There is a wide acceptance that we all have a responsibility to protect the planet for future generations and that extends to the impact that organisations have on the world around them.
Walk into any Boardroom, office or coffee shop and it won’t be long before the conversation touches upon the topic of sustainability.
Procurement hasn’t always been considered as the driving force in organisations, but testament to the agility and demonstrable value of the function in recently years, it is now commonplace to see responsibility for sustainability and ethical sourcing sit with Procurement leaders. But what does this mean and why is it important?
Why is sustainability important?
Businesses are realising that their purpose is more than simply to deliver growth and profitability, as the impact of regulations force change and consumers and employees increasingly making their choices based on the environmental and social impact of the business.
With increasing requirements to report on carbon emissions and the introduction of Australia’s Modern Slavery Act which came into force in 2019, requiring businesses with revenue over $100 million AUD to report on their modern slavery risks business are being held accountable for the impact their supply chains have with the risk of financial and reputational implications for those who choose not to act.
Consumers are increasingly making informed purchasing decisions based on their understanding of a company’s impact on the environment and the communities in which they operate. According to a 2021 study, 90% of Gen X consumers said they would consider spending more than 10% to switch to sustainable options over cheaper non sustainable options.
Employees are also placing increasing importance on the values of their employers. As we continue to wrestle with to how to attract and retain talent in Procurement in ANZ, it should be highlighted that 74% of Gen Z and Millennials consider the impact on the environment a top priority when looking for a new role and that impacting societal and environmental benefits is the most rewarding element of a job whilst 2 in 5 millennials have rejected a role because the organisation did not align to their values.
Therefore, taking action through having a clear sustainability strategy which meets the regulatory requirements with full transparency both inside and outside the organisation is key to reaching and engaging current and future generations of consumers and talent.
The role of Procurement
According to a United Nations report, 93% of the world’s top 250 largest companies now report on sustainability, however, to have a truly significant impact on environmental and social activities, businesses are being forced to look beyond their own four walls and consider the implications of their suppliers’ actions.
With roughly 70% of an organisation’s revenue being generated through the supply chain, procurement professionals hold a unique position of leverage with suppliers. The topic of sustainability is one that we are all invested in, normalising it into the procurement process provides an opportunity to engage and collaborate with suppliers to redefine their thinking and to encourage collaborative action in meeting aligned ESG goals.
Understanding your organisations ESG impact can not be achieved without first having a clear view of the practices of suppliers. 50%-90% of ESG impacts are found in extended supply chains, and according to a 2020 CPO Survey, only 50% of business had high visibility of tier one suppliers and 90% reported low or no visibility below tier one.
Increasingly organisations will be required to report Scope 3 emissions which occur in the value chain of the reporting company, including both upstream and downstream emissions. Whilst 78% of Procurement leaders recognised the importance of Scope 3 reporting in a recent poll, 39% felt underprepared to meet the requirements with 38% stating a lack of data visibility creating a barrier to achieving scope 3 reduction targets. Selecting the right suppliers through the implementation of ecological and social screening parameters with ongoing measurement and reporting, supported by investment in technology solutions, elevates Procurement from stakeholders to leaders in driving the ESG target delivery for any organisation.
Creating a baseline from data drawn from internal and external sources contributes to overall sustainability performance. Importantly, a comprehensive view of your organisation’s performance will enable engagement with suppliers on the role they play. Where suppliers are falling short in measurement or delivery, swift action is required with ongoing support. Over time, this process of review will enable companies, and their suppliers, through sharing best practice, ideas and driving innovation, to meet their current sustainability needs whilst defining and aligning with suppliers to meet future strategies.
Once a clear baseline has been established, sustainability metrics should form an ongoing part of any organisations process for suppliers’ selection and performance review process. As Procurement functions create clear requirements for suppliers to meet ESG targets, it is likely that suppliers will make changes to their own business to maintain competitive advantage, thus changing the narrative from sustainability being a necessary inconvenience to an imperative differentiator.
We’ve established that acting now is the responsibility of us all nonetheless the ongoing challenge for Procurement in delivering value is to dispel the myth that many perceive sustainability an additional requirement and therefore an additional cost.
Sustainability is an enabler for organisations to collaborate with their suppliers. Procurement can leverage the direct relationships and through assessment and optimisation of the supply chain can identify opportunities to reduce overheads, remove waste and create a more efficient and effective processes. This in turn will drive improved profitability and positions Procurement perfectly to lead on delivering targets in sustainability and ethical sourcing whilst creating value for the organisation.
How can we help?
The role of Procurement in driving a sustainable future is of utmost importance in today’s business landscape. Sustainability has transitioned from a mere buzzword into an imperative that organizations must embrace to not only safeguard the planet for future generations but also to meet the growing expectations of consumers, employees, and regulatory requirements.
At Argon & Co, we empower companies to achieve enduring success through sustainable practices. Our approach leverages our profound expertise in supply chain, operations, and transformation to assess, design, and implement effective solutions that create a positive impact and foster a thriving future for our communities, the planet, and businesses.
Our recently launched sustainability service offering is an extension of our existing strategy and transformation expertise. We specialize in assessing and designing ESG (Environmental, Social, and Governance) strategies, sustainability assessments, benchmarks, and ESG due diligence frameworks. We apply our extensive knowledge to drive sustainable operational enhancements across the entire value chain and leverage our understanding of ESG regulations to promote a sustainable culture while providing opportunities for learning and best practices.
In essence, procurement and sustainability are interconnected. Procurement’s ability to influence suppliers, ensure compliance, and drive cost-efficiency aligns seamlessly with the broader objectives of sustainability. This alignment ultimately benefits organizations, the environment, and society as a whole.
Reach out to our Procurement and Sustainability experts today:
Chris Gardner, Managing Principal: firstname.lastname@example.org
Maxime Van Hees, Lead Consultant: email@example.com