Procure with Purpose: ESG in Procurement
Procure with purpose is a mindset shift encompassing the transition from viewing procurement as only a means of purchasing goods or services for a company, to the idea of procurement becoming an active agent for change in an organization to help achieve broader, more all-encompassing goals surrounding ways of working. This transition shifts concern from soley economic priorities to a vision of implementing overarching metrics that align with the environmental, social and governance (ESG) related impacts of everyday business operations. With this in mind, procurement has the power to support large-scale corporate strategy.
Companies must comply with growing regulations and changing consumer behavior surrounding challenges like climate change, social inequality and economic disparities. To accomplish these goals, organizations are choosing suppliers to demonstrate efforts to reduce carbon emissions, support ethical labor and foster a more equitable global economy.
Environmental:
Carbon footprint minimization is at the core of the environmental piece of the ESG trifecta. Adopting ecofriendly procedures regarding waste management, recycling and the sourcing of sustainable materials are just a few ways companies are making conscious efforts to address these concerns.
Organizations should opt for suppliers that utilize renewable energy sources, those that have adopted energy-efficient manufacturing processes or those that practice sustainable harvesting or production methods. It is also beneficial to favor suppliers with waste reduction programs and those who participate in recycling or circular economy initiatives when considering environmental impact.
Social:
The second component of ESG addresses social responsibility which focuses on the people involved along the supply chain. These factors relate to the impact on human rights, labor standards and community development. Ethical procurement ensures that supply chain partners do not engage in exploitative practices like child labor, forced labor or unsafe working conditions. The community-building portion of this concept encourages sourcing from suppliers that contribute to local economies, support small businesses, or include minority-owned, women-owned businesses.
Governance:
The governance arm of ESG-driven practices aims to reduce fraud and ensure ethical behavior between the buying organization and its suppliers.
Clear policies with measurable compliance criteria are critical to the execution of this priority. Tracking and reporting procurement activities and supplier performance is key to ensuring transparency and accountability. With this in mind, it is also important to require suppliers adhere to anti-corruption practices and ensure procurement processes are free from any conflicts of interest.
Suppliers must also meet relevant industry standards and regulatory requirements, which can include environmental regulations, safety standards and quality specifications.
Strategies for the Implementation of ESG in Procurement
ESG criteria must be incorporated into the supplier selection process, with new supplier evaluation frameworks that include ESG as a core tenant of operation. Technology can be leveraged to report on ESG criteria to better manage risks and monitor performance more effectively. Advanced analytics and AI can provide insight into supplier performance and identify areas for improvement.
To best cultivate an ESG-centric culture within the organization, procurement teams must be educated on the various evaluation factors and understand how to effectively integrate them into daily decision-making. Procurement professionals must work closely with their vendors to ensure ESG performance improvement, in the hopes that these positive process changes lead to better innovation that benefits both the buyer and supplier.
It is also important to establish clear policies that define the company’s expectations regarding ESG in procurement. These policies should be regularly updated to reflect new regulations and market conditions.
Procure with purpose is an emerging philosophy, central to operating in today’s increasingly complex supply chains. This mindset will drive operations to incorporate practices that reach far beyond the impact to the bottom line and address a holistic view of operational impact whose success is measured by a growing number of data points.
