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An acronym first used by the investment community that has since become mainstream, ESG stands for environmental, social and governance. Defined as a set of standards for company operations, ESG represents risks and opportunities that will impact a company’s ability to create long-term value.
Some of those key risks and opportunities include climate change and resource scarcity; diversity, equity and inclusion (DEI); safety issues and data security; and board diversity, executive pay and tax transparency, according to PwC. Of increasing importance to companies, their shareholders and other stakeholders, ESG helps those entities measure a company’s value outside of its current financial position by taking into consideration the factors listed above.
Procurement’s Role in ESG
Procurement is playing an important role in companies’ ESG plans and progress. For example, when buyers champion supplier diversity, they not only positively impact corporate revenues but they also contribute to their communities. “Customers are increasingly keen to purchase products or services from brands they perceive to be committed to diversity and inclusion,” OliverWyman points out. “Sourcing from diverse suppliers also creates jobs in much-needed areas, which is another driver of social change.”
In another example of procurement’s role in successful ESG programs, Coupa’s Odemi Pessu says one of the best ways a company can signal that it cares and is dedicated to creating positive change is by reassessing how it allocates its resources.
“Both customers and internal stakeholders are recognizing the importance of business spend decisions,” Pessu writes. “Customers want to know if a company they support is actually putting its money where its mouth is.”
Embed ESG Values in the Business
So, what goes into a good ESG program? This is a question that more corporate leaders are asking themselves as their companies are pressured to meet (or exceed) their customers’ environmental, social and governance expectations. In How to Leverage Strengths When Building an ESG Program, Crowe’s Natasha Stokes outlines the key points and policies that should go into an ESG plan.
It starts with appointing a leader and a team to lay out and ensure that the company’s actions align with the established ESG guidelines. In other words, put someone in charge of the initiative; don’t just set it and forget it. “Companies can maximize the skills their workforces already possess by appointing a team of specialists from different departments to tackle ESG,” Stokes writes. “In addition, an overall leader can take accountability for the ESG team, steering its journey to advance the business with ESG goals in mind.”
Be sure to include cross-functional expertise on that team, knowing that ESG isn’t a straight line or a single goal. Legal, supply chain, procurement, risk and compliance, and IT should all be onboard and involved with the program. After reviewing any current ESG-related policies for their current value and worth, the team should assess new targets and decide which of them may translate into competitive advantage.
“Some ESG issues make more of a difference in certain industries and to particular companies. Zeroing in on relevant issues can yield financial benefits,” Stokes writes. “It also helps engage employees, who might then be more likely to embed ESG values in the business.”
Measure What Matters
In Forbes’ “Five Keys to Building a Successful ESG Program,” Catherine Hernandez-Blades tells companies to remember who their audience is when developing ESG programs, knowing that the public and media are as critical as the analyst and investor communities. She advocates for making programming and disclosures part of the plan and urges companies to determine—via dialogues with executive leaders—exactly what ESG success will look like.
“Complete an internal assessment of what the company can deliver from both a programming and reporting perspective,” Hernandez-Blades advises. “Conduct a gap analysis so that new programming and different means of disclosing can be developed as part of the assessment.” Make sure your ESG reporting is consistent and that your strategy is data-based. “Be authentic, implement flawlessly and measure what matters,” she adds.
