Environmental, social, and governance – or ESG for short – is a hot topic. In fact, it has been a hot topic for some time now. But lately it’s been getting even hotter. And there are a number of reasons for that. There’s a climate crisis unfolding, which has highlighted the urgency for all, including businesses, to do more to avoid a global disaster. Also, ESG makes good business sense all round. A McKinsey survey shows that top ESG performers achieve 10-20% faster growth and valuations than other players in the same sectors.
Starbucks is a good example of valuation growth based on commitment to ESG. Over a 10-year period, the company grew its share price by 1,252%. Top ESG performers also have lower costs, because they focus on operational efficiency and waste reduction.
In this interview on the SupplyChainBrain YouTube Channel, NorthFind Management CEO, Jonathon Karelse, explains that both the general public and shareholders have become more interested in ESG. Since the topic has captured their imagination, executive boards are paying attention to it as well.
On average, two thirds of a company’s ESG footprint is in the supply chain. So, there is little doubt that Procurement has a massive role to play when it comes to improving ESG performance. But what practical steps can Procurement actually take, given limited resources and competing priorities?
Corporate ESG aspirations
The first thing to do is have a look at what the company, as a whole, is trying to achieve with respect to ESG. How does ESG feature in the corporate strategy? What are the goals and aspirations? What policies are in place? What are the management preferences with respect to ESG? Is ESG part of the corporate culture?
Procurement’s role
It’s Procurement’s job to both help meet those corporate aspirations, as well as to challenge them. Procurement leaders know what needs to get done to improve ESG throughout the supply chain. Visibility, for one, is needed. In fact, according to a recent EY study supply chain visibility is the top priority for supply chain leaders now, and in the future. Often ESG performance of tier 1 suppliers is understood, whereas what goes on further upstream in the supply chain (n-tier suppliers) is rather opaque. This makes improving supply chain ESG performance in a transformational way both complex and time consuming.
One step at a time
But rather than being paralysed by the enormity of the task, Procurement leaders should adopt a stepwise approach to show progress now, while also creating a vision for the future.
Klaids Lafon de Ribeyrolles, Vice President of Indirect Procurement at Schneider Electric, spoke about this topic in relation to emissions when he was interviewed by Iain Campbell-McKenna on the “Procurement in 5-minutes” podcast. His advice was not to wait for the perfect way to measure reduction of emission in n-tier suppliers, or design the perfect system or process. That would take years. Accept it’s not going to be perfect. The important thing is to start doing something about it sooner rather than later. “Set an ambitious goal and then build and fine tune as you go”, says Klaids.
That’s a sensible approach of getting initial traction with ESG. It allows Procurement to develop a fact-based longer-term plan. It also puts Procurement in a good position to influence ESG aspects of corporate strategy and advocate for more resources to allow Procurement to go even further with ESG.
How is your organisation handling ESG? What are your successes? And what are your top challenges?
