Procurement will be key to accelerating environmental, societal, and governance (ESG) strategies, according to research.
A report by consultancy Oliver Wyman said while organisations may be diligent in minimising their own ESG footprint, when taking suppliers into consideration, this could be between two and eleven times larger than that of their internal operation.
The procurement function’s comprehensive overview of corporate ecosystems, including internal structures, suppliers, assets, and customers, enables it to select and support partnerships, structures, and relationships that best support a company’s ESG agenda, the report said.
CPOs must assume leadership for ESG at the executive table if organisations are serious about carrying out their ESG policies, it recommended.
The report outlined 12 actions CPOs needed to take to successfully drive integrated ESG throughout the organisation:
1. Convert ESG-related company ambitions into strategic procurement objectives
2. Build a robust baseline
3. Revisit category strategies and supply base
4. Embark, engage and innovate with your suppliers
5. Be explicit on your goals and pledge to suppliers
6. Team up with partners to share ESG-related best practices and innovations
7. Champion change internally across all business functions and initiatives
8. Accelerate change externally through the entire ecosystem
9. Reinvent procurement performance monitoring towards ESG-adjusted total cost of ownership and environmental profit & loss
10. Embed sustainability in core procurement processes
11. Upskill teams to better engage suppliers
12. Embed ESG in procurement data and digital asset strategy
In a study of CPOs at the top 300 companies across the US, Europe, and Asia Pacific, Oliver Wyman found more than half had not yet reached a supplier engagement level of 60%, meaning half their spend in direct procurement categories was not tracked from an ESG perspective. For indirect categories, such as services, the figure was 40%.
The consultancy said this highlighted an urgent need for organisations to take a more proactive and methodical approach to understand the ESG activities of suppliers.
“The procurement function is central to ESG,” the report concluded. “The function’s unique ability to connect with stakeholders and create coalitions across the entire supply chain and beyond gives it both the power and the influence to drive integrated sustainability throughout the business system.
“Yet this won’t happen on its own. An action plan is needed to lay out exactly how procurement will get to its chosen destination, one that turns good intentions into a series of measurable metrics and milestones. Achieving this will require long-term vision, commitment, and discipline.”
☛ Want to stay up to date with the news? Sign up to our daily bulletin.