ESG in the 2020s: Visibility Key to Achieving Sustainability
Table of Contents
ESG Sustainability in the 2020s
While the Environmental, Social and Governance (ESG) sustainability movement is not new, it has certainly gained significant momentum recently. Climate change, sustainability, diversity and inclusion are increasingly taking center stage – both politically and in the minds of consumers – meaning ESG (or, more specifically, ESG management) has shifted to the top of the agenda for almost all organizations.
Much of the drive is coming from external factors. For example, in Germany, the new Supply Chain Act will mean that companies with 3,000 employees or more will be accountable for any exploitation of workers in their supply chains. Meanwhile, according to a recent Deloitte study, 45% of Gen Z consumers stopped purchasing certain brands because of ethical or sustainability concerns.
Ahead of the UN Climate Change Conference 2021, known as COP26, the director of partnerships and engagement, Matt Toombs said, “Business has a really critical role as advocates for the positive vision of a low-carbon society – and that is with peers, customers, the supply chain and governments across the world. The message from us as the presidency is: please do engage your supply chains, please do engage your sectors, so we can draw in as many businesses as possible.”
It is a sentiment echoed by HICX. “We feel very passionate about ESG compliance because it’s how we came into the market over 20 years ago,” explains Costas Xyloyiannis, HICX CEO, in an interview on the subject.
How HICX ‘cut its teeth’ on ESG in the early 2000s
Costas reflects on how, in 2001, a multinational pharmaceutical company became one of the first customers for HICX, as he recounts, “The CEO was very forward-thinking when it came to sustainability – and had signed up to the UN Global Compact, long before ESG sustainability had become such a mainstream topic.”
In addition to the benefits of demonstrating good corporate citizenship, the initiative provided an opportunity for the pharmaceutical company to improve standards within its supply chain, while absorbing the burden of implementation. The CPO at the time was tasked with making sure that all suppliers, some 150,000 of them, complied with the list of principles set out in the UN Global Compact. Naturally, the CPO’s first question was: who are all the suppliers? Next, as part of the supply chain governance process, came the challenge of checking whether they were all compliant. This then led to thinking about the need for segmentation – because 150,000 suppliers cannot be audited at once, and so the journey began.
ESG Strategy
As a result of these needs, HICX built its first database-driven platform that enabled the CPO to first have visibility into, then segment, and finally to track, while being able to demonstrate progress at board level.
“The business had multiple divisions and ERP systems – so first we automated supplier data collection across the globe,” Costas recalls. “Then, at a certain stage, the CPO reconsidered auditing all 150,000 companies, as it appeared that the ESG sustainability initiative would not necessarily apply to every supplier in the same way. Subsequently, with the foundations of the solution, they segmented their suppliers into three groups – each of which either received a letter, a survey, or was the subject of an audit,” he adds.
In this way, ‘The Global Supplier Database’ was born – an early iteration of the signature platform provided by HICX today. Development of the solution continued. Next, a process was introduced whereby all procurement teams could load their data into the product on a monthly basis and report on their activities. “The CPO loved the system because it was the only way he could gain visibility into the supply chain in such a manner – and at the time he additionally used it as his cross-divisional spend tool, and then started enriching it with Dun & Bradstreet parent/child data and other types of external information,” Costas continues.
Around this time, the customer set up additional corporate functions, such as waste management, information security, and data privacy; which were all up and coming compliance topics in the early 2000s. The CPO needed to ensure that these were also being managed well within the supply chain. Costas recalls how the CPO had started to feel his role was becoming more compliance-centric, rather than Procurement, and eventually, “he put his hands up and said, ‘I am a Chief Procurement Officer, not a Chief Compliance Officer!’”
However, what the CPO had found out was a clear idea of what Procurement could own – in this case the ability to provide insight into compliance risks – due to the visibility the function could deliver in combination with its close relationship of stewarding and managing supplier relationships and leveraging the cross-functional nature of the Procurement function..
Visibility at the heart of sustainable procurement
Costas reiterates his belief that visibility into the data is at the heart of every initiative, whether that’s sustainability, ESG compliance, diversity, inclusion, health and safety or anything else. Without it, organizations are unable to identify how to make an impact or measure progress. Just like those early days, if you don’t know who to email or call at the supplier – you are a bit stuck. Asking around at a company of 40,000 employees, ‘who knows the right person?’ at the supplier is not the solution.
Fast forward to the 2020s, and we see how sustainability can be managed at scale, thanks to procure-tech platforms like HICX, that enable easy workflow processes, automation, master data management and integration with other systems, among other features.
Crucially, though, there is the opportunity for suppliers to participate in initiatives in a supplier-friendly manner, which is an essential requirement in order to obtain accurate data, as, ultimately, organizations are wholly reliant on their suppliers for the information they need.
ESG Sustainability – Supplier Experience Management
This represents the intersect of ESG sustainability and supplier experience. It is a useful example of the ‘supplier experience – data quality’ flywheel. ESG sustainability requires up-to-date information from suppliers. By ensuring that suppliers are able to find the relevant forms, can easily submit the required information, or can obtain an appropriate level of support where necessary, then both the volume and the quality of captured information increases.
The information, in turn, helps to further optimize workflows and processes in order to improve supplier experience management on an ongoing basis. As the amount of information needed from suppliers increases in line with corporate initiatives, especially around ESG sustainability, this methodology provides a sound basis from which to build that information exchange – to the mutual benefit of both organizations and suppliers.
