses without supply chain sustainability risk falls in their share price. Meanwhile, seven-in-ten believe that businesses need to accelerate purpose initiatives to safeguard long-term profitability.

To be ‘purpose-led’, an organisation needs to stand for something it believes in, going beyond profit and looking to positively impact society – something becoming increasingly popular to consumers. A mounting body of evidence shows that consumers around the world want companies to take a stand on issues such as sustainability, transparency and fair employment practices. In spite of this, businesses remain slow to act on this front.

Concerns around short-term profitability regularly hamstring ESG transformation efforts among leading corporates. While businesses are increasingly willing to talk the talk on things like climate change, then, this is reflected by one study by PwC which found that only 38% of board members think ESG issues have a financial impact on a company.

'Talking the talk' without 'walking the walk' may no longer be an option, though. Investors are steadily pushing sustainability to the top of their own agenda – and firms which fail to meet the ESG expectations of consumers are therefore likely to find it harder to attract new financial backers.

This is further confirmed by new research from procurement consultancy Proxima. The firm examined 1,000 investment managers around the world, to discover that 85% now believe that businesses who do not implement supply chain sustainability initiatives will see share prices fall as a result over the next decade. This is not something which investors will look upon favourably as they try to turn a profit by supporting businesses to grow – and a further 84% said they were concerned about inaction, stating that issues with supply chain sustainability and ESG standards are a risk to their investments.

This trend is only set to continue and will dominate the coming decade – while supply chains are set to be at the heart of the expected shift. A majority of 88% of investment managers said supply chain sustainability standards will be a key criterion for investment decisions over the next ten years, while 70% added that businesses should accelerate purpose initiatives at the expense of short-term profitability.

The increasing scrutiny of supply chains from investors is already manifesting itself, too. In the US, Proxima found that almost 40% of investors frequently discuss supply chain standards in the firms they already invest in. While that number is slightly smaller in the UK, the number who sometimes discuss it suggest that it will grow to US levels in the coming years – and firms who do not anticipate this could pay the price.

Simon Geale, Executive Vice President at Proxima, said, “It’s vital that a business brings in the expertise it needs to address the challenge… It is clear that investors have supply chain sustainability in their sights as we look to build a better post-pandemic world… The concept of how a business can create value is changing, and business leaders are seeking to balance short term profit with progressing a broader range of ESG factors that will create sustained value in the mid-term.”

While supply chains can be complex, Proxima also found that if organisations look to act quickly, they can create first-mover advantage for themselves. Over nine-in-ten investment managers stated that they would invest further into a business to ensure it was meeting ESG standards across its supply chain – suggesting that businesses who look to take ESG seriously could have the help of investors to tackle sustainability.