Part One: Sustainable Procurement; Why It's More Than Just a Scorecard
With ESG taking centre stage, procurement finds itself at a pivotal juncture. Responsible sourcing, from assessing supplier carbon footprints to enforcing stringent regulatory standards, is putting pressure on procurement leaders to deliver tangible sustainability results. Yet, many are grappling with how to shift traditional mindsets and operational models.
In this post-event Q&A, 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 the challenges of integrating sustainability into their core operations and offer practical strategies to issues like supplier onboarding, leveraging technology, and fostering collaboration to build a more responsible supply chain.
How do you change/influence the way of thinking of legacy procurement folks on responsible sourcing?
Violaine: I would do awareness on climate change at individual level. ESG and associated reporting can seem very boring, but when you take it from the angle of how it is going to impact our lives, it touches the individual, and by working on the WHY you can plant seeds that will help embracing ESG at work.
JC: The approach should be via change management & education process, all levels of the staff especially these legacy procurement folks will need to understand that embracing ESG is NOT an option especially in the EU/UK and soon will be mandatory requirements in Asia especially in ASEAN. This process needs to showcase to them that the issues NOT embracing ESG in the sourcing process as this will affecting the ESG reporting & client’s retentions and the competitiveness of the business & best resources in the sectors.
Are there any technology tools available to track and measure sustainability KPIs?
CK: A few of the known applications that support the collecting, validating, analysing and reporting of critical environment data are Enablon, Intelex, UL Solutions
JC: Lots of technology tools are focusing on “E”, the tough one will be the tracking of “S”, this is commonly using employee questionnaire & feedback to track as for “G”, this is the business as usual as if the organisation not tracking this will be leading to problem to retain the business license. Most organisation that I have met, MS Excel is still the common tools, the best approach will be at the suppliers onboarding & performance review to have the suppliers to fill in the questionnaire & then score the response with weightage like the RFP scoring approach. Please also note that ESG is not only applied to the prime suppliers & need to include all their subcontractors & their subcontractors’ relationship.
SN: At Schaeffler, we developed our own sustainability dashboard (Power BI) which covers social and governance. It is based on our internal and external risk assessment, supported by the third party Systain. Systain – Nachhaltigkeitsberatung oder nicht? - Services Based on the outcome of the risk assessment we categorize suppliers in risk class A-E, and this helps to prioritize and define measures.
How do we onboard suppliers for ESG programme?
CK: Faced with a few thousand suppliers, we prioritize the engagement of suppliers. By ""prioritizing"" suppliers, we have an annual ABC analysis where we identify Tier-1 suppliers who account for 80% of overall spend, followed by Tier-2 and 3 suppliers who account for 15% and 5% respectively. For Tier-1 suppliers, we request our suppliers to acknowledge our Supplier Code of Conduct (SCoC) and provide insights into their ESG practices through an online questionnaire managed in SAP-Ariba. Should any suppliers who acknowledged that they do not have appropriate policies and request for assistance, we will engage them in a meeting where we explain our expectations (as stated in SCoC), provide them with assistance (eLearning) or point them towards national programs which may support their development of their ESG practices. Once we cover our Tier-1 suppliers, we will move on to Tier-2 suppliers who are in industry segments or provide supplies which are critical to our Scope 3 emissions and repeat the same approach.
JC: per above, the onboarding process should include the ESG questionnaire (prime suppliers & their subcontractors & all their subcontractors’ relationship) with weightage to determine the ESG score. The questionnaire & weightage should refer to UNDP 17 sustainable goals & the UN Global Business Compact approach.
SN: First of all, you must communicate and explain your companies' ESG targets and requirements (Why!). We see great results after organizing ESG supplier trainings or online webinars. Besides that, we offer free online trainings on our website. Make use of supplier days as a platform to show how serious you are about this topic. Most suppliers keep asking if there are any incentives if they follow your requirements and you might consider it in your sourcing criteria.
How can collaboration between businesses and financial institutions incentivize a shift towards more sustainable supply chains?
CK: The shift is in motion. Financial and lending institutions are developing or do have a way of assessing the risks associated with investments that are poor in ESG outlook. Before we know it, lending rates for poorly rated investments will be higher than investments that promise significant ESG benefits. With limited resources, how can companies prioritize building trust and verification within their vendor ecosystems?
Garry: Companies will need to look at their own sustainability agenda and assessed what is important to them. For instance, is scope 3 reduction a target for the companies? If so, then look at those vendors contributing materially to scope 3 and work with the vendors to address that together. With limited resources, you cannot be targeting all vendors.
CK: We prioritize Tier-1 suppliers (80% of spend contribution), moving on to Tier-2 suppliers (15% spend contribution) of interest, etc. JC: This is catch-22 situations as the noncompliance of ESG could potential impact the 10% to 15% of the revenue and incurring fines etc.
Besides a company centric approach, where do you see opportunities for an industry centric approach to supply chain sustainability?
Garry: Yes, and that is why in Singapore, the National Sustainable Procurement Roundtable was formed to drive a procurement centric approach.
CK: I support the NSPR (as mentioned by Garry) and Supply Chain Asia communities, and I proposed that a national Supplier Code of Conduct be established to harmonize our expectations on suppliers' ESG (which are 80% common among us) journey. This helps our suppliers to navigate the complex journey of ESG.
JC: FSI sector is leading this approach at least in ASEAN, both Singapore and Malaysia central banks have embraced the industry centric approach. From my point of view, the tough sectors are Manufacturing and Build Environments. As I have stated above, soon will NOT be an option to embrace ESG.
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