Part Two: ESG; More Than a Trend - The Profitable Business Case

While governments and consumers increasingly prioritise sustainability, many companies struggle to reconcile ESG goals with financial performance. In this 2nd part of the post-event narrative, we explore how to transform ESG from a cost centre to a profit driver.

Our industry leaders Violaine Balland from Wilhelmsen Ships Service, Chee Kin Lin from Singapore Post, Jonathan Cheung from The ESG Institute, Nina Starklauf from Schaeffler, and Garry Lim from Prudential Assurance Company Singapore share practical strategies for integrating ESG into procurement, assessing supplier sustainability, and avoiding the pitfalls of greenwashing. By aligning ESG objectives with organizational goals, companies can create long-term value while building a resilient and ethical supply chain.

ESG: The Marathon to Procurement Excellence

ESG is becoming more and more entrenched in every organisation. It is more than just a concept – it is a business model. However, many firms may still be pulled at both ends – while this provides a boost in brand reputation, these programs have been frequently seen as being at odds with profitability targets. How can they reconcile this and persevere to achieve ESG targets?

Chee Kin states that it should be viewed as any other management programs like ISO certification, etc. Once the practices of ESG are normalized within an organisation, we will see a contribution to the bottom line, e.g. controlled and avoid the excessive energy usage of equipment, the right sizing of our fleet and other Capex, etc.

Jonathan firmly believes that embracing ESG is not an option & the focus will be on the ESG reporting in annual report as well as all the suppliers and their respective subcontractors & their subcontractors’. In another word, from the buyer’s point of view, we need to ensure the suppliers at least understood the current ESG status with the right actions plan in place. As for the senior management level of your organisation, we will need to understand the implication of NOT knowing the suppliers ESG status. On the other hand, from the supplier management perspective, we need to understand that the needs to meeting the ESG is a priority. Firms must know that high-performing ESG practices require collaborative efforts from both parties NOT just the buyer or supplier organisation.

Nina adds on by saying that organisations must have a fundamental understanding of ESG and the impact of the supply chain, which includes knowing their sustainability strategy and requirements. Buyers are the spokesperson of the company and are responsible for the supplier to implement certain measures. For the deeper understanding it is recommended to have sustainability specialists within purchasing or at least working closely with purchasing. After procurement has collected all the basic documents and self-assessment questionnaires, it is important to be on-site at the supplier and review the reality on the ground. Maybe even conducting ESG / social audits.

Beyond Traditional Audits: Integrating ESG into Supplier Practices

Beyond conversation with the supplier and reading of their ESG reports, Violaine would use a few questions/KPIs to give her a proxy of their maturity:

- do they use renewable energy

- do they have an ESG team

- do they have female in their directors

- do they have a supplier code of conduct

If yes means that they are already embracing ESG, if not to all, means that they haven’t started their journey.

On the other hand, Chee Kin believes that the fundamental instrument to commence discussion with suppliers is our Supplier Code of Conduct (SCoC).

Jonathan believes that having a roadmap for both buyers and suppliers is imperative to meet the ESG requirements. He stresses on the need to uphold these initiatives in a joint effort between both parties, as this ensures regulatory compliance and effective alignment between them.

Nina states that all suppliers must have an established code of conduct and risk assessment for better prioritization. High-risk suppliers to provide ISO 14001, ISO45001 and ISO50001. Carrying out Sustainability self-assessment questionnaire (SAQ; common in Automotive sector) and adhering to minimum score requirements: SUPPLIERASSURANCE are crucial as well. If SAQ score in human rights section is low, suppliers must go for RSCI (Responsible supply chain initiative) third party audit. Sustainability target agreements are another tool to cover all aspects of ESG, including requesting PCF and CCF, and identifying supplier's ambitions of carbon emission reductions.

Long-term Value Creation VS. Short-term Financial Gains

Promoting a more ethical and sustainable supply chain is not a sprint. Enhancing supply chain visibility maybe one of the most fundamental approaches in tracking supplier practices, but it requires firms to know what is happening upstream in the supply chain and disclose requirements to their stakeholders. It’s time to take charge in embedding these practices into their operations but balancing these commitments with the realities of rising costs and uncertainties takes time.

Chee Kin states that the increase in carbon tax is inevitable. Knowledge and awareness of social practices will accelerate among the next (or current) generation of job seekers. Hence, companies cannot afford to stand still or reap short-term gains while leaving the questions of improving supply chain resilience in driving ESG objectives and having change management frameworks in place in equipping procurement teams to achieve these targets unanswered.

Nina states that setting clear requirements and targets for suppliers and communicating with them on these will help you to elevate your sustainability initiatives. Besides, implementing preferred partner programs, including ESG in sourcing decisions, and rolling out incentives if supplier is performing well, are strategic drivers. It is important to consider internal carbon pricing too.

Greenwashing: The Potential Pitfall Behind Every ESG Movement

Many firms may be caught up in greenwashing in efforts to portray an environmentally conscious image of investing in ESG initiatives. Violaine believes that by not using the words Green, polar bears, or other stereotypes related to sustainability, we can stay away from making misleading claims. She encourages us to state the facts, progress compared to baseline, numbers verified by third party, and be transparent on the ugly sides as well those that need to be improved.

Jonathan mentions that the questionnaire & ESG score will assist this requirement. Per stated above, the ESG checking should be prime supplier, their sub-contractors & their subcontractors’!

Our Contributors:

Chee Kin Lin, VP, Group Procurement, Singapore Post

Jonathan Cheung, CEO, The ESG Institute

Violaine Balland, Head of Procurement, Wilhelmsen Ships Service

Garry Lim, Corporate Services Head, Prudential Assurance Company Singapore

Nina Starklauf, Manager Sustainable Purchasing Asia Pacific, Schaeffler