“ESG… should be integrated as much as possible into existing processes, structures, and policies because there are so many synergistic effects to be gained.” – Alexander Hellwig, Editor Sustainability & Compliance, IntegrityNext
Having a strong, data-backed environmental, social, and governance (ESG) program that is embedded in every corner of the business is no longer just a ‘nice-to-have.’ It is a must-have.
Historically, regulatory compliance has been the driver for most ESG programs. Now, however, pressure from consumers, investors, and business leaders has revealed a collective mindset shift away from seeing ESG as just one more corporate box to tick at each business review.
To help us understand how to overcome these challenges and build a successful, scalable ESG program, I recently spoke with Alexander Hellwig, Editor Sustainability & Compliance, and Jared Ridgley, Head of Sales US, both from IntegrityNext.
They break down the evolution of ESG into a business-critical function and discuss how procurement can leverage executive buy-in, emerging technology, and talent trends to elevate and accelerate ESG in 2024 and beyond.
ESG, Then and Now
As consumers and business leaders express their demand for more corporate accountability around ESG initiatives, the definition of a successful ESG program and its parameters are shifting.
According to Alex and Jared, ESG should be defined by two primary dimensions:
- The Time Horizon: “Any ESG strategy needs to take a long-term perspective and really think about resilience and adaptability in the long run,” said Alex. “Short-term thinking is the enemy of ESG and sustainability.”
- Systems Thinking: “It is vital to be mindful of the bigger picture and interdependencies that exist between different parts of a system, and critical to keep in mind all the different facets that may affect you as a company but also your operations that may have an impact on the world around you. In my opinion, integrated approaches and holistic approaches should really be at the core of ESG,” said Alex.
And while the emphasis on regulation as an incentive for ESG adoption has to make room for other contributing factors and external pressures, it’s important for procurement to remember, says Jared, that regulatory compliance cannot and should not be ignored. Many ESG-related regulations were introduced in response to wide-spread human rights, labor rights, or environmental malpractices that can have disastrous consequences for an organization’s brand, reputation, or even bottom line.
While ESG has come a long way in the last five years, “there is clearly a feeling in the air that more needs to be done,” said Jared, who sees ESG coming into even more prominence in the c-suite with the creation of new positions like Chief Sustainability Officer or Chief Diversity Officer.
The Future of E, and S, and G
Looking at each component of E, S, and G somewhat separately, Jared and Alex point to specific emerging trends or areas of interest that they predict will capture the attention of consumers and executives in the year ahead.
Environmental
Prediction #1: Reducing your carbon footprint is an ongoing priority that we shouldn’t lose sight of. This topic, said Alex, seems like “old hat” for some, but many companies are still struggling with emissions accounting and determining scope 3 emissions. So, “this is a topic that will remain for some time to come,” he said.
Prediction #2: Biodiversity and ecosystem conservation will enter the conversation in new and impactful ways in 2024 and beyond. According to Alex, “the biodiversity crisis is even more severe than the climate crisis because many companies are not only unaware of the impacts that they have on the environment. More importantly, they are even less aware of how dependent they are on nature. That is something that so far has not been on the radar of many companies.”
Prediction #3: Procurement can expect to see greater emphasis on the circular economy in the form of sustainable packaging, the reuse of product components, recycling, repair services, or the use of nonhazardous substances.
Social
Prediction #1: Consumer pressure for greater accountability and transparency throughout the supply chain will continue to intensify, as will the emphasis on supplier diversity and human and labor rights. “We are far from having solved these issues, and they will continue to be important,” said Alex.
Prediction #2: Health hazards from environmental and industrial processes will take priority as awareness grows about these chemicals (like PFAS) and the harm they cause.
Prediction #3: We’ll have a more clear-eyed view of the risk of modern slavery in the global supply chain and a greater understanding that this isn’t relegated only to so-called low-cost countries but also something to look for in countries like the U.S. or Europe.
Governance
Prediction #1: Governance should be led from the top. “The first thing that comes to mind when I think about governance is how decisions are made in a company and who has the power to make those decisions,” said Alex. You have to have executive leadership and buy-in, “otherwise it doesn’t work.”
Prediction #2: Governance is key to a successful ESG program, but there are still challenges to be solved. Understanding not just current but also future regulations in an ever-changing global landscape can be challenging for procurement and the business.
Prediction #3: ESG is cross-cutting, affecting all parts of a business. Because of this, said Alex, it’s critical for procurement to involve all stakeholders across the business in decision-making. “You also need to empower them to make decisions and make sure that they all pull in the same direction so that one department does not work against another,” he said. “It’s critical to make sure that they pursue the same goals – or at least converging goals – because the priorities in terms of costs and budget and so on can differ significantly from one department to another.” Forming cross-departmental working groups can be a good way to address this.
In general, they both said, when procurement leverages emerging technology, like AI, to increase transparency and accountability throughout the supply chain, each area of ESG will benefit. This is true even from the supplier’s perspective. They will enjoy having a platform that demonstrates their positive impact. That investment, and the resources and support it brings, can go a long way in preparing procurement to address these future challenges and opportunities in 2024.
Selling the C-Suite on the Benefits of ESG
The way ESG is evolving into a business critical unit means that procurement needs to understand how to communicate their value to leadership and demonstrate how that value is aligned with the overall goals of the business.
“No company can afford to ignore ESG,” said Alex. ““The expectations of investors, of customers, and of other stakeholders are constantly growing. This is something that won’t go away.”
When demonstrating the benefits of ESG, procurement should focus on:
- Compliance with regulations
- Meeting stakeholder expectations
- Competitive differentiation
- Efficiency and cost savings in energy and emissions management
- Access to new markets and customer segments
- Fostering innovation within the organization
Evolving and strengthening an ESG program can be challenging for procurement. As Alex and Jared say, many just don’t know where to start or are overwhelmed with how to scale and generate support for a growing program, especially in the face of urgent regulatory pressures.
This growth also requires “companies to set up entirely new processes and structures in their businesses, and all of this takes time,” said Alex, which can further complicate the process.
Companies that embrace and live up to their ESG principles not only reap the benefit of supporting a more ethical supply chain but also differentiate themselves from their competitors, optimize for greater efficiency and profitability, tap into new markets, boost innovation, and pave the way for a more sustainable and ethical future.
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