August 25, 2022 3 Steps to Ensure Procurement Drives ESG Goals Forward

As companies work to achieve lofty and complicated ESG goals, executives must reevaluate their procurement operations.

By Kristin Ruehle

Once a back-office function, procurement is now advancing toward the forefront of sustainability strategy. So much so, a new report from Accenture reveals that half of company leaders surveyed see procurement as a priority means of meeting ESG goals. The study also found that 90% of organizations’ sustainability risks come from their suppliers – which means executives who reevaluate their procurement strategies with a focus on sustainability today will find great opportunity to drive change and get ahead.

Many company leaders recognize this opportunity, as 60% of CEOs reported understanding the need to reevaluate supplier sourcing practices to hit sustainability goals. Despite this acknowledgment, however, the majority of leaders also significantly overestimate their organizations’ abilities to adopt the procurement practices necessary to drive change.

How to Improve Existing Procurement Models to Meet ESG Goals

Achieving ESG goals today and in the future will require a companywide understanding of suppliers’ impact on sustainability across the supply chain and how sourcing strategies must advance to meet goals. As the report highlights, the biggest opportunities to make procurement changes with recognizable sustainability impact today include how companies travel, plan logistics and use energy in their interactions with one another. Companies can reevaluate procurement with the following steps to improve each of these areas and advance ESG initiatives:

1. Diversify external partners through an ESG lens: Shifting the procurement mindset to focus on small or local suppliers you may be overlooking is an important place to start. Such suppliers tend to be more agile and quicker in delivering innovative solutions to new problems. When demand surged for disinfecting products during the pandemic, for example, minority-owned hair product formulators and manufacturers pivoted quickly to use their resources and expertise to produce hand sanitizers and multi-purpose cleaners.
   
   Adding more suppliers to your consideration pool can also increase the competition for contracts, which will in turn spur more innovative ideas and competitive prices. As you shift your procurement strategy to engage new suppliers, be sure to avoid overly restrictive contractual specifics — such as excess insurance, long payment terms or risk requirements — that smaller companies may not be capable of meeting.
   
   Along with improvements in agility and innovation for your company, opening up your options to more diverse suppliers, especially local ones, can also help limit travel and lower your carbon footprint while leading to greater corporate social responsibility impact. Prioritizing smaller, historically overlooked businesses can contribute to job creation and economic growth in those communities. As you search for such partners from an ESG perspective, seek those who readily share information about how they’re prioritizing reducing their environmental impact.
   
   
2. Capture and harness valuable data: Data is a vital tool for vetting suppliers and demonstrating your return on investment to key stakeholders. Look for suppliers who measure and report their sustainability achievements so you can determine which will best drive toward your specific ESG goals.
   
   After making data-informed decisions regarding your supplier network, the next step is identifying the information you must gather and analyze to represent your organization’s overall sustainability progress. Consider that scope 3 emissions and social risks include your upstream and downstream supply chains (and tend to be the highest emissions) — this means you must factor supplier sustainability data into your data collection strategy to get an accurate view and audit trail. Fortunately, the technology to collect, organize and analyze the data you need across your supply chain already exists.
   
   Enable tools like predictive analytics, artificial intelligence and the cloud to enact an effective data collection strategy. Then, you will have all the proof at your fingertips to show your return on investment in diverse suppliers and maintain stakeholder support toward your goals.
   
   
3. Invest in training that reflects ESG goals: The “Sourcing a Sustainable Future” report shows that nearly 70% of executives track and monitor progress toward measurable sustainability goals, but only 34% of employees perceive these goals as “realistic.” And one of the top four challenges for companies to meet their ESG goals was the perception that “sustainability exists in a silo” within companies.
   
   Employees throughout an organization must understand how their actions can meaningfully and realistically contribute to achieving sustainability objectives. Establish thorough and specific training for each department to outline how the company plans to meet ESG goals and the role each employee will play in the process.
   
   The mindset shift required for more sustainable procurement must take place companywide, as changes in supplier sourcing can easily impact multiple departments. Consider, for example, that a company brings on a new packaging supplier. If the company’s production equipment was previously set up for non-recyclable materials, technicians and engineers may need to adjust the production line to handle the new supplies. Position these trainings as upskilling or reskilling opportunities for employees. To support sustainability goals long-term, training your workforce should go beyond teaching new skills and ultimately aim to grow employees’ careers as your company’s ESG goals grow.

While the primary motivation for sustainability is creating a better planet now and for future generations, companies have a lot to gain in terms of growth and profits from successful ESG initiatives. As a recent Accenture study in collaboration with the World Economic Forum reported, EBITDA and sustainability performance were both 21% higher for the top companies researched than for the bottom ones. Realizing the financial value and environmental impact of ESG initiatives will require thoroughly and strategically shifting the procurement mindset and addressing methods accordingly.

Kristin Ruehle is a managing director who leads the procurement offering for Accenture Operations. Drawing from nearly two decades of procurement experience, Ruehle manages teams around the world that apply advanced technologies and expertise to help companies create digital procurement operations and achieve specific goals.

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