Why Procurement Should Spearhead ESG Data Management

ESG and sustainability programs have today become a vital part of business operations. But how are businesses progressing in these programs? Are they able to access and analyze data to measure progress? 

ESG monitoring requires careful collection and analysis of data on different metrics. 

Given the scope of an organization’s supply chain, any ESG goal — whether reducing emissions or eliminating unethical labor practices — hinges on collaboration with suppliers. 

Here is where many businesses are facing bottlenecks.

What are these bottlenecks in data collection and reporting? Are businesses getting enough support from their suppliers, partners and other stakeholders in the supply chain?

While answers may vary for different businesses, one thing is clear. Businesses that are involving the right internal teams as well as external partners in this endeavor are making steady progress.

The right internal team that can work closely with suppliers, collect data related to emissions, carbon footprint and other ESG metrics and apprise different stakeholders about their progress is procurement. 

Here’s why procurement teams are essential to advancing ESG goals and how they can lead the charge in data-driven sustainability.

Why Procurement is Key to ESG Data Collection and Management

Many businesses today have comprehensive ESG programs with well-defined responsibilities for internal teams. 

However, more than internal teams, these programs need greater collaboration with external stakeholders in the supply chain, says Raghu Ekambaram, senior director of consulting at GEP. This is where the role of procurement becomes vital.

Procurement sits at the intersection of a business and its supply chain, managing crucial relationships with suppliers across different regions. This unique position gives them clear visibility into environmental and social impacts embedded in the supply chain — from raw material sourcing to manufacturing practices and logistics.

Procurement can gather data at the category and supplier levels to identify ESG risks and opportunities across the supply chain. It can play a vital role in collecting and vetting ESG data in many of its routine operations.

1. Supplier due diligence

Procurement selects and approves new suppliers, making this an ideal point to incorporate ESG requirements and data collection.

2. Contract management

When finalizing contracts, procurement can mandate certain ESG performance metrics or reporting standards. Such formal inclusion of ESG metrics in contracts helps suppliers as they understand what’s expected from them. Procurement can again review these metrics at the time of renewing contracts.

3. Supplier performance monitoring

By monitoring supplier performance periodically, procurement can determine if suppliers are making progress on ESG goals. It can even share ESG performance data with suppliers and discuss areas of improvement.

How Procurement Can Drive ESG Data Management

1. Translate goals into strategy

At the outset, procurement can translate organizational ESG goals into procurement- and category-specific key performance indicators (KPIs). It can set up KPIs, such as X% spend with local and diverse suppliers, or X% share of recycled materials in manufacturing or packaging, etc. It can identify which ESG factors are most material or relevant to the industry and stakeholders. For instance, a manufacturing company might prioritize emissions and worker safety, while a retailer may focus on labor standards and waste management.

2. Collect supplier ESG data

Procurement can spearhead the collection of ESG-related data from suppliers, such as carbon footprints, water usage, waste management practices, and labor conditions. By establishing standardized frameworks and questionnaires, procurement ensures consistent and reliable data gathering. This data not only helps assess supplier performance but also provides a comprehensive view of the supply chain’s ESG impact. With accurate data, organizations can identify high-risk areas, set benchmarks, and track progress toward sustainability goals.

3. Monitor supplier performance

Procurement can develop ESG-focused supplier scorecards to evaluate and monitor supplier performance. By incorporating Key Performance Indicators (KPIs), such as energy efficiency, renewable energy adoption, diversity in leadership, and ethical sourcing practices, procurement can hold suppliers accountable. These scorecards not only highlight areas for improvement but also incentivize suppliers to align with the organization’s ESG objectives. Over time, this approach fosters a culture of continuous improvement and strengthens the overall sustainability of the supply chain. 

4. Streamline reporting and compliance

Procurement can streamline ESG data reporting by consolidating information from suppliers and internal systems. This ensures compliance with regulatory requirements and supports corporate sustainability disclosures. Procurement must encourage suppliers to share performance data regularly, which can be consolidated into a central ESG dashboard. It can also provide training or resources to suppliers to improve their data reporting capabilities.

5. Engage in continuous improvement

To ensure data accuracy, procurement can periodically audit the ESG data provided by suppliers. It can provide feedback and improvement plans for suppliers and recognize high performers with preferred supplier status or other incentives. Procurement should also review and update the metrics used in evaluations.

Leveraging Technology to Automate Data Collection and Reporting

It’s clear that procurement can play the leading role in ESG programs and data management. To effectively fulfil this role, it must have a mechanism in place to accurately collect and manage ESG data. This is where technology can help.

Procurement can leverage advanced technology to automate ESG data collection and reporting. It can also use technology to convert spend and supplier invoice data into emissions data. This can help to map supply chain emissions and identify key focus areas in the supply chain.

With AI-powered software, procurement can gain end-to-end visibility of the supply chain and even check the implementation of ESG practices in lower-tiered supplier operations.

Also Read: Looking to Lower Supply Chain Emissions? Here’s How to Engage Suppliers to Succeed

Learn how procurement can leverage GEP’s AI-powered source-to-pay software to collect and manage ESG data.