Why are sustainable procurement processes so important?
The fate of the world is in the hands of procurement teams, as it's up to them to develop sustainable procurement processes.
Research by McKinsey & Company shows that two-thirds of the average company’s ESG (environment, social, and governance) footprint lies with suppliers. So it's up to procurement leaders to make the difference when it comes to sustainability in many organisations. But the challenge is often that the data needed to make informed decisions is scattered around the organisation or isn’t available at all. And furthermore, sourcing a product or service from a supplier who is non-compliant with legislation can have moral, legal, and financial consequences. With World Earth Day having taken place on 22 April, now's the time to face these challenges. In this blog, we look at steps that procurement leaders can take to deliver more sustainable procurement processes.
What are the key ESG considerations?
It's a common acronym in business and investment circles, but it's important to remember exactly what is involved in ESG. Taking each strand in turn, it's obvious that environmental criteria focus on sustainability. This encompasses everything from a commitment to recycling and waste management through to using green energy sources and reducing carbon impact. But it can be difficult to build up an accurate picture, especially when it comes to indirect (Scope 3) carbon emissions. According to a McKinsey survey of 20 CPOs at large European companies, 70 per cent of the sample said their organisations didn’t understand where Scope 3 emissions were generated in their value chain.
Social and governance measures can at first seem even more difficult to pin down. Demonstrating social value stretches from supporting philanthropic work to grassroots community development. But in many instances, social and governance considerations go hand in hand. It can be a question of determining whether a supplier has a robust attitude when it comes to framing fundamental policies and embedding them in their everyday processes.
How procurement can underline the importance of ESG
Procurement teams have a decisive role to play in shaping an organisation’s ESG footprint. But many procurement leaders have difficulty identifying how to raise ESG topics with senior leadership teams. There are many different criteria, qualifications, and metrics. And indeed, it can be difficult to know what ESG targets to set to make a procurement process more sustainable.
There are some key messages on ESG criteria that can cut through to boards and senior management. Of course, there's the element of pleasing shareholders, investors, and customers alike. In some instances, it'll be about calculating the overall carbon emissions across a value chain. But in other cases, there can be legal and financial consequences for dealing with suppliers who are not compliant with certain legislation. For instance, it's the procurement team's responsibility to check that a supplier has framed and implemented a suitable anti-slavery policy.
Canopy delivers a more sustainable procurement process
With the Canopy supplier management platform, it's certainly easier to evaluate and ensure compliance. Two features stand out when it comes to facing the challenges we outlined in the first paragraph. First, the vendor master record provides a single repository for all the ESG data that a procurement team needs. For instance, you can hold documentary confirmation that the supplier has an active anti-slavery policy and can provide recent evidence of its implementation. Or you can include any published calculations on carbon impact and other environmental measures. And by setting a review date, you can keep all the information current and fresh.
Secondly, Canopy can prompt compliance across the procurement process. The platform can place a block on non-compliant suppliers until they have brought themselves back in line with legislation. And of course, as the onus is on the supplier to update their profile on the platform, it's in their best interests to keep their ESG data up-to-date. Not only will this safeguard the procurement team's organisation from falling foul of legislation. But given the sustainability angle, it can help to secure improve our environment too. It's no exaggeration to say that the future is in the hands of procurement.
To find out how you can achieve a more sustainable procurement process using Canopy, our award-winning supplier management platform, contact one of the team today.
Post by Nick Verkroost
Nick is an experienced business leader and the COO for Canopy (OCG Software), the rules-based Supplier Management platform. Nick's focus is on commercial and operational excellence and ensuring our clients maximise the opportunities that Canopy offers.