Leading supply management suite provider, Ivalua, recently held its annual user conference Ivalua Now as an in-person (but also virtual) event in Washington, D.C. It was another stellar showing of this always well-organized and high-class affair. Ardent analysts participated virtually this year and hope to return in person in 2023.
The Day One mainstage was filled with customer and enterprise presenters including, Emily Rakowski, Chief Marketing Officer for EcoVadis, and Antoine Heraud, Head of Procurement Excellence in Capgemini’s Group Procurement, who discussed Environmental, Social, and Governance (ESG) trends and best practices.
Several areas were explored during the session that highlight the criticality of bridging procurement and ESG objectives.
Tailwinds driving supply chain and ESG together. Over the last five years, but particularly the previous 12 months, Rakowski is seeing a tailwind and growing momentum toward uniting the supply chain function and ESG. At EcoVadis, the typical scenario involves procurement professionals seeking a program for sustainable procurement within their core material categories and indirect spend. Suppliers are scored on four themes across 21 criteria on a scale of 0-100. Such a program provides transparency between buyers and suppliers, with the ability to gain an apples-to-apples benchmark of how suppliers stand in the market.
Large enterprises have already incorporated sustainable practices into their operations for years because they may have conflict minerals or palm oil in their supply chain. Those established programs involve working with communities and countries to extract those materials in the most sustainable way possible.
Regulations creating a complex environment. There are a host of regulations in both the U.S. and internationally that are driving more enterprises to address ESG. Enterprises now realize that with new regulations and compliance pressure, it’s not a matter of “if” but “when” they must begin reporting against sustainability in their supply chains. And with hot topics, such as decarbonization, enterprises are now beginning to realize the level of supply chain emissions produced. This is prompting requests to chief procurement officers about how they can help address net-zero commitments. There is hope that in the future, the various standards will converge and provide a clearer path to compliance.
Build ESG into the DNA of procurement and the supply chain function. For many mid-market enterprises, sustainable procurement is a new discipline area fundamentally. Thus, there’s a learning curve to combine sustainability, procurement, and supply chain knowledge into the fabric of day-to-day procurement operations. Ultimately, it becomes second-nature to go beyond pricing and delivery topics with suppliers, and discuss sustainability issues and scorecard data to ensure compliance with ESG objectives. Attaining that level of knowledge and supplier transparency will take time, however.
Carbon and sustainability data appearing in supplier communications. Rakowski emphasized the importance of using carbon and sustainability data in day-to-day operations. For example:
- Clients are using scorecard data in their quarterly business reviews or annual reviews with suppliers. It provides an opportunity to begin a dialogue about how the supplier scored and possible corrective actions.
- Scoring requirements are appearing in RFPs and RFQs, indicating a weighting factor (e.g., 10%-20%) in awarding the business. If a potential supplier doesn’t have a scorecard, enterprises are stipulating that if it wins the contract, the supplier must be rated by EcoVadis — with the option to cease business relations if the supplier rates poorly.
Don’t overlook the importance of the diversity aspect of ESG. There’s a great deal of attention on environmental issues. However, actions and policies toward diversity are just as important when working with suppliers. In terms of advice, Rakowski and Heraud provided a few insights:
- Because each country has its own regulations around diversity, manage each supplier according to the policies within its country. What is allowed in one country could be illegal in another. Heraud says Capgemini measures the initiatives and progress in each country to build a global diversity picture.
- Look internal to what suppliers are practicing, says Rakowski. How do they manage their entire workforce? Do they have effective anti-discrimination policies in place? Do they have good living-wage policies? What is their gender-equity policies? Ensure social values are a priority for suppliers.
Regulations are evolving frequently. Enterprises should be setting their sights and policies on cybersecurity and information security issues if they haven’t already done so. Always be vigilant of what’s on the regulatory horizon.
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