Why it’s time for Procurement to drive the enterprise sustainability agenda

Enterprises globally are witnessing significant pressure from their key stakeholders – customers, investors, regulators, communities, employees and their suppliers to push the sustainability agenda forward. GHG emissions is a key sustainability topic that has become an imperative for organizations to take action on. Given that for many organizations almost 70% of their emissions are in their supply chain and more than half of those emissions reside in upstream supply chain implies that procurement functions must play a key role in engaging with suppliers to move the needle.

This also necessitates procurement functions having the right kind of information for their suppliers which is beyond suppliers’ credentials, financial status and capabilities to keep the goods and services flowing. They now need to know the ESG related supplier information as well which has resulted in the increasing focus on the SXM technology area. The SXM technology area has rapidly raised its profile of late, where the “X” variable stands for topics like supplier performance management (SPM), supplier information management (SIM), supplier relationship management (SRM) and supplier risk management

In part 1 of this series we looked at how and where Procurement and the organization’s sustainable agenda intersect, we talked to Heta Ruikka, VP of Product at spend analytics software provider Sievo about how we can create sustainable procurement strategies for a resilient business by expanding on spend data. Then, in part 2, we discussed how we can use procurement analytics to analyze and reduce Scope 3 carbon emissions with Heta Pirttijärvi, Product Manager at Sievo.

Today, we turn our attention to how Procurement can leverage data and analytics to help it not just support but even drive an organization’s sustainability and inclusion agenda.

We talked to Torsten Naue, Strategy Senior Principal and Sustainable Value Chain Capability Development Lead, and Shruti Goel, Senior Manager in Sustainability Strategy and Sustainable Value Chain Go-to-Market Lead in Growth Markets, from professional IT services specialist and consultancy, Accenture.

We asked them:

Why have suppliers become such a focal point for companies pursuing sustainability goals?

Torsten Naue:

“The upstream supply chain has significant impact on both the environmental and social dimensions of sustainability. For most industries, Scope 3 emissions are at least 70% or higher (as a percentage of overall emissions); for the Automotive sector, this figure can be even as high as 99% of overall emissions. The Purchased Goods & Services and Use of Sold Products categories typically create the majority of emissions, and suppliers play a key role in both. It’s most obvious for Purchased Goods & Services and we run decarbonization programs for our clients and their suppliers to tackle a large chunk of CO2e. But suppliers also play a key role in reducing carbon in the use phase of a product, as co-innovators in the product design process, enabling new innovative, less carbon-intense, recyclable/re-useable products.”

Shruti Goel:

“Procurement’s influence, however, goes beyond the environmental dimensions of sustainability. One example is child protection: according to UNICEF and The International Labour Organization (ILO) as at the beginning of 2020 nearly 160 million (!) children worldwide were reported to have been subjected to child labor. Over the 4 years running up to that, the number of children in forced labor increased by 8.4 million. Procurement can reach into the multi-tiers of supply chain networks where these human rights risks and significant potential for social impact exist.”

What type of analytics technology is available to help Procurement and the organization fulfill their ESG goals, how do they need to adopt it to make sustainability successful?

Torsten Naue:

“We can group today’s procurement technology providers that support ESG integration into five market segments. S2P suites typically offer quite basic supplier information management capabilities, with focus on tier-1 suppliers. SXM providers provide a stronger integration of ESG factors (e.g., EcoVadis, Kodiak Hub, TealBook) with a deeper, narrower focus than the suites. We find the strongest integration of ESG criteria by looking at Risk Management (e.g., IntegrityNext, Resilinc) and End-to end Visibility market segments (e.g., Transparency-One or SupplyShift), typically these players generate their own ESG data in addition to third-party data. And finally, there are niche players that are particularly good in one specific ESG dimension (e.g., &wider to assess working conditions in the n-tier supply chain).

“To successfully measure and manage sustainability KPIs, organizations need an integrated ecosystem that combines external ESG data and internal company data with the existing procurement software landscape, including S2P suites, SRM, risk management, and ESG analytics capabilities.”

Are there overlapping benefits of sustainability for both Procurement and the organization?

Shruti Goel:

“Based on Accenture research, between 2013 and 2019, companies with consistently high ratings for ESG performance enjoyed 4.7x higher operating margins than low ESG performers over the same period. High performers generated higher annual total returns to shareholders, outperforming peers by 2.3x. And given the stakeholder pressure from investors, customers and regulators, sustainability is driving both corporate agenda and procurement agenda. Sustainable procurement is enabling more trusted, resource-efficient and less-carbon-intensive supply chains, leading to cost reduction and revenue uplift through increased company reputation.”

Is improved resiliency one of those benefits?

Torsten Naue:

“Being informed about environmental impact can strengthen resilience against future business risks, such as climate change and pandemics. Value chains need to become shorter, smarter and more circular to reduce these risks. However, there are also trade-offs to be taken into account, e.g., the impact on increasing labor costs, tariffs, regulatory burdens, supplier market constraints in certain markets, product quality, etc., hence there is no simple answer.”

Can technology help handle other areas of sustainability, like diversity, equity and inclusion, when suppliers are being sourced?

Shruti Goel:

“Yes – for instance, Accenture has supported clients to build a mobile platform which enables small, micro enterprises to gain access more easily to supply chain and development opportunities without having to follow the traditional and often complex admin processes of large organizations or having to submit lots of paper-based forms.

“Technology also makes it easier for the sourcing organization to keep data records, conduct analysis and report on supplier diversity, inclusion and equity targets without having to work through multiple disparate systems. The benefit for the SME is that they can access the platform from anywhere, and it reduces the cost of doing business as they can apply for opportunities online without having to print out documents and submit hard copies of compliance documentation each time. They can keep track of certain support initiatives provided to them and have real-time visibility of their progression/maturity, opportunities, and so on.”

If it’s really time for Procurement teams to lead this effort, how do they sell that message to the C-suite?

 Torsten Naue:

“The majority of CEOs have put sustainability at the top of their agenda, and Procurement has significant influence to drive sustainability impact across the value chain. The value can be measured in multiple ways: cost reduction or cost avoidance, considering carbon reductions in the value chain is only one aspect. The list of opportunities where Procurement can drive value is long, both with regards to environmental impact and social impact. An example is adherence to new regulatory requirements, in, for example plastic packaging: finding better solutions for recycling of inputs, shaping a circular supply chain, reducing waste or enabling upcycling of materials, or even becoming the buyer of your own waste. Procurement is THE engine to drive visibility on sustainability KPIs in the value chain and sustainability innovation across the value chain – enabling competitive advantage. It can also help to build brand through community building, i.e., developing small and medium-size enterprises in local communities.”

Spend Matters thanks Torsten Naue and Shruti Goel for their valuable insights.

In part 4 of this series, we’ll be talking more with Accenture, this time about how sustainable procurement value can be achieved through closed-loop spend management (CLSM).

This Spend Matters Brand Studio interview series has been written with the experts at Sievo and Accenture.