Companies are facing a considerable increase in standardized environmental, sustainability and governance (ESG) disclosure rules and standards across multiple jurisdictions.
“This growing kaleidoscope of obligations means companies will face increasing demands for high quality data disclosure not just from stakeholders but regulators,” law firm Skadden cautions. “Indeed, as regulators globally seek to accelerate the adoption of increasingly complex and comprehensive ESG disclosure rules, companies and auditors alike will need to ensure they are prepared to respond to new compliance regimes.”
In the U.S., for example, the SEC is working on its final rules on climate change disclosure applicable to U.S.-registered public companies about greenhouse gas (GHG) emissions (including Scope 1 and Scope 2 disclosures); certain financial statement disclosures; and qualitative and governance disclosures within its registration statements and annual reports, like the Form 10-K, according to Deloitte.
Also in the U.S., certain companies operating in California will now have to prepare climate-related financial reports on a biennial basis, beginning in January 2026. The new rule stems from the California Global Warming Solutions Act of 2006, which requires California’s Air Resources Board to adopt regulations “to require the reporting and verification of statewide greenhouse gas (GHG) emissions.”
Meanwhile, across the Atlantic, the European Parliament approved its report on the proposed Corporate Sustainability Due Diligence Directive (CSDDD). According to Skadden, the CSDDD intends to harmonize rules across EU member states; it would apply to EU companies with more than 250 employees and worldwide turnover exceeding €40 million.
These are just a few of the regulations that are either currently being finalized or have already been approved and put in place. Faced with pressure from regulations and investors, as well as changing consumer preferences, companies are striving to reduce their environmental footprint.
“For many businesses, the procurement and supply chain process is at the forefront of carbon emissions reduction,” electronic components distributor WIN SOURCE points out. “When the procurement department selects suppliers, it’s no longer solely based on factors such as quality, price, and delivery time but also on the supplier's social responsibility performance.”
Procurement Steps up to the Sustainability Plate
Sustainable supply chain solutions are essential for staying competitive in the post-pandemic era, where risks and volatility are both impacting corporate strategies. Supply chains, and particularly in pivotal areas like procurement, are becoming strategic assets that lead the way. Here are six ways procurement can help create more sustainable supply chains:
- Shift traditional procurement mindsets. Procurement practices should be based on the principle of “lowest total cost” rather than solely pursuing the “lowest purchase price.” A proper procurement mindset is the primary key to determining whether a company can control procurement costs scientifically and reasonably, while also fulfilling its social responsibility for sustainable development.
- Optimize supplier onboarding processes with sustainability in mind. Incorporate sustainability criteria into the procurement process when making purchasing decisions. This includes selecting suppliers with environmentally friendly practices, the use of sustainable materials and a strong commitment to social responsibility.
- Hold suppliers accountable to their own sustainability commitments. Seek certifications and labels that indicate a supplier's commitment to sustainability, such as Fair Trade, organic certification or ISO 14001. For example, WIN SOURCE is certified with ISO 14001 environmental standards and, as such, can meet its customers’ manufacturing requirements for sustainability.
- Implement digital management systems. Sustainable development initiatives are empowered by digital technology. This primarily involves two aspects: enterprise-side digital systems (i.e., carbon reduction progress management, carbon emission dashboards and product life cycle assessment data design) and supplier-side digital platforms (i.e., those that track supplier carbon reduction progress, offer carbon reduction suggestions and manage and support carbon emission data systems). “WIN SOURCE has developed a series of smart systems that make our business and sustainability-related data and processes more coordinated and transparent, enhancing the prominence of sustainable development in our overall corporate operations,” a company spokesperson points out.
- Don’t make sustainability a “one-and-done” project. Procurement professionals can contribute to their organization's sustainability initiatives and drive positive changes toward more sustainable and responsible business operations. Through it all, it’s important to remember that sustainability is an ongoing process, and that sustained efforts are crucial for creating lasting impacts.
- Collect and share ESG-related data. This will help the company better understand its performance and provide transparency to stakeholders. It also helps improve the company’s reputation and credibility which, in turn, attracts new investors and customers.
Driving Companies to More Sustainable Futures
The role of the procurement department in ESG and sustainability is critical because it can drive the company toward a more sustainable future. This contributes to enhanced social responsibility, reduced environmental impact and increased competitiveness, along with meeting the investor and consumer demand for sustainability.