How Procurement Leadership Can Help Embed ESG Practices into Your Company’s Strategy
In today’s world, procurement is one of the cornerstones of a company’s environmental, social and governance (ESG) strategy. Investor and consumer expectations are shifting, and money is moving more and more to the most ethical, responsible and sustainable organizations. There is now greater public awareness of where businesses source raw materials, while the environmental impact of companies has led to an increasing demand for supply chain transparency as it relates to labor and human capital.
The role of procurement is no longer only about acquiring goods and services at the lowest price. The new mission for Chief Procurement Officers (CPOs) is to balance value against values, ensuring financial viability along with an ethical, sustainable and socially responsible supply chain. Here are three ways that procurement leadership can help embed ESG practices into your company’s strategy.
INTEGRATING ESG THROUGHOUT THE SUPPLY CHAIN
The goals of ESG are aligned with the goals of supply chain. At the top of the list for both is reduction of waste and improvement in efficiencies. Even before ESG became a business priority, many supply chain and procurement professionals have already been pursuing policies that align with corporate ESG objectives.
One example of procurement leadership’s impact on their company’s supply chain is setting efficiency targets. Specific efficiency targets set for third-party vendors like carriers and freight handlers can have a significant impact on the overall social and environmental footprint of a supply chain. Some larger big-box retailers have implemented mandatory fleet efficiency targets which carriers are required to meet. Lacking the bargaining power of larger organizations, smaller companies may instead rely on incentives for behaviors which can drive supply chain partners toward corporate ESG objectives.
Beyond setting efficiency targets, vendor audits can help advance a company’s ESG goals while also guarding against risk in their extended supply chains. This includes auditing working conditions, environmental impact and labor standards. By setting expectations and continuously monitoring partner performance, CPOs can ensure ESG alignment in every part of their company’s supply chain.
ALIGNING WITH OTHER FUNCTIONAL AREAS ON ESG STRATEGY
Organizations prioritizing ESG initiatives must bridge the gap between their ESG strategy and the execution of their ESG initiatives. To that end, Chief Procurement Officers (CPOs) must assume leadership for ESG at the executive table in conjunction with legal and finance leadership. Through active collaboration, procurement, legal and finance are the best positioned functions to mitigate risks and manage stakeholder needs.
Procurement has a unique view into sustainability issues and potential risks in the supply chain. This allows CPOs to advise the rest of the company’s leadership about which issues to prioritize to better align with stakeholder expectations and business goals. By shaping, communicating, and executing the ESG agenda, CPOs will be able to cement sustainability as an instrumental pillar in their company’s ESG strategy.
REINFORCING COMPANY PURPOSE THROUGH PROCUREMENT STRATEGY
A business focused on purpose is one that can create meaningful opportunities beyond just employment. Companies of all sizes are increasingly prioritizing strengthening their employees, the communities in which they do business, and the world around them.
An example of procurement-driven purpose would be prioritizing supplier diversity. Sourcing from suppliers committed to diversity and inclusion can make a significant difference to communities, creating jobs in much-needed areas and driving social change. Beyond doing social good, this also impacts business outcomes. Partnering with diverse suppliers can drive revenue. Customers have become more interested in purchasing products or services from brands they perceive to be committed to diversity and inclusion.
Procurement plays a significant role in driving purpose and ensuring that it is embedded in all areas of the business. CPOs have the most comprehensive overview of corporate ecosystems, including internal structures, assets, suppliers and customers. To that end, CPOs must carefully evaluate potential partnerships and critically examine if suppliers’ actions are in line with their company’s purpose and stakeholder expectations. In doing so, CPOs are enabling their organizations to improve the societal, economic, and environmental impact of their business and every organization and community it touches.
Business sustainability and ESG strategy are daunting topics, but they cannot be ignored or kicked down the road. ESG practices will influence some of the most important decisions organizations will make in the coming years. Growth, resilience and sustainability will define business success in the post-pandemic world, and CPOs have a tremendous opportunity to set their company on the right course for the future.
This article is the fourth in a series that explores how each business function plays a role in ESG success. Check out the other blogs in the series in which we discuss how legal and finance can help embed ESG practices across your company. Contact us to discuss ESG strategies.