How Procurement Can Boost the Effectiveness of ESG Programmes
Why is ESG so popular? When posed with this question, most procurement professionals respond that there is now:
- Heightened public opinion regarding CSR and sustainability
- Recognition that Procurement is an agent of change in this area
- A fundamental importance to include ESG criteria within tenders, contracts and negotiations
- Senior management support for ESG, providing top-down endorsement; it isn't just a short-term fad or trend of the moment
Naturally, ESG is a subset of corporate responsibility programmes based on the following principles:
- Reducing the environmental impact of the organisation and its supply chain
- Achieving environmental sustainability and carbon reduction targets
- Ensuring ethical sourcing, employment and equality within the organisation and its supply chain
- Improving sustainability within the supply chain and the efficient use of resources by the organisation
- Increasing supplier diversity and the use of social enterprises
Procurement has often found that internal business stakeholders who do not wish to engage in conversation around cost reduction, cost avoidance, and more traditional activities conducted by the department, become very engaged when talking about the value of ESG and the role Procurement has in adding value. Increasing sustainability activities within the organisation and its supply chain is regarded as a value differentiator rather than a cost-savings opportunity; this is a key objective for Procurement in supporting the success of the company's business.
What’s in scope
A recent CASME survey of 150 procurement professionals, confirmed what they consider to be in scope for their organisation’s ESG programme.
Responsible for CSR, diversity and inclusion (D&I) and sustainability; with the aim of raising awareness of ESG and increasing programme engagement within the business.
Other approaches include regularly meeting with category managers to understand their category strategies and identifying how ESG can be effectively embedded within their procurement activities. In effect, establishing a network of procurement ambassadors who:
- Align with the category managers across all categories and regions
- Increase adoption of the ESG programme
- Identify opportunities for increasing sustainability and supplier diversity
- Support the environmental management system (EMS)
- Increase understanding of ESG initiatives
What’s the objective of ESG involvement for Procurement?
In addition to benevolent reasons, organisations are defining some clear objectives as to why the investment of resources, people and systems are important for accomplishing ESG initiatives. When the same 150 procurement professionals were asked about their organisation’s objectives, the most popular responses focused on ethical and sustainable supply and increasing this within the supply chain.
Measuring - what is being achieved?
Traditional return-on-investment calculations are not suitable for assessing the success of ESG projects. As such, Procurement is devising new and specific ways to measure and accurately report on the effectiveness and results of the ESG work being carried out.
1. Sustainability KPIs may include:
- Reduction in volume and transportation distance of the items being delivered to company’s sites
- Number of local suppliers contracted and based within a specific distance from company’s sites Compliance of employees and suppliers with company’s policies, standards and code of conduct Percentage of spend that is placed with diverse suppliers and minority-owned businesses
- Increased D&I in the workforce
- Percentage of RFPs that include sustainability criteria
- Application of ISO standards for sustainability
- Sustainable certification of raw materials and packaging, and the amount of recycled content in packaging materials
- Reduction of waste and the amount sent to landfill, and increased recycling
- Reduction in energy consumption and increased use of renewable energy.
2, Supplier diversity measurements and quantifiable data is being obtained by:
- Establishing targets at the global level, but allowing the application of local targets within indifferent countries to address the varying levels of maturity of supplier diversity programmes
- Developing a global supplier diversity network to increase engagement in the programme
- Engaging with third-party organisations to obtain transparency and increase the visibility of diversity in the supply chain
- Requesting social impact reports from social enterprises.
3. Procurement is obtaining quantifiable measurements and managing CO2 emissions within the supply chain by:
- Establishing science-based targets covering scope 1, 2 and 3 emissions and including these in RFPs Using a variety of reporting mechanisms to ensure transparency from suppliers
- Obtaining metrics from platforms that provide CSR ratings for supplier companies, and assessing how these can be incorporated within future supplier engagement strategies
- Engaging with key suppliers and supporting them in reducing their CO2 emissions.
4, KPIs are being applied or considered for monitoring and measuring supplier performance in terms of ESG policy compliance regarding:
- Renewable energy usage
- Targets for spend placed with diverse suppliers and social enterprises
- The reuse of commodities within factories for indirect supplies and by waste management services providers as part of a circular economy strategy
- Legal requirements and alignment with the United Nations recommendations
A bottleneck to successful measurement is being able to obtain the right level of data and understanding what suppliers are doing with regard to ESG; so the availability of transparent information is a current priority for Procurement. The practice of sending out multiple questionnaires to suppliers must be updated, and systems need to be introduced to monitor compliance and continuous improvement throughout the supply chain.
In addition to applying KPIs, Procurement monitors the suppliers' compliance with ESG requirements by conducting audits, and using the information obtained from environmental management systems and third-party platforms such as Assent Compliance, EcoVadis, Enablon, SupplyShift, Sustainalytics, Tealbook and Tradeshift.
What does the future hold?
As a word of caution: priorities can change. A recent CASME survey, assessing the impact of the Ukraine/Russia war on sustainability initiatives and targets, revealed that although 36% believe the impact to be low at present, another 50% indicated it is moderate, and 14% think it is high.
However, despite geopolitical issues around the world, it is expected that future ESG programmes will be required to deliver even greater value to the business. Priorities will focus on compliance with an increasing number of laws regarding environmental conservation, to prevent negative public perceptions of the company and disrepute within the market.
At CASME, we expect to see:
- A greater engagement with social and environmental enterprises, and pro bono consultancies
- Increased assistance and mentoring being provided to diverse suppliers, to help them to develop the capacity and capabilities to support large organisations
- Sustainability continuing to be a key area of focus for senior executives, as well as compliance with environmental legislation that will impact decision-making
- Climate change and climate risk becoming increasingly important, particularly for sourcing raw materials
- Organisations' CSR and sustainability credentials and reputations becoming an important factor in attracting and retaining talent
- The weighting applied to sustainability in RFP evaluations increasing from low levels such as 5% to higher levels of 15% to 20%
All these changes present a great opportunity for Procurement
Join Graham Crawshaw, Procurement Content Director of CASME on 7th July, 9:05am for the session
"Balancing profit and purpose - How can you implement a measurable and tangible ESG (Environmental, Social & Governance) framework that meets company margins and improves innovation?"