December 07, 2023 | Risk Management
Pressure from regulators and investors, and the enterprise’s need to increase resilience, agility and sustainability are driving procurement’s increasing prominence in achieving ESG goals.
From investors seeking climate risk mitigation to customers scrutinizing social responsibility claims, expectations around ESG have reached an inflection point.
Procurement is well-positioned to drive risk management, resilience and growth for organizations by taking a long-term approach to sourcing that enables supply chain sustainability, reduced operating costs and greater value creation with suppliers.
Below are some of the ways that procurement can play a key role in sustainability.
With up to 80% of a company’s carbon footprint coming from Scope 3 emissions, measuring and tracking emissions from suppliers presents a formidable challenge for businesses committed to sustainability.
The intricacy lies in the reliance on suppliers to furnish accurate emission data, introducing a layer of complexity in maintaining transparency across the supply chain.
To overcome this challenge, forward-thinking companies often opt for strategic partnerships with third-party entities such as EcoVadis to provide reliable sustainability ratings.
This collaboration not only ensures a more comprehensive and unbiased assessment of suppliers but also aids businesses in navigating the intricate landscape of sustainability data that extends beyond their Tier 1 suppliers.
Beyond simply screening suppliers on ESG criteria or compliance checklists, strategic buyer-supplier collaboration unlocks joint value creation opportunities. By aligning on shared sustainability objectives spanning reduced waste, optimized logistics, renewable energy adoption or diversity improvements, both the parties benefit.
This requires moving relationships beyond simple transactional interactions into innovation partnerships.
Procurement should look for opportunities to co-innovate with suppliers on next generation sustainable materials, smart packaging design and circular business models.
Rather than being unrealistic and ultimately unachievable, ambitious sustainability targets can inspire creativity among trading partners to reach milestones like net-zero.
Also, rather than keeping score through a single annual survey, procurement can create regular touchpoints via quarterly business reviews to track progress on key impact KPIs while addressing obstacles transparently. Procurement provides the backbone to enabling suppliers to stretch their own boundaries for positive change.
Gaining 360-degree visibility into indirect and direct spend using modern procurement platforms allows more precise classification of expenditures. Granularly tagging transactions by attributes like commodity type, location, business unit or environmental indicators provides the foundation for rich analysis on current state emissions, waste streams and supplier profiles.
Platform analytics uncover category spend and supplier concentration risks posing climate threats or supply continuity concerns given regulatory shifts. Risk models help prioritize target areas for supplier engagement or innovation efforts based on impact and influence potential. Tracking key eco-criteria over time via online dashboards ensures visibility into enterprise-wide strategy effectiveness.
The more procurement can spotlight sustainability data gaps with clarity, the more teams can focus transformation efforts for maximized results industry-wide.
Investing in supply chain sustainability isn’t just a marketing tool to enhance brand image (although it does help with that) – it ultimately leads to better overall outcomes.
A report by the CDP in 2021 underscored the financial advantages, revealing that suppliers actively cutting emissions saved a staggering $33.7 billion in 2020.
Embracing sustainability as a top priority, as highlighted by EcoVadis, not only enhances a company's ESG and sustainability ratings but also has a tangible impact on financial metrics.
Companies prioritizing sustainability can experience an augmented enterprise valuation and reduced costs of capital, contributing to overall financial resilience.
Beyond financial gains, a sustainable supply chain mitigates risks, enhances resilience, and fosters a positive corporate reputation, directly influencing increased sales.
Additionally, cost savings and improved procurement metrics further underscore the multifaceted business advantages derived from a strategic commitment to supply chain sustainability.
By harnessing data and relationships, procurement organizations now hold the compass steering enterprises towards supply chain sustainability, from vision to measurable reality.
Procurement leaders must transition their teams from focusing solely on finding the lowest price to helping enterprises become more sustainable and more resilient.
Want to learn more about how procurement can spur progress on ESG goals? Download our white paper with Harvard Business Review Analytic Services, Optimizing Business Outcomes by Investing in Sustainable Supply Chains and Procurement, available on our Knowledge Bank.