Navigating the Landscape of ESG in Procurement: Insights from Asia
Environmental, social, and governance (ESG) considerations have become a critical aspect of modern business practices as stakeholders increasingly demand a higher standard of responsible conduct. Companies must ensure that their suppliers and service providers also align with their ESG goals, making supply chain contracts a key opportunity for businesses to realize their ESG objectives.
Much of Asia’s ESG push has largely been reactionary and in response to Western pressure. The appetite for broad ESG goals isn’t really there as seen by the fact that there hasn’t been much in the way of a clear sustainability target. Similarly, as Eric Yong, Director, Office of Procurement, Singapore Management University (SMU) notes, “Asia is lagging in the real world in terms of the initiative. Not only the first tier but also you must look at your supply chain - even 2nd or 3rd tier suppliers”. Simply put, ESG only comes to the forefront when pressure comes from further up the supply chain. However, with a renewed regulatory push, perhaps changes are on the horizon for Asia.
Case Study: IKEA Sustainability Report FY22
IKEA is a global furnishing retailer based in Sweden. While known throughout the world, they’ve seen a clear push for growth in the Asian market which comes with both opportunities and challenges. IKEA has regularly been heralded as a company that has integrated ESG as a core part of its operating procedures rather than just a marketing tool or virtue signalling. This makes them an excellent case study as a leader in ESG in procurement. This case study will examine the IKEA Sustainability Report FY22.
What did they do?
IKEA released its Sustainability Report FY22, which highlights the progress made in implementing the People & Planet Positive sustainability strategy. The report outlines the company's commitment to be a circular business, regenerate resources, and contribute to a fair and equal society while reducing its climate footprint and increasing renewable energy.
How did they do it?
To become a circular business by 2030, IKEA aims to design all its products with circular capabilities, use only renewable or recycled materials, and offer new solutions to prolong the life of products and materials. To achieve this, the company is increasing transparency on how and where it sources wood, committing to using only responsibly sourced renewable or recycled materials in its offer and increasing the use of recycled or renewable foam in its mattresses.
IKEA is committed to becoming climate positive by FY30, by reducing more greenhouse gas emissions than the IKEA value chain emits, while growing the business. To achieve this, the company is reducing the climate footprint of the IKEA value chain and significantly increasing the amount of renewable electricity for retail and production. IKEA has also committed to zero-emission transports for home deliveries by 2025 and for product transport by the latest 2040.
To achieve these ends, IKEA has taken a number of steps across its supply chain. This includes a massive investment in 327 wind turbines around the world and in 730,000 solar panels on its buildings, 60% of all products now using recycled materials and a steady reduction in water usage (Source).
IKEA aims to play its full part in contributing to a fair and equal society by respecting and promoting human rights across the value chain and contributing to resilient societies. A good example of the work IKEA have done in comparison to other companies is their reaction to working conditions and suicide. As Yoonah Hahn notes, “while other multi-billion dollar companies place nets in response to suicides committed due to horrendous working conditions in their supply chain, IKEA proactively works to eradicate harmful social and environmental issues it faces in its global business by putting its funds, energy, and time into doing "good business while being a good business".
Main challenges & how they overcame them?
IKEA faced global challenges affecting people all over the world as well as its business. The COVID-19 pandemic disrupted operations and supply chains, and the global climate crisis continued to pose a significant challenge. Additionally, a company like IKEA with a huge retail and manufacturing footprint will always struggle with its enormous value chain. It’s virtually impossible to keep an eye on every aspect of their supply chain. However, what IKEA has done is “integrated its CSR objectives more systematically into its management philosophy and business operations”.
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ProcureCon Asia session - Day 2: Panel: How procurement can boost the effectiveness of ESG programmes