ESG Targets & Execution
Why is ESG Important for Procurement?
In today’s business landscape, Environmental, Social, and Governance (ESG) targets are not just a regulatory requirement but a strategic imperative. Companies are increasingly recognizing that integrating ESG considerations into their operations can drive sustainable business value, mitigate risks, and enhance their competitive advantage. ESG targets help organizations align their strategies with global sustainability goals, respond to stakeholder demands, and ensure long-term viability. By executing ESG initiatives effectively, companies can capture new revenue streams, reduce operational costs, attract and retain talent, and build customer loyalty.
How to Achieve ESG Targets & Enable Execution?
To achieve the sustainability targets, it is essential to first understand the current state and align on the steps needed to reach the goal. Below is a four-step process for defining the roadmap ahead and preparing for execution.
1. Understand targets and timelines
Translate company Sustainability targets to the procurement dimension and define what and when they have implications. Ensure an aligned view on what the procurement function needs to have in place and/or deliver at what point in time and establish a clear definition of a target state.
2. Assess current state and gaps
Maturity assessment based on baseline analysis, including interviews and other data gathering, in comparison to target state. Ensure an aligned view on what areas need attention and action, establish a common base for prioritization discussions and decisions, and a base for transparent follow-up of progress.
3. Set roadmap
Based on maturity assessment cross-functional workshops help formulate and prioritize initiatives to develop the roadmap ahead. Develop and agree on a prioritized activities roadmap and set a transparent plan with clear milestones for reaching the targets at the end of the roadmap.
4. Plan execution
Consolidation of initiatives, definition of execution plan and mobilization of delivery team(s). Detail a delivery plan with cross-functional responsibilities clearly defined and set-up prerequisites to kick-off the first execution wave.
Execution is dependent on current state and plan, however, below are three typical areas:
Sourcing strategy redesign: Embed sustainability into your sourcing strategy by including ESG criteria in tender evaluations, updating the supplier code of conduct, and ensuring suppliers are committed to your sustainability goals. This may involve replacing non-compliant suppliers, sourcing from those closer to your markets and rethinking supply chains
Product, package, and portfolio redesign: Redesign products and packaging to use lower-emission materials, increase the use of recycled materials, and develop circular products. This helps reduce the environmental footprint of your supply chain
Supplier engagement and support: Work closely with key suppliers to collaborate in fulfilling common ESG targets. This includes raising awareness, mutual support for developing new capabilities, and finding common gain in ESG improvements
What Are Key Considerations For Integrating ESG Into Procurement?
Target ambition
Sustainability ambitions and their weight in relation to other targets need to be broadly aligned in the company to ensure that informed decisions are made “according to the same compass”.
Intra-company coordination
With a multitude of functions, e.g., Sales, R&D, HR, Finance, Risk management, Procurement, working in their own distinct processes and with separate systems support it is crucial to ensure an integrated and aligned risk management and compliance set-up, enabling effective coordination and impactful results.
Balance type of supplier relation
Long term partnerships with suppliers can be a way of reaching transparency and ensuring that sustainability investments generate long term gains for both parties; but how can the long-term relations still ensure a competitive cost base?
Supply chain transparency
A large number of systems are available to create supply chain transparency. However, these systems must be tailored and customized to meet your specific needs, ensuring they collect and transparently display the necessary data relevant to your industry and category.
What Value Does ESG Target Setting Bring For Procurement?
In conclusion, integrating ESG targets and executing sustainability initiatives is essential for modern businesses aiming to thrive in a rapidly changing world with high ESG ambitions. When done right, procurement’s sustainability work can make significant impact on fulfilling the company’s sustainability agenda. By following a structured approach that includes target and ambitions alignment, current state and gap analysis, sourcing strategy redesign, product and portfolio redesign, supplier engagement review, and continuous monitoring, companies can drive sustainable business value, mitigate risks, and enhance their competitive advantage.
