ESG

3 Ways Procurement Leaders Can Drive Sustainability in Their Supply Chains

April 7, 2021
Lily Lieberman

Procurement has an important role to play in promoting positive growth and sustainability in supply chains. Below, we examine three best practices.

As businesses around the world continue to ramp up their commitment to Environmental, Social and Governance-related (ESG) practices, procurement teams have been tasked with ensuring a responsible value chain through fair labor practices, minimising their companies’ carbon footprints and much more.

Numerous studies have shown sustainability and revenue growth to be directly proportional. And the old ways of approaching sustainability — mainly through compliance with existing regulations —  won’t get us there. 

In their 2019 Sustainable Procurement Barometer report, EcoVadis and the NYU Stern Center for Business Sustainability found that, while commitment to sustainable procurement has increased by 81% over the past three years, most companies today are still managing programmes from a compliance standpoint.

Despite the emphasis on compliance, organisations that have invested in sustainable procurement are seeing a clear ROI. Fifty-eight percent of respondents say they are better able to mitigate risk through sustainable procurement, and 30% say their programmes contribute to cost reduction, according to EcoVadis. 

Discussing sustainability in supply chains

To drive performance and create long-term impact, procurement organisations will need to set ambitious goals and invest in bold practices to achieve them.

Many procurement organisations are already implementing these practices. 

Intel, Philips and Danone, leaders in global sustainability practices and clients of C2FO, recently gathered at the Procurement Leaders’ Innovation In Positive Growth event to explore how the adoption of sustainability standards can improve the financial health of supply chains.

Their discussion inspired this list of three best practices organisations can implement in 2021 to drive sustainability in the supply chain. 

1.  Collaborate with your internal stakeholders early on to ensure a cohesive and comprehensive approach to your corporate sustainability strategy. 

In the age of “stakeholder capitalism,” business leaders are coming to terms with the intrinsic nature of their own values and mission with that of their employees, customers, suppliers and communities. 

As companies strive to be more socially and environmentally conscious, business leaders must integrate these values throughout every aspect of the organisation.

Tania Dunham, managing director of market innovation for C2FO, said that forward-thinking procurement organisations often are so intent on publicly sending that message that they miss a crucial first step: involving key internal stakeholders. 

“We often find that engaging human resources or marketing is an afterthought,” Dunham said during the Procurement Leaders event. “I would encourage procurement leaders to consider bringing in those teams earlier so that their efforts are in alignment with corporate strategy and they can find opportunities to make those goals known.”

To achieve that cohesive company culture, companies are setting ambitious goals that require a level of collaboration they may not have dealt with before. 

Semiconductor company Intel has made significant investments and set goals to reduce the environmental footprint of its global manufacturing operations. In 2020, the company launched its RISE Strategy (responsible, inclusive, sustainable, and enabled) as a blueprint to scale its corporate sustainability goals. 

“It’s a collaboration with that entire scope of ‘who cares,’” said Adam Schafer, director of supply chain responsibility for Intel Corporation. “What value are you bringing to your customers, investors, suppliers and employees? What are they asking for and where are they addressing risks in your supply chain?”

Schafer emphasised the importance of analysing the needs of each group and meeting those needs based on “who cares, how much, and why.” 

2. Seek technology that supports your sustainability mission.

Every company is a technology company. Your ESG initiatives deserve the same attention and data-driven decision-making that you apply to the rest of your company’s KPIs. 

Katharina Stenholm chairs the board of directors for the Ecosystem Fund at Danone, a programme that co-creates inclusive business solutions to answer local challenges through the professional empowerment of vulnerable stakeholders in Danone’s value chain.

Stenholm said that the pandemic has only heightened the importance of supply chain transparency, as well as the need for procurement to assess and understand that ecosystem. 

“Every CPO and every supply chain person in the world was grateful for any data analytics initiatives their company had undergone before the COVID crisis hit,” Stenholm said. “Because now, all of a sudden, your supply chain was disrupted everywhere — simultaneously. And the more visibility you had, the better off you were.”

Dunham noted C2FO’s unique position as a global technology provider to be a partner in every company’s pursuit of sustainable business success. 

“We are hyper-focused on doing all that we can to architect a financial system that ensures there’s transparency and that there are sustainability levers in place to support the goals of your organisations — especially in challenging times,” she said. “You don’t have to go it alone. Engage your tech partners and see what we can bring to the table.”

Dunham also noted a push from the C-suite to create responsible and sustainable supply chains, even if procurement doesn’t have the technical expertise to deliver on those initiatives.

“The executive level has put many procurement organisations in tight binds because they’ve made many public announcements about very ambitious goals that need to happen near-term — without the necessary resources allocated,” Dunham said. 

To help procurement organisations accomplish these goals, C2FO created the Sustainability Programme, an initiative to integrate ESG performance criteria into working capital finance programmes, allowing global buyers to provide tangible benefits to select, sustainable suppliers. 

Through the programme, organisations can easily identify suppliers that have robust sustainability ratings and provide them with preferred funding.

Before companies publicly set ambitious ESG goals like fair labor practices, Schafer said procurement organisations need to understand where zero-tolerance initiatives come from. 

“We have to look at humanitarian issues in the same way we think about keeping our employees safe in the workplace. We want zero injuries in our building and we want the same level of treatment around humans in our global supply chains,” Schafer said. “Setting bold, audacious goals makes sense when you view it from that risk lens. And they may be beyond what we know how to do or even envision today. ”

Schafer said Intel partners with regulators, competitors and suppliers to achieve multi-faceted sustainability goals. 

3. Support your suppliers and bring them along with you on your sustainability journey.

Colin Sharp, C2FO’s senior vice president for EMEA, said procurement organisations must become more familiar with the social impact of their supply chain in order to work with suppliers on sustainability. 

“The volume of suppliers that procurement teams have to manage has been increasing, especially now that small businesses are seen as the economic growth engine of many companies,” Sharp said. “C2FO’s reputation for supporting the whole supply chain — not just a small number of large suppliers — makes it easy for procurement teams to develop supply chain resilience.”

Marco Baren, head of operational excellence, supplier development and sustainability at Philips,  said that by embracing suppliers and throwing away the “stick,” sustainability can become part of your suppliers’ DNA. 

“We do not need sustainability policing,” Baren said. “We need sustainability doctors.” 

The recent movement to incentivise suppliers rather than audit them has prompted a renewed focus among companies to reevaluate how they contribute to the communities where they operate and serve. 

The supply chain disruptions caused by the pandemic made food security top-of-mind and drove many consumers and businesses to reconnect with food in a more sustainable way, and ask questions about its origins, Stenholm said. 

“Through the purchasing decisions you make, you can actually help the farmer around the corner,” Stenholm said. “But how do we create job opportunities and financially empower these people to be independent players in our value chains? We have to understand where that value is generated and how that value is distributed.” 

Living wage concepts are receiving more attention in the context of ESG, according to Forbes.  Business leaders need to embrace social responsibility as the topics of income equality, and executive and employee compensation, become more prevalent.

Stenholm said Danone is working side-by-side with farmers to ensure the smallest players in the company’s value chain are supported. 

“Danone is really focused on allowing farmers to develop their own small businesses so they can deliver high-quality products to us whilst making more money themselves. We invest one dollar and increase farmer income two to three times without negatively impacting our growth,” Stenholm said. “But these aren’t things you do overnight. They are complex and therefore this is a long-term commitment.”

Liquidity to fund ESG efforts

From C2FO’s perspective, suppliers across the entire value chain are our customers, Dunham said. 

We are here to support them. One of the key tenets of our organisation is to provide the liquidity and working capital that these suppliers rely on to not only grow but also meet any ESG-related regulations required by your company,” Dunham said. “We can help underrepresented suppliers and those striving to meet your corporate ESG standards. C2FO’s tool provides businesses with easy access to preferred working capital rates so that they have the liquidity to meet the goals you’ve set for them.”

Baren said that Philips, a company founded more than a century ago, is intent on positively impacting more than two billion lives per year by 2025.

“The only thing that we want is to see growth,” Baren said. “I’m not interested in the absolute value. I’m only interested in how [these suppliers] grow over time.”

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