What is ESG? Wikipedia defines the term as follows: Environmental, Social, and Corporate Governance is an evaluation of a firm’s collective conscientiousness for social and environmental factors. It is typically a score that is compiled from data collected surrounding specific metrics related to intangible assets within the enterprise. It could be considered a form of corporate social credit score. Research shows that such intangible assets comprise an increasing percentage of future enterprise value. While there are many ways to think of intangible asset metrics, these three central factors together, ESG, comprise a label that has been adopted throughout the United States financial industry. They are used for a myriad of specific purposes with the ultimate objective of measuring elements related to sustainability and societal impact of a company or business.
What does this mean for procurement and supply management? Why should you concern yourself?
Understand that procurement teams are uniquely positioned to respond to the challenges and opportunities in this shift towards sustainability, sitting as they do at the intersection of all aspects of the business and its suppliers.
Think about reimagining cost analysis to focus on how ESG-based value empowers procurement to drive the sustainability agenda and maximize the wider business through obtaining competitive advantage and be viewed favorably by consumers, investors, and policymakers. The factors that will improve would be revenue growth, cost reductions, risk reduction, improved innovation, improved brand enhancement and assistance in enabling the corporate mission related to social responsibility.
To drive and enable ESG optimization, procurement needs to engage all parts of the business to redesign their processes and methodologies and recalibrate their target-setting. Procurement also needs an ESG focus into the full scope of its responsibilities.
How can a category manager, a supplier relationship manager, a sourcing manager or specialist, a warehouse leader, a logistics leader, or a supply chain leader respond to the challenges that ESG evokes in any business?
Let us first understand the various competencies that are needed to address the tasks involved.
- Develop and implement a code of business conduct for the supply management function
- Ensure compliance to the organization’s Code of Ethics
- Establish and monitor programs for sustainability and environmental responsibility (Environment)
- Implement, monitor, and promote organizational and supply chain health and safety policies and procedures (Corporate Governance)
- Establish and monitor social responsibility programs including corporate citizenship and community outreach (Socioeconomic diversity)
First suggestion is to review a recognized list of principles and standards of ethical supply management conduct. The Institute for Supply Management (ISM®) has a very comprehensive one.
Second would then be to review that organization’s principles of sustainability and social responsibility.
Once those items are understood the supply management professional should ensure that they review organizational policies industry codes of conduct, international considerations, communication to and training for key stakeholders, laws governing ethical conduct and customer-driven requirements.
These items will provide the basis for
Understanding the competencies and skills needed for organizations to compete with the ever-growing global concern related to these topics.
Want to learn more? Visit my web site Sourcing and Contract SME | JRM Supplier Consulting and book a call with me to discuss.
Jim Moran, C.P.M., CPSM, CCM-AP, SSP AMBASSADOR
