Why Procurement Should Lead ESG Integration

Any responsible business understands the significance of incorporating ESG metrics into its routine business operations. It may have been talked about in board meetings. 

But has the business succeeded in integrating ESG metrics into its core processes? 

Do the internal teams and staff understand and comply with this requirement? 

Do they consider ESG-related data while choosing suppliers and making sourcing decisions? And does the organization have a process in place to periodically monitor and check the effectiveness of these metrics? 

Today, ESG integration is not merely needed to comply with regulation. It also lends your business a competitive advantage. How? 

Because new-age customers are more informed and look to buy from businesses that are transparent about their ESG practices. They can differentiate a business that has incorporated ESG metrics in operations from another that merely talks about it. It is also imperative to not only integrate ESG in business processes but also to review its performance over a period. 

5 Ways Procurement Can Drive ESG Integration 

While every function within a business has the responsibility of integrating ESG practices, some teams can play a more active role than others. 

With detailed visibility into enterprise spend and close collaboration with external suppliers, procurement is one such function that can play a key role in this endeavor. 

A key reason for procurement’s involvement in the program is the need to work closely with external stakeholders. 

To effectively integrate ESG practices, businesses need to collaborate with external stakeholders in their supply chains, says Raghu Ekambaram, senior director of consulting at GEP in this GEP podcast. They need to know where their suppliers are in their ESG journey, understand incentives that can work for them and then work toward bringing them along in the journey, he adds. 

Here are five ways procurement can accelerate ESG integration: 

1. Scrutinize suppliers: 

Procurement plays a key role in shortlisting and finalizing suppliers for the goods and services needed. And here is where it can leverage its role to closely examine supplier operations. In addition to the traditional parameters of price and product quality, it must assess a supplier’s understanding of key ESG trends and examine if the supplier follows ESG practices. For example, procurement can check if suppliers have a mechanism in place to measure their carbon emissions. It should look closely at supplier operations to determine safe working conditions and the health and safety of workers. 

2. Utilize data: 

Procurement teams in many enterprises can access a huge amount of data related to ESG performance of internal and external stakeholders. They must utilize this data to analyze performance and identify specific areas of improvement. They must also share this data with relevant stakeholders and apprise them of the potential next steps. 

3. Reduce waste: 

Procurement must take steps to reduce waste in daily operations. As part of this initiative, it should look to maintain optimum inventory and reduce storage needs. It should also encourage suppliers to reduce packaging materials and choose recyclable or biodegradable options. 

4. Offer incentives: 

At times, suppliers are not aware or not sure how to implement ESG integration in day-to-day operations. Procurement must therefore invest their time in educating suppliers about specific ways of ESG integration. To get suppliers actively involved, procurement can also offer them some incentives. The idea here is to encourage participation by telling suppliers how they can benefit from the program in the near and long term. 

5. Monitor at regular intervals: 

Regular performance monitoring is as vital to ESG integration as initial scrutiny of suppliers. Have a mechanism in place to accurately capture data related to key ESG metrics. This can help you check if suppliers have made improvements over a period. 

Leveraging Technology is Key to Success 

Procurement must leverage technology to succeed at ESG integration. Technology can collate data generated from different sources within the supply chain and analyze this data to present useful insights. It can also help procurement use these insights to improve ESG performance in several processes. 

Overall, businesses need to adopt an integrated, strategic and software-based approach to gain the visibility needed to make meaningful progress toward ESG, stresses Aavni Piparsania, director of business development at GEP. 

Technology platforms can bring together data, align different stakeholders and help them work in close collaboration toward program goals. 

Here’s how GEP helps organizations meet their ESG goals.