Given that procurement budgets are expected to remain tight in 2022, any sustainability program must be as cost-efficient as they are effective.
Building on recent momentum generated by the 2021 United Nations Climate Change Conference, or COP26, corporate environmental, social and corporate governance (ESG) initiatives will continue to be in the spotlight.
And evidence from the Hackett Group shows supporting corporate sustainability goals is a top agenda item for procurement.
In fact, The Hackett’s Group’s Key Issues Study, following engagement with procurement executives in the US and Europe, said sustainability appeared in procurement’s top 10 issues for the first time ever.
Meeting environmental, social and corporate governance (ESG) compliance objectives has become a critical element of procurement’s value proposition.
On the other hand, organizations that want to do more than just meet internal KPIs find themselves in challenging and uncertain territory.
According to Hackett, in research authored by Mélani Flores and Laura Gibbons, procurement is being asked to support three categories of corporate sustainability:
- economic development
- social well-being
- and environmental protection.
By 2023, 92% of enterprises expect to have sustainable procurement programs in each category. There’s a long road ahead if companies are going to meet their projections in this area.
Hackett research states currently 40% of sustainable procurement strategies are clearly aligned with the enterprise’s corporate social responsibility (CSR) or ESG strategy.
Furthermore, 33% of procurement organisations don’t even have a formal program.
Sustainability: Good for the bottom line
Hackett states the value proposition of sustainability is good for the bottom line.
“While many business leaders seem to think that sustainability efforts hamper business activity, quite the opposite is true,” Hackett says.
“Top performing sustainable procurement programs actually generate more than three times the spend cost reduction and avoidance than typical companies.”
Hackett suggests it might be easier for procurement professionals to convince company management to get behind procurement sustainability initiatives if understood it does not hurt the bottom line.
“Based on a set of indicators (including productivity levels, adoption of best practices and value generated for the company), top-performing sustainable procurement programs create strategies that enable both increased spend savings and delivery of sustainability-related targets,” said Hackett.
Compliance is the top reason that companies develop sustainable procurement strategies, followed by reduced risk. More than half cite brand value as the main objective.
Big businesses around the world have launched major, multi-billion-dollar ESG initiatives which aim to improve their performance on a wide range of environmental, social and governance metrics.
The move for ESG regulation is gaining momentum to curb “greenwashing” where a company carries eco-friendly, green or sustainable branding when it is not the case.
In the UK, the Competition and Markets Authority (CMA) has published a Green Claims Code which took effect from January 2022.
The code ensures all financial institutions’ environmental statements are not misleading in accordance with six principles based on existing consumer law. The CMA found 40% of businesses could have false green claims.
Under the code green claims must:
- be truthful and accurate
- be clear and unambiguous
- not omit or hide important information
- only make fair and meaningful comparisons
- consider the full life cycle of the product
- be substantiated.
How to prepare your organisation
To ready your organisation for long-term success, Hackett says policies should be updated across the procurement lifecycle and data collection and reporting processes are up to par.
Top performers were found to assess and audit their suppliers for sustainability compliance.
But before companies and their procurement organisations can align on sustainability objectives, they must first agree on goals such as:
- Ability to track key metrics
- Ensure an efficient process with limited resources
For those focusing on risk mitigation:
- Compliance with regulations
- Proactive identification of potential risk events
- Avoidance of bad press.
For those seeking a competitive advantage:
- Secure product and technology innovations
- Collaborate within the supply chain ecosystem
- Differentiate products and services