Dreamstime Images
Dreamstime L 120871298 5ecd6b3e1a631

The CPO’s Role in Environmental, Social and Governance

May 26, 2020
In this Q&A, ISM CEO Tom Derry explains the basics of ESG and outlines the critical role that procurement plays in this important metric.

In this Q&A, ISM CEO Tom Derry explains the basics of ESG and outlines the critical role that procurement plays in this important metric.

An organization that prides itself in being on the cutting edge of emerging trends, the Institute of Supply Management (ISM) has been pretty busy lately as it—like many other industry associations—looks for ways to help its members and the business community as a whole manage supply chain disruptions and other COVID-related challenges.

One area of particular interest right now is known as “Environmental, Social and Governance” (ESG), the three factors used to measure the sustainability and societal impact of an investment in a company or business.

Environmental criteria consider how a company performs as a steward of nature; social criteria examine how it manages relationships with employees, suppliers, customers and the communities where it operates; and governance deals with a company’s leadership, executive pay, audits, internal controls and shareholder rights.

Here, ISM CEO Tom Derry discusses the basics of ESG and explains the important role that CPOs play in their companies’ sustainability efforts in a world that’s demanding more of it.

Q: What role is ESG playing in the business world right now?

A: ESG is important because it’s what many Wall Street investors are using to value firms right now. CPOs usually end up owning most of the ESG agenda within their companies. Whether it’s an event within the supply chain; an indication of how environmentally friendly or socially responsible suppliers are; or the sustainability of sourcing practices, when something goes awry and there’s a problem in your supply chain, it always ends up on the CPO’s desk.

Q: Why is the CPO at the center of the ESG conversation?

A: If a CPO is responsible—through leading his or her teams—for orchestrating the entire ecosystem that a company needs to be successful, then that makes the person a critical link of dependence on all these outside firms. It also makes the CPO the focal point for either preventing issues from happening in the first place or managing the problems if and when they do arise. 

Q: What is ISM doing to help CPOs manage ESG-related demands?

A: We offer executive education that involves the leading academics in the field—people who are creating audit standards around ESG and Wall Street professionals who are measuring firms based on this developing appreciation of how leading firms work. We’ll continue to provide these types of insight going forward because, increasingly, the CPO is leading the charge on ESG.

Q:  How can procurement get up to speed on ESG?

A:  There’s a lot to understand about how their own businesses operate and how they procure goods. Its not about the lowest price or “three bids and a buy.” It’s about understanding the risk profile of the firm that the buyer is dealing with. For example, are their risks associated with the culture you’re working in that you don't appreciate, coming from an American or North American, Western European or Latin American point of view? And, what is the environmental footprint of the industry you’re dealing with? What potential risks can we anticipate and how can we measure those risks?

Q: What’s ahead when it comes to ESG and procurement?

A:  The CPO ultimately is going to be responsible for ESG because the consumer insists on it more than anyone else. My youngest child, for example, questions whether she “trusts” the company even before she’ll place an order for haircare products. This consumer-led push toward sustainability is a shift that’s going to continue. People want to know whether or not they can trust the companies they do business with. If it turns out they can’t, then they’ll find someone else to buy from. The CPO owns that agenda.

About the Author

Bridget McCrea | Contributing Writer | Supply Chain Connect

Bridget McCrea is a freelance writer who covers business and technology for various publications.

Voice your opinion!

To join the conversation, and become an exclusive member of Supply Chain Connect, create an account today!