What does ESG look like for your procurement department?

At its core, ESG (Environmental, Social, and Governance) focuses on how the world affects an investment or organisation, while sustainability examines how an organisation or asset impacts the world.

Neat, huh? But below such simplicity is a world of complexity.

GHG (Green House Gases) scope emissions, categorised into Scope 1, 2, and 3, are key metrics in assessing environmental impact and sustainability efforts.

• Scope 1 emissions are direct emissions generated by an organisation's operations, like those from boilers and vehicles.
• Scope 2 emissions are indirect, stemming from purchased energy used for heating and cooling.
• Scope 3 emissions are all other indirect emissions throughout an organisation's value chain, including those from suppliers and product use by customers.

I've summarised the above definitions, carefully, having immersed myself in a fairly detailed article about supplier engagement that studiously did not mention procurement when proposing a 'how to' 'slash' Scope 3 emissions.

This omission (snigger) may have been aiming to broaden the appeal of the article while still addressing key topics like...supplier engagement and sustainable procurement.

Procurement organisations play a crucial role in achieving emissions reductions and meeting the company’s ESG commitments. FACT.

But like with everything, it's the close collaboration with internal business partners that makes Procurement effective.

Although the article didn't mention Procurement specifically, its Procurement's responsibility to connect with suppliers to lead scope 3 target realisation. FACT.

Understanding and managing Scope 1, 2, and 3 emissions is crucial for organisations aiming to reduce their carbon footprint.

While Scope 1 and 2 emissions are more directly within an organisation's control, Scope 3 emissions often make up the majority of their carbon footprint.

Addressing Scope 3 emissions may require collaboration with suppliers and changes to supply chain practices. FACT.

And a clear call for Procurement Leadership. FACT.

For Procurement departments, integrating ESG considerations involves tangible actions and clear responsibilities. (I'll stop with the 'FACT''s here, you'll be pleased to note, but you get the idea).

This responsibility includes assessing supplier sustainability practices, promoting ethical sourcing, and tracking and reporting GHG emissions across the supply chain.

By embedding ESG principles into procurement processes, organisations can drive positive environmental impact and long-term sustainability.

Phew!

What does ESG look like for your procurement department?

Is it just at the conceptual level or does it become something tangible with clear responsibilities?

Here's how it would typically unfold, and I've added in an assumption and a dependency for each workstream:

1. Policy Development:

The Procurement department collaborates with other stakeholders to develop ESG policies that align with the organisation's overall sustainability goals.

These policies outline the principles and objectives guiding sustainable procurement practices.

New policies you say, Steve? I envisage compliance costs, operational changes, tech changes, people changes, reputation management, legal risks, market access and innovation opportunities.

Where do we document the new workflows, SOPs, training modules?

There's seismic change for sure.

There's a full portfolio of ISO standards to get you started, including:

• ISO 14001: Environmental Management Systems (EMS):
• ISO 26000: Guidance on Social Responsibility:
• ISO 45001: Occupational Health and Safety Management Systems:
• ISO 20400: Sustainable Procurement:
• ISO 50001: Energy Management Systems:

Assumption: The procurement department has a thorough understanding of the organisation's sustainability goals and objectives.

Dependency: Collaboration with other stakeholders, such as sustainability teams and executive leadership, to ensure alignment of ESG policies with overall organisational strategy.

2. Supplier Engagement and Evaluation:

Procurement teams are responsible for qualifying and evaluating suppliers based not only on traditional criteria such as cost and quality but also on their adherence to ESG standards.

This involves assessing suppliers' environmental impact, social responsibility initiatives, and governance practices.

In certain instances, Procurement may have its own specialised approach known since the mists of time as Early Buyer Involvement (EBI), where it actively engages in challenging specifications or Statements of Work (SOW).

For instance, advocating for the exploration of offsite construction for prefabricated building components could be one such example.

• Assumption: Procurement teams have access to data and tools for evaluating suppliers' ESG performance.
• Dependency: Integration of ESG criteria into supplier qualification and evaluation processes, which may require cooperation from suppliers to provide relevant information and transparency into their practices.

3. Supply Chain Transparency:

Procurement plays a key role in ensuring transparency throughout the supply chain.

This includes verifying the sustainability credentials of suppliers, promoting ethical sourcing practices, and monitoring compliance with ESG requirements.

• Assumption: Procurement pros (or others in the organisation - CSO and team?) have the expertise to assess and verify suppliers' sustainability credentials.
• Dependency: Implementation of systems and processes to track and monitor supply chain practices, as well as cooperation from suppliers to provide accurate and timely information.

4. Risk Management:

Procurement pros identify and mitigate ESG-related risks within the supply chain.

This may involve assessing the potential environmental, social, and governance risks associated with suppliers and implementing strategies to address them.

• Assumption: Procurement pros have the knowledge and resources to identify and assess ESG-related risks within the supply chain.
• Dependency: Collaboration with other departments, such as risk management and compliance, to develop and implement strategies for mitigating ESG risks effectively.

5. Stakeholder Collaboration:

Procurement collaborates with various internal and external stakeholders, including sustainability teams, regulatory bodies, and non-governmental organisations, to advance ESG initiatives.

This collaboration helps nurture partnerships and knowledge-sharing to enhance sustainability efforts.

• Assumption: Procurement teams have effective communication and relationship-building skills to engage with internal and external stakeholders.
• Dependency: Active participation and cooperation from stakeholders, including sustainability teams, regulatory bodies, and NGOs, to support and advance ESG initiatives.

6. Reporting and Compliance:

Procurement teams are responsible for tracking and reporting on ESG performance metrics.

This includes collecting data on sustainable procurement practices, monitoring progress against targets, and ensuring compliance with relevant regulations and standards.

• Assumption: Procurement departments have established processes for collecting and analysing ESG performance data (Excel?).
• Dependency: Adherence to regulatory requirements and standards for ESG reporting, as well as cooperation from internal stakeholders to provide accurate data and ensure compliance.

Bringing it all together

ESG is complex yet crucial.

GHG scope emissions, including Scopes 1, 2, and 3, assess environmental impact.

Procurement, often overlooked - or shy to advance itself - drives Scope 3 emissions reduction.

Integrating ESG into procurement involves concrete actions: policy development, supplier engagement, risk management, stakeholder collaboration, and reporting.

These actions impact adherence to sustainability goals.

By embedding ESG principles, organisations enhance environmental impact and sustainability.

The question isn't whether ESG belongs in procurement but how to leverage it effectively for a sustainable future.

Your comments welcome - always learning.

Steve

P.S. For more exploration of procurement, sustainability, culture and collaboration, registration details for Map & Territory program, starting online 14 May: https://eur.cvent.me/v1L94

P.P.S In Episode 689 of the Art Of Procurement podcast, here’s me on the world’s #1 procurement podcast talking with Phil Ideson about the Map & Territory program https://artofprocurement.com/trends/episode664/

Bonus: Speakers’ Magazine – a more relaxed way to review the profiles of all the Map & Territory speakers. You can find the link here .

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