Organizations used to talk about their sustainability aspirations but now these aspirations have broadened to embrace social responsibility and governance.
That’s good, of course. Most organizations know they have responsibilities towards a broader set of stakeholders than just their shareholders. Employees, consumers, the workers in their extended supply chains—and, naturally, the planet itself.
This wider focus is known as ESG, environmental, social, and governance, and for procurement and supply chain functions, ESG’s wider focus brings challenges.
Choices, choices, choices
One complication is the nature of ESG itself. A traditional approach to sourcing—looking at potential suppliers through familiar lenses such as price, quality, and reliability—had the benefit of straightforward metrics on which to base a comparison.
‘Green’, though, is a more slippery notion. Green how? On what measure? Validated how? And with which precise aspect of ‘green’ are we concerned? Environmental pollution? Water usage? Carbon emissions?
So too with social responsibility. Avoiding modern slavery is perhaps the easiest part. But what about diversity? And again, which aspects, of diversity? Gender diversity? Ethnic diversity? Sexual diversity? Disabilities? Equality? The more you dig into it, the more complicated it becomes.
And then, comes the question of balance and evaluation. How should a procurement function regard a supplier with fewer green credentials, but a better performance when it comes to social responsibility? Or vice versa?
How should these be balanced against traditional procurement metrics? What is the trade-off between price and social responsibility? Environmental performance and quality? Or environmental performance and reliability?
Such decisions aren’t straightforward. And procurement and supply chain functions rightly feel concerned regarding the choices and challenges of the ESG agenda.
Clarity at last
Here at Skill Dynamics, we welcome the COP26 climate change conference that is taking place in Glasgow between 31 October and 11 November, and attended by heads of state, government leaders, and senior politicians from around the world. It’s the biggest such event since the Paris conference in 2015, which set several aggressive goals for reducing climate-changing emissions—goals that for all our sakes, it’s important that we collectively achieve.
As Ed Weenk, a senior lecturer in supply chain management at Maastricht School of Management, points out in our white paper The Route to Zero Carbon, we “didn’t inherit the planet from our parents, but are instead borrowing it from our children.”
But we welcome COP26 for another reason, too. Because it hugely simplifies the choices and challenges of the ESG agenda. By positioning climate change as the overarching priority facing humanity, it provides procurement and supply chain functions with clarity; tackling climate change is the priority.
But that doesn’t necessarily mean that other parts of the ESG agenda must suffer, or that tackling climate change doesn’t deliver other benefits, because going green—especially with respect to emissions and climate change—neatly complements many other procurement and supply chain goals and aspirations.
Shorter supply chains, for example, are greener supply chains, emitting fewer emissions. But they also deliver on organizations’ near-shoring and re-shoring agendas, adding resilience and greater responsiveness to the supply chain—not to mention the reduced inventory levels.
But with all that said, shorter supply chains also contribute to other parts of the ESG agenda. They’re also usually less murky supply chains: it’s easier for organizations to be assured that suppliers are fulfilling their own ESG aspirations, and not imposing unethical or undesirable labor practices, or engaging in environmentally harmful activities.
In short, the bottom line is clear: with climate change acting as an overarching imperative for greener supply chains, viewing procurement and supply chain activities through the lens of reducing emissions usefully delivers on many other aspirations, as well.
Clearly, though, procurement and supply chain functions will need to possess skills that are appropriate for this broader, environmentally-focused agenda.
Evaluative skills. Competencies in persuasion, change management, and collaboration. Analytics capabilities. Decision-making capabilities. And leadership skills.
And the more that procurement and supply chain functions harness organizations’ supply bases to the goal of emissions reduction—the Scope 3 agenda—the more that those skills will go beyond the skills with which procurement and supply chain professionals have traditionally been equipped.
But the prize—a more sustainable planet—is worth it. And at COP26, world leaders will once again attempt to define the emissions reductions necessary to achieve it. Check, also: Which supply chain and procurement skills will best equip us for the future?