In the rapidly evolving corporate sustainability landscape, the spotlight is intensifying on green procurement practices. Let’s try to understand how to leverage sustainability metrics and ESG company performance to evaluate suppliers.
Regulations, such as the Corporate Sustainability Reporting Directive, and the Carbon Border Adjustment Mechanism, are reshaping the procurement strategies of companies worldwide, making it imperative to delve deeper into the environmental impacts of their supply chains to comply with disclosure requirements and avoid carbon taxation.
As governments and regulatory bodies amplify their demands for comprehensive emissions reporting and transparency, businesses find themselves at a critical juncture where they are compelled to scrutinize not only their direct and indirect impacts but also those entwined within their suppliers' operations.
In this context, a common challenge faced by Chief Procurement Officers (CPOs) is the integration of ESG metrics into the organization's sourcing core to assess Scope 3 emissions, which represent approximately 70% of total emissions.
Organization’s ESG performance assessment
When it comes to green procurement, grasping the impacts of the value chain is a pivotal step for organizations, which requires a structured approach.
The first step of the process requires an assessment of the ESG performance in order to identify the material themes internal and external to the organization, considering both their financial and sustainability (environmental – social - governance) impacts.
Once the performance and the value chain are mapped, the organization needs to weave these ESG considerations into its broader business strategy, setting clear, measurable, and ambitious goals.
In this phase, choosing a suitable ESG reporting framework, such as GRI or SASB, is critical to guide the measurement and reporting efforts of both the organization and the other stakeholders involved.
Establishing robust ESG governance and defining clear roles, responsibilities, and procedures for ESG implementation is also crucial. Lastly, efficient data collection methods must be employed to gather accurate ESG data, leveraging internal and external sources.
The role of Suppliers
The transformation of procurement from mere transactional relationships to comprehensive business strategies underscores the importance of viewing suppliers as strategic partners.
With Scope 3 emissions representing the majority of an organization’s footprint, a paradigm shift involving the integration of ESG metrics and policies into the standard supplier selection and procurement processes is necessary.
From an environmental perspective, suppliers are assessed based on their carbon footprint, waste management practices, and resource efficiency, ensuring that they adhere to stringent environmental standards and contribute to the reduction of the overall environmental impact of the supply chain. This involves scrutinizing the suppliers' operations for energy consumption, emissions, water usage, and the sustainability of the materials they use, promoting practices such as recycling, renewable energy usage, and conservation of natural resources.
Social criteria delve into the suppliers' labour practices, community engagement, and human rights adherence, ensuring that they uphold fair labour practices, contribute positively to their communities, and respect human rights. This aspect of ESG emphasizes the importance of ethical labour practices, diversity and inclusion, and the welfare of workers within the supply chain, aligning suppliers' operations with broader societal values.
Governance criteria focus on suppliers' ethical conduct and transparency, assessing their compliance with laws and regulations, anti-corruption policies, and the integrity of their business practices. This dimension of ESG ensures that suppliers operate with accountability and transparency, fostering trust and reliability within the procurement process.
Conclusion
As we have been able to understand, green procurement transcends compliance and risk mitigation; it embodies a strategic avenue for innovation, competitive differentiation, and value creation.
With such a marvellous journey, achieving sustainable procurement will require a concerted effort from all stakeholders involved, and understanding and monitoring suppliers' ESG performance will play a significant role in this game.
