Spotlight on ESG: What does sustainable procurement look like in 2022?

Thursday, 17 February 2022 17:52

Spotlight on ESG: What does sustainable procurement look like in 2022?

By Sanjay Kadkol, Technical Account Director at Jaggaer

GUEST OPINION: The topic of ESG has never been more in the spotlight. As shareholders, investors, customers, and the public increasingly hold organisations to a higher standard of accountability, companies have a responsibility to create a more sustainable and resilient future for the next generation.

Over the last few years environmental, social and governance (ESG) issues have started to rise to the top of the corporate agenda. From climate change and human rights to social and racial injustice, the heightened focus on ESG presents numerous challenges but also opportunities for companies to set new standards that will help contribute to better futures.

Procurement is emerging as one of the most critical areas of focus for ESG, especially as the scale and complexity of supply chains grow – not to mention the unprecedented impact the COVID-19 pandemic has had on supply chains across the world. Research from McKinsey shows two thirds of the average company’s ESG footprint lies with its suppliers. Procurement has the opportunity – and we believe the obligation, to lead the charge when it comes to making ESG a critical priority in 2022 and beyond.

At JAGGAER, procurement with purpose comes down to the Triple Bottom-Line: planet, people and profit. Balancing all these threads is undeniably challenging, but it’s the responsibility of procurement to ensure that we’re maximising value across the supply chain while also building a better tomorrow.

Planet

With as much as 90% of emissions coming from the supply chain, procurement has a vital role to play in combating climate change and the environmental impact of production. Supply chain emissions are on average, more than eleven times higher than operational emissions so navigating climate targets particularly when it comes to Scope 3 emissions is one of the greatest challenges facing organisations today.

The Australian Government recently released their Long Term Emissions Reduction Plan to deliver net zero emissions by 2050, focusing on driving down technology costs and accelerating their deployment at scale across the economy.
Making commitments to reach net-zero targets isn’t possible without purposeful engagement and collaboration across the supply chain. Many suppliers are still very much in their infancy when it comes to capturing and reporting ESG metrics like carbon emissions. Larger organisations especially, have an important role to play in helping suppliers establish benchmarks for documenting and reporting these kinds of metrics. This gives greater visibility to buyers and can help drive innovation across the supplier ecosystem to create sustainable, long-term solutions to reduce harmful environmental impacts.

People

Executing any sustainability or ESG strategy starts with making it a critical business priority, not only in the C-Suite but across the entire organisation. Both customers and prospective employees are increasingly seeking out companies that demonstrate they exists for a wider purpose, and are saying goodbye to those that don’t align with their values.

Supplier diversity is fundamental to creating sustainable supply chain ecosystems and can lead to a range of tangible benefits – for both suppliers and customers alike. The more diverse your supplier base the more likely you are to see innovation, be able to enter new markets and engage with new customers.

Diversity is also increasingly under the spotlight from a reputational perspective. Social movements like Black Lives Matter for example, have highlighted just how important it is to engage with diverse suppliers, placing pressure on organisations to have a robust and sustainable diversity strategy as a critical part of their procurement function.

Profit

For decades, in some organisations, procurement has been a price-driven exercise focused solely on lowering costs and sometimes sacrificing now important aspects like relationship management in the name of the bottom line. While meeting budgets is still very much important, focusing too much on price comes at a much greater cost in other ways.

With increasing evidence showing the positive relationship with ESG and financial performance, ESG should be a top priority to drive better results across the balance sheet. An important part of procurement with purpose is risk and stakeholder management – two things that have always been top of mind.

Technology as an enabler of ESG

As is true with many industries, technology is key to driving success in procurement, to help organisations meet their ESG goals. Big data and analytics afford a new level of insight to enable procurement professionals to make smarter decisions across all three aspects of ESG. Everything from enhancing supplier selection, predicting risks or a supplier’s carbon footprint and identifying gaps and opportunities to increase efficiencies, technology is fundamental to a sustainable supply chain.  Part of the challenge is finding and applying the right software. A recent JAGGAER survey revealed that 58% of companies are not yet using technology in the pursuit of sustainable procurement. The opportunity for technology to transform procurement and enable organisations to procure with purpose is huge.

This is evidenced by a recent solution JAGGAER implemented for a leading global construction firm with a global footprint, diverse business needs and strict supplier engagement rules with regards to ESG. With the significant changes affecting the construction sector globally, they were facing a challenge to keep up with the ever-changing regulatory environment. They needed a comprehensive, off-the shelf solution that required minimal investment, ease of use while also remaining highly configurable and offering the flexibility to adapt to ongoing changes. The JAGGAER Supplier Management+ module provided all their required features and helped automate the ESG governing process by providing an out of the box integration with third party data sources as well as an intuitive interface for the suppliers to collaborate with the buyers.

About JAGGAER: Procurement Simplified

We drive customer value for buyers and sellers through our global connected network served by offices located in the Americas, APAC, Asia and EMEA. JAGGAER develops and provides comprehensive source-to-settle SaaS-based solutions, including advanced Spend Analytics, Category Management, Supplier Management, Sourcing, Contracts, eProcurement, Invoicing, Supply Chain Management and Inventory Management. These all reside on a single platform, JAGGAER ONE. JAGGAER has pioneered spend management solutions for more than 25 years and continues to lead the innovation curve by listening to customers and stakeholders in all industry sectors, public services and academia. For more information, visit www.jaggaer.com.

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