Procurement and ESG: Responsible Sourcing for a Better World

For all but the most stubborn, dishonest, or deepest in denial, the effects of manmade climate change are being wrought large all over the planet. From unusually extreme weather in traditionally moderate countries, to flash fires and floods, there are almost daily reports of how this shift in climate is impacting real lives and communities.

However, with large energy companies still holding significant sway through political lobbying and the general unwillingness of world leaders to make significant changes to combat these disasters, we must focus on smaller differences which, while they may not represent the change the planet needs, can offer some small relief.

Procurement is just one sector of business which can choose to focus on environmental, social, and governance issue to make their operation not only more sustainable, but also contribute towards a better world for everyone.

ESG

Of course, when we talk about ESG, we are not only discussing the environment and issues such as climate change.

We are also referring to the way organizations impact the communities around them and the people it employs. Since the global COVID-19 crisis rocked the world – especially procurement and other supply chain sectors – we have seen an increased focus on demanding businesses treat people with more care and respect, with those which refuse to adapt hemorrhaging staff and failing to attract new candidates.

ESG in procurement must therefore take a holistic approach which encompasses the planet, people, and the organization’s need to continue as a profit-making enterprise.

Planet

As with any supply chain-based function, procurement has the ability to significantly affect the organization’s impact on the environment.

One thing the pandemic shone a harsh light on was the fragility of our global just in time supply chains and it is here that procurement teams can make the most impactful changes. By focusing away from cheap overseas suppliers which involve trucks, ships, and aircraft travelling great distances and burning large volumes of harmful fossil fuels in the process, procurement teams would do well to try and focus on suppliers located closer to home.

Simultaneously, more detailed vetting of suppliers is necessary to reduce the carbon footprint of these suppliers. By digging into their ESG credentials, your organization can ensure your organization isn’t indirectly contributing to harmful practices which don’t align with your own corporate position on these issues. For example, you might want to focus on a supplier which is prioritizing the use of electric vehicles or cleaner biofuel, rather than one which continues to focus on traditional carbon-rich fossil fuels.

People

With many organizations experience a talent crisis and struggling to recruit and retain staff, we must revaluate how we treat the people we employ. We are no longer in a position where people are desperate for work, and this is reflected in candidates’ ability to be far more selective when it comes to the companies they are willing to work for.

Procurement needs therefore to focus on create a terrific culture in the workplace and ensure all staff are treated with the fairness, equality, and respect they deserve. Staff belonging to historically and contemporarily oppressed minorities should be considered carefully, and any suggestion of bigotry and inequitable treatment should be stamped out quickly and effectively. A more diverse workforce leads to more diverse thinking, meaning the whole operation can benefit from focusing on these areas.

Extreme political views are also becoming an increasingly salient problem in society and should similarly be carefully monitored. Many people who adhere to extreme ideologies will discuss their views on social media and other public forums and, if their profile on these platforms contains information regarding their employment, it may reflect badly on the organization.

Procurement also needs to attend to the communities which are affected by its operations, both at home and abroad, and make sure sourcing does not contribute to unjust systems in those areas, the breaking down and polluting of them, and leaves them in the same or a better state than they found them.

Profit

Companies also need to make a profit if they are going to continue to have a positive impact on the planet and communities they serve.

Primary stakeholders such as suppliers, investors, employees, and customers are certainly related to this activity and stand to benefit from a successful and profitable organization. However, this category also includes society, the environment, and communities connected to the primary stakeholders, media, and governments which exist in a secondary stakeholder position and are indirectly impacted by, and indirectly influence a company’s ability to turn a profit.

Increasing an organization’s focus on ESG requires a shift in perspective from all these stakeholders which means they should all have a voice and be considered during any planning stages.

Final Thoughts

We need to make procurement more ESG friendly if we are going to create the kind of clean, fair, and equitable world most of us would presumably like to see. With all stakeholders at the table and a firm focus on planet, people, and profit, there is no reason companies cannot continue to be successful whilst simultaneously becoming more ESG responsible.

ESG in procurement is sure to be part of the conversation at ProcureCon Indirect West 2023, being held in February and March at the Hilton San Diego Bayfront, San Diego, CA.

Download the agenda today for more information and insights.