Integrating ESG Principles into Procurement: A Path to Sustainable Success

Note: This article was first published in the Environment Day Special e-magazine (https://online.fliphtml5.com/xcbnj/vxbb/#p=1), released in June 2024 by Progressive Professional Forum, PPF Kuwait.

In this article, you will discover the significance of ESG in businesses, understand what it means, and why the procurement function must focus on it.

What does ESG Mean?

ESG stands for Environmental, Social, and Governance.

Environmental (E) covers issues on climate change, pollution, carbon emissions and footprint, deforestation, and more. Social (S) covers health and safety, human rights, diversity, equality, and community impact. Governance (G) deals with business ethics, including board composition, executive compensation, accounting and auditing, bribery, and corruption.

ESG is not new; it is a more measurable evolution of Corporate Social Responsibility (CSR).

How Significant is ESG?

Over the last decade, the principle of being socially responsible towards the environment and society has taken center stage for businesses worldwide. While expansion, profit, efficiency, and quality are the factors primarily companies focus on, they grasp that operating within the confines of social responsibility is equally important.

Embracing ESG principles isn't just noble; it's a strategic imperative. Investors, customers, and regulators increasingly scrutinize companies' ESG performance, influencing investment decisions and market competitiveness.

Employees are demanding greater accountability and responsibility. More importantly, businesses realize that ESG integration leads to long-term sustainability and competitiveness.

For small and medium businesses, embracing ESG opens doors to funding opportunities and expands their market reach because financial institutions and investors favor ESG-focused businesses.

Why Does Procurement Need an ESG Model?

Accountability towards Environmental, Social, and Governance factors in procurement is rapidly increasing among companies. For reasons clarified previously, in today's business landscape, integrating ESG principles into business operations is no longer a mere trend but a necessity.

And every aspect of ESG addresses a specific purpose that procurement professionals must focus on.

Environmental concerns have always been perceived as sentimental, which is why businesses have failed to comply with regulations and protect the environment. There is a damaging impact on our environment when we waste resources, excessively use energy and other similar factors.

To overcome the challenges, you face with environmental concerns, regulatory authorities have implemented certain restrictions within which businesses must operate. The Environmental aspects of ESG are legal obligations that companies must operate within.

As a procurement professional, you must approach this matter with the utmost seriousness, ensuring minimal to no wastage of resources and that the materials are sourced from suppliers who abide by environmental regulations.

Another aspect you can monitor, and control is the frequency at which materials are being sourced. Planning at this stage needs to be effective enough for you to ensure that the transportation of materials from suppliers is reduced to an optimal level. When you engage in the unplanned or unnecessary movement of materials, you contribute to increasing pollution levels.

A Socially (S) responsible approach comprises various aspects concerning society at large. From human rights inclusion to the diversity of the workforce and more, every component of human involvement is covered under the element of social responsibility. And within procurement, from ensuring a diverse team of professionals to maintaining ethical labor practices, this application of social responsibility is important.

Procurement directly impacts the community you serve. For instance, as a procurement professional, it is your responsibility to source the right quality material required for production to ensure that the final product is of the promised quality.

Maintaining transparency in operations, being accountable for your actions, and abiding by the regulations and laws stated by authorities are important to achieve excellent Governance (G) practices in procurement.

Why should Procurement focus on ESG?

ESG in procurement isn't just about compliance; it's about fostering a culture of responsibility and resilience.

Incorporating ESG criteria into your supplier selection, evaluation, and performance monitoring can mitigate risks, enhance reputation, and create long-term value.

In procurement, ESG implementation means transforming operations to ensure that the activities carried out are within ethical practices while reducing environmental impact.

When you build a procurement model that operates within the confines of ESG, ensuring no or reduced environmental impact, prompt social responsibility, and governance, then you will end up implementing a sustainable strategy. And your company will largely benefit from this initiative.

Environmentally, sustainable procurement involves sourcing materials and products with a minimal carbon footprint, reducing waste generation, and promoting energy efficiency throughout the supply chain.

Socially responsible procurement entails fair labor practices, respect for human rights, and diversity and inclusion initiatives, ensuring the well-being of workers and communities.

Governance-focused procurement emphasizes transparency, ethical business conduct, and adherence to regulations, safeguarding against corruption and misconduct.

Implementing ESG in procurement requires collaboration across departments, supplier engagement, and leveraging data and technology for informed decision-making. It's about forging partnerships with suppliers who share our commitment to sustainability and driving innovation towards eco-friendly solutions.

By aligning procurement practices with ESG goals, you not only mitigate risks but also unlock new business opportunities, enhance brand loyalty, and contribute to a more sustainable future.

In conclusion, ESG integration in procurement isn't a choice; it's a strategic imperative for driving sustainable growth and fostering resilience in an ever-changing world. As procurement leaders, you need to champion ESG principles, not just as a corporate mandate but as a moral obligation to future generations and our planet.

Let me know your thoughts.

(Views expressed are personal.)