In his latest Dollars & Sense column, Paul Rogers FCIPS shares his opinion on ESG and procurement.
At the end of February 2025, the European Union proudly announced that it had saved businesses A$10.7 billion through the release of an ‘Omnibus’ package of revisions to its ESG sustainability reporting. The proposed changes remove 80 percent of companies from the scope of its Corporate Sustainability Reporting Directive (CSRD).
Why should procurement practitioners in Australia and New Zealand care? There are three answers to that question, I believe.
Firstly, because EU laws don’t just apply to EU companies but to any company that wants to sell their goods and services in the European Union. So many companies we deal with will be impacted.
Secondly, because the ‘saving’ is not actually a saving. It is the EU’s estimate of how much compliance with their own sustainability reporting regulations would have cost businesses. So, more like a cost avoidance really, at best.
The political-ESG complex
But it is the third reason that is the most compelling. It is the latest in a series of initiatives rolling back ESG and DEI initiatives that seem to have come thick and fast in 2025.
It was the USA President Dwight D. Eisenhower who warned “we must guard against the acquisition of unwarranted influence, whether sought or unsought, by the military-industrial complex.”
There can be no question that there is a political-ESG complex, I think, and if you want to know more, just look at the voices raised condemning the rollback of ESG and DEI initiatives, whether in the EU, in the United States or here in Australia and New Zealand.
Fair to who?
Is it fair that politicians and un-elected bureaucrats require by law that businesses add A$10.7 billion to their costs in the first place?
Remember that the overwhelming majority of businesses are small and only a tiny minority of multinationals with large numbers of middle managers can devote whole departments to ESG tracking and reporting.
Imagine if you had to track and report not just on your first tier suppliers, but on your suppliers’ suppliers. How would you do that? How much time would it take?
If your job involves tracking and reporting on ESG, you are likely to see this as a good thing, but most of us do not work in the political-ESG complex and our response to the removal of the burden of reporting on our extended supply base depends on our beliefs, values and attitudes. So we can’t give a definitive answer one way or another.
What we can say is that there appears to be significant changes happening that are affecting ESG, and they are happening all at once and everywhere.
In respect of the ‘E’ for environment, Net Zero targets are being quietly relaxed. In respect of the ‘S’ for social, DEI programs are being shut down or ‘refocused’, and the ‘G’ of governance is suffering because one of the key weaknesses of ESG is the absence of universal standards.
It was Bob Dylan who wrote the line, “You don’t need a weatherman to know which way the wind blows” and even Mr Magoo could see that ESG is in retreat on every single front.
The root causes of ESG’s lack of sustainability
I find it ironic that ESG initiatives have proven themselves not to be sustainable. Here are three root causes which help to explain what is happening:
1. Lack of Standardisation: There is no consensus about ESG metrics and reporting frameworks. This makes it challenging to compare ESG performance across companies consistently. As an example, the EU’s sustainability metrics do not align with the United Nations Sustainability Development Goals.
2. ‘Greenwashing’: Companies overstate their ESG achievements to attract socially responsible investors without making substantial changes to their practices.
3. Subjectivity and Data Quality: The subjective nature of ESG criteria and the reliance on self-reported data can raise questions about the quality and reliability of ESG ratings and assessments.
Let’s look at some examples to bring this to life.
The UK Post Office and Fujitsu’s ‘Horizon’ solution
Mr Bates vs. The Post Office is a TV drama exploring the scandal involving a software solution provided to the UK Post Office by Fujitsu. The accounting solution (named ‘Horizon’) was defective but, before this was discovered, more than 900 sub-postmasters were convicted of theft, fraud and false accounting based on faulty Horizon data between 1999 and 2015.
Public awareness that Fujitsu might be responsible for the accounting errors began in 2024, but both the Post Office and Fujitsu knew about the problems much earlier, starting in 1999.
Would you be surprised to learn that in 2024, Fujitsu was selected as one of the top five percent scoring companies in the Sustainability Yearbook by Standard & Poors Global?
“S&P Global annually evaluates the sustainability efforts of the world’s leading companies by scoring them on a total of 100 points from governance & economic, environmental and social dimensions based on its corporate sustainability assessment, and selects the top 15 percent of the top-rated companies in each industry for inclusion in the Sustainability Yearbook.”
The point is that immediately after it became public knowledge that Fujitsu’s solution was the cause of what has been described as “the greatest miscarriage of justice in British history,” Fujitsu’s ESG score decreased from the high nineties to nothing.
So, if the ESG score is a lagging indicator, what use is it as an indicator for investors about the sustainability of a company?
Another example is the ‘Bud Light’ debacle. Anheuser-Busch InBev lost over $27 billion in value following the controversy and their US market share was reduced by half, but the trigger for this catastrophe was an attempt to demonstrate the company’s diversity and inclusion.
What score do you think shareholders would give the company for sustainability?
What this means for you
1. When designing ESG initiatives, remember that priorities may be transient but costs endure. If you impose obligations on your suppliers to do certain things or to avoid doing other things and report on their progress, you are increasing their costs. They may comply and their costs will increase, but ultimately so will yours. Every time a company creates an ESG coordinator, they also create a workspace, equip them with tools of the trade, develop policies and processes, and set up systems to report on progress. A layer of cost is added that will endure long after the client’s appetite for the data has waned.
2. Imagine a supplier has 200 customers. Of these, 160 customers request some sort of ESG commitment as part of the required value proposition from their suppliers. We’ll say that 80 percent of the ESG obligations are common across customers, such as reducing carbon footprint, engaging Indigenous employees and sourcing locally. That leaves 32 customers who require something non-standard. It may be better to ‘back-fit’ your ESG priorities to what industry is already delivering rather than engineer unique requirements that are specific to your organisation.
3. If a supplier claims that six percent of their workforce are people with a disability and five percent of their workforce identify as Indigenous, how do you know that is true? Could you imagine turning up unannounced on site for a surprise audit? How would that work out? And if your response is that you don’t have the resources or the means to check this data, at what point do you reflect that if you don’t then it’s entirely possible that neither does the supplier.
Perhaps metrics and reporting should focus on what is provably true and commitments that cannot be verified should be recorded as aspirations rather than achievements?
