Top Strategies for Procurement to Drive ESG

Achieving ESG goals is today a top priority for many enterprises.

However, only a few of them have a clear, well-defined plan to realize these goals.

For many others, ESG goals merely remain on paper, and there isn’t even a clear action plan.

Yet, procurement teams are ideally positioned to drive ESG goals within an enterprise. That’s because they work closely with suppliers and monitor supplier spend.

In this article, we discuss specific ways in which procurement teams can promote ESG.

Identify Key Focus Areas

As the enterprise may be working with thousands of suppliers, the first and foremost task for procurement is to define areas of key focus. This involves identifying hotspots in the value and supply chain and suppliers that have the highest impact on ESG.

Narrowing down the search to identify suppliers with the highest impact on ESG may at first seem to be a daunting task.

However, this can be done by conducting a risk-mapping assessment of the supply chain. Procurement can leverage the insights generated during such an assessment and combine them with spend and other data to determine the target suppliers.

Procurement can also conduct spend-to-emissions mapping to identify spend areas that have higher levels of emissions. This can again help to identify target suppliers.

Define KPIs

Once the target suppliers are identified, the next step is to define the key performance indicators. Procurement must work closely with suppliers to define, measure and report performance against these indicators. Setting up KPIs will not only help to track and evaluate performance, but it will also generate insights on how to improve.

Additionally, KPIs can also be integrated with current procurement processes. For instance, sustainability scores can be embedded into the RFx process as a weighted criterion.

Incentivize Suppliers

To encourage suppliers to work actively toward ESG goals, procurement must provide incentives in some form.

A whitepaper from GEP and EcoVadis -- How Procurement Can Drive ESG Goals for the Enterprise -- lists useful strategies that can help procurement incentivize suppliers.

• Consistently engage with suppliers and emphasize the importance of sustainability in procurement decisions.
• Include KPIs in the contract and tie fees and penalties around supplier score improvement goals.
• Reward progress through improved payment terms and co-branding.

The above-mentioned strategies are likely to work well with most of your suppliers.

However, some suppliers may have just started their ESG journey and may not be familiar with its goals. They are likely to need additional support to improve their ESG performance.

Procurement teams must be prepared to work closely with such suppliers. They can deploy the below strategies:

• Conduct workshops and training on ESG goals such as supply chain decarbonization and ethical labor practices.
• Provide free audits and expert guidance on areas such as energy and carbon emission.
• Institute policies that encourage transparency and incentivize collaboration on ESG outcomes.
• Build long-term relationships with suppliers and address specific barriers that impede progress on ESG.

Periodic Review and Feedback

No matter what strategy your procurement organization adopts to work with suppliers, there is always scope for improvement.

To this end, procurement must periodically evaluate supplier performance against set KPIs. Discuss the results, revise the targets if needed, and offer suggestions for improvement. Identify specific problems that may be hindering their performance.

In the entire exercise, changing suppliers should be the last option as this can be costly and impact business operations. The focus should be on working closely with existing suppliers and improving their ESG performance.