ESG is Marching into the Nearshore Conversation, But Few are Prepared

As the corporate world seems to grow more careful about its social and environmental impacts, several companies are going the extra mile to align themselves with the ESG (environmental, social and governance) criteria of potential investors. In the business process outsourcing (BPO) space, though, that doesn’t seem to be the case entirely.

Several BPO experts told NSAM that they have noticed little to no knowledge or interest among industry players when it comes to ESG compliance.

“Some of the people I know who are extremely knowledgeable about BPOs were not even clear on what ESG stood for. When I explained what ESG was, they shared their thoughts on D&I [diversity and inclusion] efforts, which is good but not the same”, commented Stuart Beame, Founder and CEO at Mainstreet CX Consulting. “I’ve walked away from my little search with the thought that ESG might not be a key focus at this time in the BPO sector.”

ESG criteria are a varied set of standards used to measure the behavior of companies and their impact on socially relevant issues, such as gender and race equality, labor rights, the environment, socio-economic development and even mental health. Investors use these standards to screen for potential investments, while companies seek to comply with them in an attempt to become more attractive.

“ESG might not be a key focus at this time in the BPO sector”—Stuart Beame, Founder and CEO, Mainstreet CX Consulting

At least in theory, complying with these criteria should be of utter importance for BPOs given the relevance that is being increasingly given to them by potential partners and investors in the United States, Canada and Europe.

“For companies, it has become increasingly important to associate with providers that prove significantly impactful in social and environmental issues. In that sense, ESG criteria maintained by a BPO could result of vital importance to attract clients and investors,” explained Sebastian Menutti, Industry Principal at Frost & Sullivan.

Some BPO firms attempt to comply with the standards through support to local communities, building a diverse workforce and reducing their carbon footprint, added Menutti. Top players in the industry such as Majorel, Teleperformance and Concentrix have dedicated annual reports that track their progress in matters of social and environmental responsibility.

Nevertheless, there seems to be a lack of precise understanding among the general BPOs industry of what ESG criteria entails, how it works and why it matters.

“Many companies claim to be ESG compliant, but sometimes it turns out that they only have social responsibility plans, communication transparency for their revenues or professional development of their staff. That’s not ESG, necessarily,” commented Carlos Medina, Director of BPO Business Management at OpticallBPO.

Do Clients Actually Care?

“Compliance with ESG criteria is becoming increasingly considered by clients when choosing BPO partners,” Menutti told NSAM in an interview. Yet, the question remains: how much do potential BPO clients actually care about partnering with ESG-compliant firms?

A survey done by KPMG shows that, for companies who outsource operations, ESG compliance is important, but not crucial.

While the firms surveyed assured that they were willing to pay more for a service provider that’s better aligned and committed with their sustainability standards, a failure to achieve compliance with such standards wasn’t sufficient reason to terminate a relationship with an outsourcing partner.

Also, KPMG found that company executives that manage ESG compliance remain for the most part outside their organization’s selection committee. Nevertheless, the research firm expects these people to be “increasingly influential in the selection process as ESG goals get embedded into company culture”.

Outsourcing providers surveyed said they are stepping up their efforts to be compliant. Some of them are even implementing technology to better monitor and showcase those efforts to their clients. Yet, contracts (SLAs) still don’t reflect those commitments. Also, providers said that ESG-accomplishments haven’t produced improvements in service quality, though the delay “may be because tracking ESG-influenced service quality is still in its infancy”, KPGM pointed out.

Although relevant, it seems that the weight of being socially and environmentally responsible isn’t considered crucial when outsourcing business processes. Cost remains the main driver of competition among Nearshore BPOs. Social responsibility is seen as an attractive perk, but gives little to no competitive edge.

“Competition is still focused on costs. That’s the main reason for clients wanting to work with us”, said Miro Batista, CEO at Panama-based Iterum Connections. “Now, when costs are the same, they begin to consider other elements like leadership. Compliance is not a requirement for business; it’s only added value.”

The fact is that, in Latin America, ESG standards remain outside most regulatory frameworks. Top players in BPO advertise their social responsibility achievements to investors and the public in general, but governments in the region haven’t catched up with the topic. As long as regulators are not involved, compliance will remain a superficial matter, commented Batista.

“Competition is still focused on costs […] Compliance is not a requirement for business; it’s only added value”—Miro Batista, CEO at Iterum Connections

That might change eventually , though. Industry experts and corporate research firms insist on the relevance of ESG compliance for the future of investment and business relationships. Although he described the state of social responsibility in BPOs as “superficial”, Batista recognized that the topic is creeping its way into the outsourcing space. He remains skeptical about the overall impact, though.

“About 17 years ago, nobody asked this sort of stuff on RFPs [requests for proposal]. Now RFPs are including diversity and inclusion requirements. These things are beginning to pop up,” he said. “Then again, I don’t see a company losing an account for not having a 60% female work staff. I haven’t seen that. It’s not a commercial reason to terminate a relationship.”

Tech and Talent, the Outliers

Alignment with ESG standards is expected to grow more complicated with the addition of technology into the mix. As governments gain a better grasp of the impacts of data driven, interconnected lives and economies, new legislation will arise to protect citizens, enterprises and even whole countries from the more devastating consequences of tech transformation.

“As technology expands and artificial intelligence becomes more embedded into company structures, production, marketing, and planning; a matrix of technology legislation is forming”, explains law firm Eversheds Sutherland on its website.”Whether you are procuring, deploying, manufacturing, selling or licensing technologies, it is critical to ensure you complete due diligence for yourselves and your supply chain.”

The point was echoed by Batista. Given the sensitive nature of data management and the potential for scandal if a major breach happens, demands for information security certification are growing among potential clients and government regulators.

“What is being asked from us is to comply with information security. That’s what clients do worry about. You have to be PCI certified; you have to be SOC2 certified or have an ISO 27000 certification. Infosec compliance is what they want, more than ESG,” said the Iterum CEO.

While ESG-compliance might not be as important for BPOs to attract investors, it is becoming increasingly relevant for talent retention, especially in an industry that is infamous for its high attrition rates. From community outreach to employee education and upskilling programs, BPO firms are doing their best to position themselves as attractive employers.

“Although [social responsibility] is attractive for our clients, it is too for our communities when they see us as a good employer. That’s the main driver for us when it comes to being socially responsible,” explained Batista. “That helps us with loyalty within the company and helps you a bit with keeping turnover under control.”