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Placing ESG Top of the Procurement Agenda

Source to Contract

“People, Profit and Planet” – the new mantra for our professional community.

There is no question about it. Environmental, social and governance (ESG) have moved up the agenda for procurement professionals. And they are very well placed to make a positive contribution, being the ones in charge of deciding where organizations spend their money.

Rob Alexander, a well-known and respected figure in the sourcing, supply chain and procurement community, and until recently Chief Procurement Officer with global real estate and investment management firm JLL, spoke of his passion about ESG and sustainability during a recent webinar hosted by JAGGAER in the Nordic region.

The Sustainable Procurement Pledge (SPP) is a movement that has been specifically set up to take action on the prevention of harmful exploitation of nature and human beings, reverse environmental pollution, and fight social inequality and injustice. And it’s looking to bring together procurement professionals on the global basis and has 5,000 members at the moment across 142 countries to join forces to solve problems around these issues.

Since November 2020 Rob has served as SPP Ambassador.

ESG is now very much on the agenda, it’s on the company agenda, it’s now on our agenda. And now we’ve got to do something about it

Rob recognizes, however, that while many in the procurement community have the best intentions, they often find it difficult to know where to start. This is something new for us. It is all very well for organizations to pursue their own ESG goals, but procurement is looking at the world beyond, often across an extended supply chain.

“The challenge is, is how do you take something that is theoretical and embed it into your supply chain, which is very real? And then how do you get your first-tier supply chain partners to embed it in the second, third and fourth tiers? And then as a responsible company, how do you ensure they are doing what they have undertaken to do? How do you monitor that performance in the supply chain? Those are the types of challenges procurement faces.

“The time for talking is over. We need to work out ways to ensure that organizations throughout that supply chain are complying with our beliefs and our purpose as well as the demands of European legislation now and in future,” Rob added.

There is a growing consensus that ESG has accelerated the shift in the way procurement sees itself and is perceived by others. The emphasis has moved away from negotiating the lowest price to negotiating the best value, and this includes environmental and social value, as well as best value in terms of results on the financial balance sheet. And although the shift in emphasis is pronounced, it is not absolute. Hence “People, Planet, Profit “is the new mantra.

Profit is actually a key driver, but the way procurement views profit is changing, too. Recent consumer and retail insights surveys have shown a marked shift of attitudes. People want brands to make informed ethical and sustainable choices. For example, a recent PwC survey found that half of consumers surveyed globally said they have become more eco-friendly in the past six months, while 62% of home workers say they buy from companies that are conscious of and supportive of protecting the environment.

The good news is that a consequence is that procurement is now regarded as contributing to business success not just by reducing costs but also by adding value. Consumer choice will impact financial performance, and this is a very powerful argument for C-level interest in the new approach to procurement.

Data and technology to support change

Georg Rösch, VP Product Management at JAGGAER, argued that data will be critically important in measuring (and communicating) performance on issues such as carbon footprint and supplier diversity; data that must be carefully managed. “You need to capture this information and you need to keep it accurate, because much of it becomes outdated quite quickly. Technology is now available to help you not only manage supplier-related ESG data in real time but also to embed this into your complete procurement lifecycle and monitor your progress on sustainability and supplier diversity and inclusion.”

Georg also pointed out that increasingly this is shared data between supplies and customers – and the data is voluminous, so while the technology does exist there are many governance challenges around access and security. However, these issues must be faced, not least because both the regulatory environment and consumers demand it.

“This year Germany brought in a new supply chain law, which gives courts the power to impose substantial fines on companies that knowingly allow or fail to report unethical practices in their supply chains.

“But again, even if the law did not exist, consumer pressure would force companies to ensure ethical behavior in their supply chains. If you don’t do this, your competitors probably will, and their brands will have a stronger commercial appeal as a result.

“So it is clear that when we talk about people, planet and profit the whole is greater than the sum of the three parts.”

New skill sets are needed

For Rob Alexander and the Sustainable Procurement Pledge the message is clear: the leaders of any organization’s procurement team needs to be very proactive about establishing a supply chain that is fully aligned with the organization’s own ESG agenda.

“Now how do you do that? The team needs to understand sustainability, social impact, compliance, supplier diversity and other ESG agenda items. But procurement leaders also need to be great change managers; they’ve got to challenge suppliers to do some fundamentally different things over the coming years. The team needs to develop a new skill set,” Rob said.

These are largely soft skills, for example helping suppliers and partners to help themselves through coaching and gentle persuasion, together with the ability to connect with people from diverse and under-privileged backgrounds, rather than just doing deals with your own peer group.

“I would expect CPOs will be looking to recruit such skills more and more in future,” Rob concluded.

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