Sustainable Sourcing: Reputation, Responsibility and Resilience

by Rex Aguado

Photo by Markus Spiske on Unsplash

Quick and Easy Checklist for Sustainable Sourcing

According to McKinsey, good ESG business leaders who are able to use their sustainability programs to generate value adhere to a unique set of management practices.

• First, they tend to prioritize sustainability as a business strategy, with detailed aspirations and targets. In effect, ESG becomes a key part of the company’s mission and vision statements.
• Second, they are known to integrate sustainability in their corporate culture, making sure it is instilled by training their employees on how to make sustainability principles an essential part of their work ethics and daily practice.
• Third, effective ESG managers work with their customers and suppliers in tackling sustainability issues and in calibrating their product portfolios to make sure they comply with ESG standards. One way of doing this is to use a sustainability guide when selecting and assessing suppliers.
• Finally, ESG advocates are much more likely to monitor their facilities and transportation networks to make sure they strictly follow with ESG principles.

“Sustainability endeavors often make good business sense, promising to deliver revenue gains, cost savings, and other benefits that lift enterprise value,” McKinsey concludes.

Matching Sustainable Sourcing and Suppliers

Zeroing in on the important role of suppliers in ensuring that companies stick to their sustainability pledge, Ecovadis offers some tips on how to ascertain that supply chains are sustainable.

First, companies should make sure that sustainability principles are properly defined and integrated into their supplier screening processes. .

Second, companies must ensure expectations are clearly set and communicated for suppliers to avoid conflicts of interest and regulatory issues. Such expectations should be in contracts and in a code of conduct, and must be constantly highlighted in all supplier interactions and communications.

Third, companies should integrate Sustainable Sourcing principles into actual buying practices by providing buyers the proper vision, training and tools to guide their work and procurement decisions.

Fourth, companies should support and instruct suppliers on how to set their own ESG-compliant business standards and to self-assess their performance. Areas covered can include recruiting, employee turnover and renewal of contracts.

Fifth, companies should assess and audit the CSR performance of suppliers along with stakeholders – such as within the same industry – for a fair and comprehensive monitoring done over time.

Finally, companies should manage the expectations of their shareholders and promptly report – perhaps as part of an annual CSR reporting – on their work with suppliers as part of good management practice and to enhance their reputation.

Sustainable Sourcing: Laying The Groundwork

Ecovadis also suggests the following front-line actions to guarantee strict compliance with ESG or Sustainable Sourcing principles, particularly in the area of regulatory requirements:

• Check the fine print of the social and environmental legislation in the countries of production of prospective suppliers, and determine the level of regulatory enforcement in these countries.
• Regularly assess the facilities and practices of your suppliers, preferably via independent monitoring, or by organizing random or scheduled on-site visits and worker interviews.
• Find out about sectoral initiatives on assessments, and those that can help provide information and training to suppliers on responsible business practices. For instance, suppliers can be asked to provide CSR assessment scores, or industry certificates such as for ISO 26000.

Bench-marking and Securing a Buy-in

On the last point stated above, Ecovadis further suggests some best practices on how to formulate and achieve Sustainable Procurement goals, this time for the company’s internal players, particularly those involved in procurement. Such goals should be clear, easy to implement and measurable.

Next, for easy and fast buy-in, Ecovadis says goals and key performance indices (KPIs) could be broken down based on program initiatives, such as “People, Planet and Profit”, with associated KPIs or departmental initiatives.

To enhance teamwork and corporate reputation, companies can use social media to publish progress reports, along with performance benchmarks. Ecovadis cites the UN Sustainable Development Goals (SDGs), Global Reporting Initiative (GRI) or the Dow Jones Sustainability Index (SDJI). “But it is also important to benchmark yourself against your peers. This is what really helps you understand where the market is going and what you need to do to retain the cutting edge,” Ecovadis concludes.

Maximizing the ESG Benefits

On the macro level, McKinsey suggests some guidelines on how executives can focus their companies’ sustainability efforts and maximize value creation.

For instance, to avoid duplication, overreach and sprawl, McKinsey says executives should set up accountability systems across their organizations. This could be centered around the business unit that usually generates most of the company’s sustainability impacts, such as product-focused teams, or functions-based groups such as supply-chain management, or even geographic departments.

Since ESG challenges can span industries or regions, McKinsey urges collaboration within and among related industries. “Companies might form coalitions with industry peers and work together on setting standards, promoting tech innovation, or advocating for policy shifts,” it says.

Next up, the impact of Sustainable Sourcing on the environment, innovation, accountability, investment decisions, consumer behavior and legislation, and a quick guide on how to promote a sustainable business culture.

Previous posts in this series:

Part 1: Sustainable Sourcing Goes Viral

Part 2: How Good and Green is Your Buying?

Part 3: Good Practice, Better Returns