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As the focus on sustainability continues to increase for more organizations, here are five ways procurement can play a role in their organizations’ decarbonization efforts.
Reducing carbon footprints, reversing damage inflicted by greenhouse gas (GHG) emissions and implementing environmental, social and governance (ESG) initiatives impact all corners of an organization. And as more customers, business partners and governments put the responsibility for ESG on the shoulders of individual companies, procurement is in the perfect position to help their organizations achieve their decarbonization goals.
According to Net Zero Tracker, more than one-third (702) of the world’s largest publicly traded companies now have net zero targets, up from one-fifth (417) in December 2020. And while no specific parameters or standards have been set for how these organizations will achieve their net zero goals, at least some of the steps to get there involve the procurement department.
“Participating organizations must look beyond their direct emissions, which boils down to Scope 3, and this applies not just to the manufacturing sector — services, finance, IT, telecoms all have large Scope 3 emission footprints,” KPMG’s Manpreet Singh, said in a recent Spend Matters thought leadership series on sustainability. “So, considering who you buy from, who your suppliers buy from, and all relevant footprints along the supply chain are becoming more and more important.”
5 Strategies to Put Into Action
Here are five ways procurement can start helping their organizations either set or achieve their ESG and net zero goals:
1) Look beyond cost. According to Singe, the CPO has to look further than cost and understand the emissions that went into manufacturing their products or providing their services. “This level of ‘indirect emissions’ reporting is increasingly being demanded by the broader organization,” he says. “So the procurement officer’s role is becoming more difficult: never before have they been asked for this level of reporting, and to do that they need data, and assurance that the data is accurate. This means that procurement is being made responsible for the choice of which supplier to work with, what material to buy, and making that supplier a part of the organization’s net-zero strategy.” Armed with this power, procurement can look beyond product or service cost and deeper into the suppliers’ own operation to learn about those companies’ ESG strategies and how they do (or don’t) align with their own.
2) Get a seat at the top table. Everyone is more informed now about global warming and the need to decarbonize, Singh points out, and consumers want to trust brands, which is largely driven by the ESG movement. “I believe CPOs and supply chain leaders have a real opportunity to use this to innovate the type of products their consumers are looking for, and to retool their supply chains,” he says. “This is why companies really need to be working towards giving the CPO a seat at the table, because making them part of the C-suite, other than just in title, will help them transform in this new direction.”
3) Use technology to your advantage. Asked what technology or capability procurement needs to be able to play a larger and more impactful role in ESG, KPMG’s Toby Yu told Spend Matters that accurate reporting on the supply chain’s current state should be a core focus. “It’s no shock that this is where most of the technology capabilities are focusing and need to continue focusing in order to increase businesses’ ESG visibility and agility,” said Yu, who wants to see more platforms able to integrate third-party data sources directly into the existing user interfaces.
When this happens, ESG can become a part of the standard procurement processes. “Regardless of what platforms people are on, it would also be beneficial to have open-source data to aggregate across platforms,” Yu said. “Finally, peer comparison [can] make what is possible known and embolden companies to push themselves harder towards ESG goals.”
4) Go for some early and easy wins. ESG compliance can be overwhelming, but CPOs and procurement leaders don’t have to address everything all at once. “Instead, they can determine key strategic priorities for ESG based on what makes the most sense for their business, then systematically address them,” Supply & Demand Chain Executive recommends. “Decide where to begin and outline achievable milestones to reach along the way. Pick focus areas where ‘easy wins’ look attainable.”
5) Start with your supply chain. According to SupplyChain247, supply chain emissions are on average 5.5 times as high as a corporation’s direct emissions. As a good starting point, IBM says CPOs can work closely with chief sustainability officers, corporate environmental affairs teams, legal teams and all other functions responsible for setting and communicating sustainability goals. “Being able to set sustainability goals should be a direct result of having a well-defined materiality assessment,” it adds, “from which key performance indicators (KPIs) and metrics can be set, and the corresponding goals established.”
