ESG (environmental, social, and governance) metrics are gaining popularity as a barometer to hold companies accountable for their sustainability efforts.
By Edna Eason, MD: operations at Accenture in Africa
Tracking carbon emissions, addressing human rights risks such as zero child labour in the organisation’s supply chain, and understanding the circularity of materials used throughout the supply chain are just a few examples of critical insights that shareholders, regulators and even employees are deeply concerned with.
However, there seems to be a disconnect as to who in the C-Suite is driving the sustainability agenda. A recent Accenture and HFS Research (HFS) study of 350 enterprise leaders, including Chief Procurement Officers (CPOs), showed that half of leaders outside procurement see this as a top three procurement priority, but few procurement leaders are in agreement. And its further complicated by many procurement teams indicating that they lack the strategy, expertise, tools, and incentives to achieve their organisation’s sustainability goals.
The time has come for procurement to take the lead in driving sustainability across businesses. Procurement teams now manage about 90% of an organisation’s ESG risk, making this once-“back-office” function business critical to enable an organisation’s sustainability strategy.
In South Africa, there is a strong precedent in the “S” of ESG, where procurement has taken a significant role in driving the B-BBEE agenda through targeted supply chain spend and requirements placed on vendors.
The disconnect between CEOs and their organisations
Our research revealed 60% of CEOs recognise the importance of sustainability but significantly overestimate their organisation’s ability to implement these practices throughout the business. At the same time, only 27% of organisations see their CEO or board supporting sustainability, with only 12% indicating that they see CEOs or boards leading the effort. To effect real change, executives must visibly champion a credible sustainability journey at all levels of the organisation.
The ESG metrics you choose should align to your business strategy, and be simple but good enough to help you make better decisions for ongoing adjustments to your trajectory along that journey. The good news is that enabling technologies such as cloud, AI, and predictive analytics already exist to increase transparency of these metrics, inform your decisions and enable you to embed sustainability across your business.
Critical steps to sustainability through procurement: measured is managed
The first step is clear and active C-Suite sponsorship on the topic, and empowering procurement to drive the effort. Next, you will need to bring transparency to current benchmarks and goals, and robust governance around the organisation’s sustainability effort – these are processes which South African procurement leaders are very familiar with from B-BBEE frameworks which have been put in place.
Many organisations begin their journey toward sustainability by measuring, reporting on and reducing emissions, which are classified into three types. Scope one emissions are direct greenhouse gas (GHG) from combustion at your own facilities and fleet in your day-to-day operations. Scope two includes indirect GHG emissions from the generation of electricity consumed by your company.
Scope three emissions are indirect emissions from up- and down-stream supply chains, and usually account for the majority of emissions. Procurement organisations can actively partner with their suppliers to start this flow of data and reporting. Procurement teams must evaluate suppliers from an ESG standpoint and consider how they support the organisation’s ESG goals. For example, teams may investigate whether suppliers purchase renewable energy, invest in electric vehicles, or use recyclable materials. Weighted sustainability scores can then be used as a procurement criterion.
Reframe the organisation through the ESG lens
Another critical step is ‘green skilling’ staff to consider all dimensions of the business from a sustainability perspective. Consider training teams to understand the nuances of supply chain sustainability, the value of supplier diversity, and how to identify opportunities for, and trade-offs of, sustainability improvements.
For example, could switching to recyclable materials require engineering or product design teams to test performance, usability or the customer experience?
Could switching from daytime to nighttime cleaning crews assist sustainability, and would it require input from the facilities team? How do remote working decisions or e-learning opportunities correlate with companies’ sustainability agendas, by reducing commutes and inter-city travel?
Most importantly – start somewhere, start now, and build momentum
There has never been a more pressing need to turn ambition into action. Organisations incorporating sustainability into their DNA can gain a competitive advantage by becoming more efficient, transparent, and profitable with future-ready workforces and operations. Take the first steps toward a more responsible, sustainable future by leveraging procurement and your supply chain to influence and manage your ESG impact.