Environmental, social, and governance (ESG) continues to be a priority for many industries. Nearly all S&P 500 companies in the US are required to release ESG reports, for example, and the majority of consumers believe that large companies should actively shape ESG best practices. In response, more organisations are prioritising and assessing their environmental impacts and sustainability efforts.
The smart ones are then sharpening their focus on issues like reducing greenhouse gas (GHG) emissions, managing corporate governance and ensuring high levels of data privacy and security.
Companies are also under pressure from employees, business partners, and entire local communities to ‘do better’ when it comes to business practices related to a broad range of sustainability and ethical factors.
Karis Peterson, Sustainability Specialist at DigiKey, sheds light on how procurement professionals can get started on ESG initiatives and the benefits they can provide.
“There’s a growing expectation that business should be ‘doing something’ in the area of sustainability,” Peterson says. In some cases, those expectations are becoming customer and/or business partner mandates to ‘put X program in place by this date’ or ‘implement this strategy within this specified period of time’.
Thinking beyond compliance
Regulatory compliance also factors into the ESG equation, where governments worldwide are introducing new legislation related to ESG and sustainability.
For example, the US Securities and Exchange Commission (SEC) recently adopted rules mandating that public companies report climate-related disclosures. Around the same time, the European Commission’s Corporate Sustainability Due Diligence Directive went into effect last year. The latter requires organisations to identify and mitigate environmental and human rights risks within their global supply chains.
Thinking beyond compliance, Peterson says companies are factoring in a broader scope of requirements and also looking at ESG as an area of opportunity.
“When you start adopting ESG strategies and operating more sustainably, you quickly learn that it’s not just about compliance,” Peterson says. “You’re also opening up numerous growth opportunities within your company and contributing to the development of innovative solutions for your entire industry.”
First steps and the long game
Peterson says securing leadership buy-in is a good first step for any company that wants to get started on the right track with ESG and the benefits that it can provide. However, this also requires a lot of upfront planning and some long-term thinking, knowing that the positive results won’t just happen overnight.
Put simply, ESG is a long game that produces many rewards along the way, and it’s definitely not a ‘set it and forget it’ exercise.
“The good news is that small steps can make a world of difference,” states Peterson, who suggests starting with a resource management project focused on energy efficiency or a waste reduction initiative focused on the supply chain. Regularly review performance on those projects and tweak them accordingly (such as setting new targets, adjusting strategies, putting new people in charge, etc.), understanding that the ultimate goal should always be continuous improvement.
If a full-company effort is an unrealistic goal for procurement teams, consider focusing your initiatives on a single department or team first. Once you implement some actions and strategies and begin to see positive business results, you can make a more substantial business case for an ESG initiative to be expanded more broadly across the company.
“Engage with employees, customers and suppliers to find out what they have to say about your efforts,” Peterson recommends. “Then, tailor your programmes to align with your company’s own mission, strategies and goals.”
The role of procurement teams
Procurement teams can play an important role in their company’s ESG efforts, right down to choosing the suppliers that the organisation works with and buys from. An organisation that’s focused on using more renewable or eco-friendly products, for example, can lean on its procurement team to help discern which available suppliers share their values on the ESG and sustainability front.
Finally, be sure to factor your own customers’ expectations into your ESG efforts, knowing that their principles should guide your thinking in this area. And don’t forget to collect and monitor the related data and have it handy for suppliers and stakeholders to review upon request. If, for example, your company has reduced the number of miles that its trucks travel or the amount of packaging it uses for its final products, be ready to prove those points.
Having that data available will also help your company assess and improve its own ESG strategies.
Peterson says: “The collection, monitoring, and measuring of the data gives organisations a chance to identify where they can even further reduce their carbon footprints and where they can set even more ESG produces many rewards along the way, and it’s definitely not a ‘set it and forget it’ exercise.
“The good news is that small steps can make a world of difference,” states Peterson, who suggests starting with a resource management project focused on energy efficiency or a waste reduction initiative focused on the supply chain. Regularly review performance on those projects and tweak them accordingly (such as setting new targets, adjusting strategies, putting new people in charge, etc.), understanding that the ultimate goal should always be continuous improvement.
If a full-company effort is an unrealistic goal for procurement teams, consider focusing your initiatives on a single department or team first. Once you implement some actions and strategies and begin to see positive business results, you can make a more substantial business case for an ESG initiative to be expanded more broadly across the company.
“Engage with employees, customers and suppliers to find out what they have to say about your efforts,” Peterson recommends. “Then, tailor your programmes to align with your company’s own mission, strategies and goals.”
The role of procurement teams
Procurement teams can play an important role in their company’s ESG efforts, right down to choosing the suppliers that the organisation works with and buys from. An organisation that’s focused on using more renewable or eco-friendly products, for example, can lean on its procurement team to help discern which available suppliers share their values on the ESG and sustainability front.
Finally, be sure to factor your own customers’ expectations into your ESG related objectives and targets.”
By adopting and continuously updating a company’s ESG strategy, procurement professionals can create tangible value and drive business success while also doing their part to make the world and environment a better place.
DigiKey is both a leader and continuous innovator in the high service distribution of electronic components and automation products worldwide, providing more than 15.9 million components from over 3,000 quality name-brand manufacturers.
This article originally appeared in the March/April issue of Procurement Pro.
