In a recent, rather scathing article in The Economist, it is argued that these three letters won’t save the planet. It cites ESG as one of the hottest trends in finance but is viewed cynically as the reality is that these goals are not authentically being delivered. It’s surmised as being more hype than substance.
Whatever your view on Environmental, Social and Governance (ESG) one thing is abundantly clear… it is both incredibly ubiquitous and increasingly demanding on all businesses, especially for the supply chain managers hoping to meet company, industry-level and government objectives.
What is ESG?
The term ESG emerged around 2004 and represents the idea that companies should evaluate performance against more measures than “profitability”, building in both “people” and “planet” into a nice alliterative triumvirate. This is where the difficulties begin for many companies as there are several issues with this ideological perspective that ignores how many organisations operate and how supply chains function.
The ESG Challenge
The two main problems for most companies are around objectives and measurement of those objectives.
There are an almost infinite amount of objectives available for ESG-driven businesses and they are multi-factorial and complex. They’re also interrelated. An example is that the closing down inefficient, energy-hungry, carbon-emissions-heavy manufacturing facilities, or poorly placed logistics hubs may tick an environmental box – but these actions affect the social, “people” section of the ESG Venn diagram.
This brings us to the second problem of measurement, which is almost always preferred to be numerical. There are abundant objectives as stated above and numerous scoring systems – which means that they can be easily gamed, unlike most other financial or quantitative measures of business success.
These two pivotal problems can lead to box-ticking accusations as companies outsource their carbon emissions through creative restructuring. They can also overplay the overall weight of social or governance measures to balance out underperformance in other areas. This can undermine the genuinely virtuous objectives of combatting climate change, making companies responsible for their impact and creating a better working environment and society for the people involved in the enterprise.
So the question remains when the ESG is becoming so omnipresent, how can you manage it in the supply chain?
5 Steps to ESG Success
We believe that even in the face of these issues and a huge degree of uncertainty in the ESG sphere, there are five steps to navigating these complexities.
Just the terms “environmental” “social” and “governance” themselves can be widely and wildly open to interpretation depending on the stakeholder, so the first step in the process is to simplify these terms.
This may form an output of a culture-code style document that outlines “When we say environment – we mean XYZ.” This could cover carbon emissions, water usage, biodiversity, ecological impact and much more. The benefit to this simplification is massive and gets everyone, both internally (business leaders) and externally (suppliers) to align to your ESG programme with renewed clarity and transparency.
2. Set Objectives
Once the company has achieved step 1 and the meanings and measures are simplified, objectives can be set. These can be reviewed to ensure that they aren’t just greenwashing or box-ticking, but tangible, demonstrable examples of your company and supply chain commitment to the outcomes of successful ESG programmes. Again focusing on environmental factors, one objective may be to become carbon neutral by 2030 to fight against climate change.
These objectives should be SMART: Specific, Measurable, Achievable (but challenging!), Relevant, and Time-Bound.
The next part in the process is to standardise the measurement of these simplified objectives, and this is where SourceDogg becomes an invaluable tool in the toolkit.
To standardise, you need to define relevant data points to measure. Then your business has to collect and collate this information from your diverse and disparate supply base. Doing this without a self-service supplier onboarding or cloud portal can be extremely challenging and time-consuming, so having a single source of truth, like SourceDogg’s supplier master data is an incredibly efficient way of doing this.
Once you’ve accumulated this data in one place, you can then analyse it clearly and revisit those objectives from stage 2 to make sure they are achievable in the time you’ve bound them to.
4. Secure Commitment
It all starts with data and the ability to audit your current ESG scenario to provide a detailed situation analysis… but that isn’t the full story. To achieve your ESG ambitions, you must secure a commitment from different stakeholders around the business and the suppliers.
This is where effective and efficient sourcing and selection tools come into play, to ensure you’re procurement processes are in line with your ESG goals. Weighting contract awards with ESG hoops to jump through shows commitment through the entire supply chain.
Post-contract-award however, this is the role of supplier relationship management – to have a single performance portal that delivers information back and forth against the standardised, defined objectives that suppliers can commit to. It’s important to recognise that your internal business may be hitting all of the social, people-focused goals internally but your supply chain could be massively skewed in terms of diversity and inclusion.
This disparity casts serious doubt over the authenticity of your ESG credentials, so it’s essential that your SRM processes stand up to scrutiny upstream in the supply chain. Audits can be demanding and commercially important for investors so ensuring commitment through every node in the complex supply network is important.
The final step is to sustain the momentum. Although sustainability as a term is often conflated with environmental goals, we feel this is more analogous to continual improvement over time. Adapting supplier bases, changing business models and ensuring your business is ready for tightening of emissions and pollution targets from the government are all proactive measures to be taken over the long term.
Bringing it all together…
ESG as a concept has been here for over 15 years but more recently it feels like there has been a toughening and tightening of the regulations, with more to come.
Supply chain managers are pivotal in achieving the ESG goals of most organisations, working collaboratively with other operations (profit/planet), HR functions (people) and commercial (profit) departments.
To lead from the front, supply chain leaders must step up to simplify, set objectives and standardise measurements for ESG and all of this begins with data. This data challenge may involve changes to current platforms and processes and that’s where SourceDogg truly redefines your supplier management. if your company is trying to tackle ESG demands across multiple data sources or spreadsheets – it’s time for a radical rethink.
We’d love to help you and demonstrate exactly how our clients are collecting and analysing their ESG data using our platform, turning it into insightful action to solve these huge and complex issues. Speak to one of our supply chain experts today.