Collaboration Is Paramount to Implementing Effective ESG Programs
February 11, 2022 |
The C2FO Team
A successful environmental, social and governance (ESG) strategy should encompass your entire supply chain, including external partners, such as your suppliers, and internal ones, like your treasury and procurement departments.
No matter where a company is on its ESG journey, an ethos of collaboration can help it reach its environmental and sustainability goals faster. It all starts with building and nurturing effective partnerships with internal departments, suppliers and other stakeholders.
Recently, Colin Sharp, C2FO’s senior vice president of international, hosted a quarterly environmental, social and governance (ESG) working group roundtable with several global thought leaders in the treasury and procurement space, including Stefano Fasani, head of procurement innovation at Italy’s Eni energy company.
During the discussion, participants identified three best practices for using collaboration to accelerate ESG initiatives.
Companies lead through collaboration
A heavy focus on collaboration within an organization helps ESG initiatives get set in motion and see success.
“Collaboration is a very important part because most organizations struggle less with the setup of great systems, great products and great financing,” one attendee said. “It’s more about the operation’s day-to-day. How do you get sustainability on the ground across all silos?”
One tactic to try: Many successful companies embed the core values of commitment to environmental and social issues into their mission and vision statements.
It’s important for all areas of a corporate’s business to be hyperaware of its impact on the environment and view ESG as a business imperative and an opportunity for the company rather than a hindrance. When these priorities are championed and led by a company's board and executive team, with clear messages from the top, then they are likely to be accepted by all the departments within the company.
For example, by enhancing material effectiveness through reuse and recycling and using renewable feedstock, a chemical company can invest heavily in better economic and environmental outcomes while harnessing the many benefits of plastic packaging.
At all stages of production and product creation, there must be a line of sight of the product’s life cycle. Successful and sustainable companies cannot let a product be used and then think, “What do you do now with recycling?” There must already be a plan in place for recycling with less complexity in the materials, easier recyclability and easier reuse.
Companies incentivize collaboration
ESG initiatives and reporting have historically been slow-moving, but they have gained speed over the last 10 years. As evidence grows that ESG has financial implications, so, too, does interest from corporations and governments worldwide.
At the end of the day, global companies have realised they need to work with suppliers and support those that are showing clear, sustainable ESG-friendly behaviors. And one of the possibilities is to incentivize via the financing side that collaboration with those counterparties in the network that exhibit the behaviors they want.
Smart corporates are turning to dynamic discounting from C2FO in order to provide a reduced rate for capital, a positive incentive for suppliers to adopt ESG practices, and the working capital needed to make changes faster.
A lot of good ideas around sustainable financing often come from just talking to various departments. What do they need in terms of payment term impact, shorter payment terms for the suppliers or longer payment terms for the customers? Talking to colleagues is often the quickest way to see whether you can establish a key performance indicator (KPI) framework that meets different departments’ needs and that accounts for the interdependencies between them.
When looking for sustainable solutions, the treasury team may not be the first group to come to mind. Without partnering with a department like treasury and knowing its cash positioning, though, one might be missing out on innovative practices like an early payment program for suppliers.
Sharp notes that rewarding suppliers for their ESG performance by giving them access to more flexible payment and cheaper financing is certainly helping to drive these initiatives forward.
“From a finance perspective, access to capital markets will dry up if you do not take action around ESG,” he said. “Eighty percent of the ESG impact is in the supply chain, and that's where we need to bring procurement and finance together to deliver on these targets.”
Companies leverage and share technology for ESG goals
Technology has a key role in driving collaboration and implementing a successful sustainability strategy, especially when it comes to information-sharing.
ESG programs rely on reporting to ensure that progress is being made toward goals, but the reporting process can be burdensome. That’s especially true for small to mid-sized enterprises (SMEs) that may not have the internal resources to support reporting but are required to do so by regulators or the enterprise partners in their supply chains.
The good news is that new platforms are being developed that serve as a single access point for companies to share their ESG data.
At the beginning of 2021, Eni launched Open-es, a digital platform for sharing data on the sustainability of supply chains, in partnership with Boston Consulting Group (BCG) and Google Cloud.
Open-es is an innovative, inclusive and open tool for all companies engaged in the energy transition process that intend to grow and improve their economic performance by following sustainability principles and collaborating with companies along production chains. Companies ranging from SMEs to large corporations are invited to participate.
One of the key differentiators from other platforms is that Eni has made it free to use for all participants, removing barriers to adoptions and allowing the sharing of best practices. It can help with three main goals companies have for collaborating with their suppliers on the topic of ESG and sustainability development:
Improving ESG data collection and performance measurement, especially for SMEs.
Moving away from supplier evaluations and questionnaires with an increased focus on the support and development of sustainability of all suppliers.
Considering Scope Three greenhouse gas emission goals and driving transparency in analysis throughout the entire supply chain.
Technology can create an alliance of industry leaders, open to all companies, supply chain leaders and sectors that support the sustainable development of the value chain.
Platforms like Open-es are designed to be a single access point for companies to share their ESG data, with a flexible approach suitable for SMEs, related to the most standard metrics in the market.
The bottom line
To ensure the success of their ESG programs, companies should communicate their sustainability goals to all areas of their organizations and make these initiatives a priority for internal and external partners. That commitment should go beyond lip service, too. Smart corporates will provide payment incentives to ESG-friendly suppliers and make it easy to share reporting through technology platforms.