IBM: How to Elevate Procurement Teams' ESG Analytics
In recent years, businesses across the globe have placed a high priority on integrating environmentally friendly practices within their operations. This shift is driven by a conscious effort to minimise carbon footprints and bolster sustainability.
Technological advancements, such as blockchain and AI, are significantly enhancing supply chain traceability. These innovations facilitate improved monitoring of supplier adherence to ESG standards. As a result, organisations can make more informed decisions and hold parties accountable more effectively.
However, several challenges persist. Inconsistencies in defining and measuring ESG metrics, along with resource limitations among smaller suppliers, continue to pose barriers. To tackle them, companies are increasingly turning to collaborative approaches, providing supplier training and developing long-term partnerships.
Procurement's pivotal role
While cost management remains a core aspect of procurement, incorporating ESG goals is gradually becoming an integral part of business strategies.
A survey by the Index Industry Association in 2023 showcases a growing trend among asset managers to enhance their ESG integration. It projects an increase in ESG components within portfolios—estimating 50% by 2026, 54% by 2028 and 62% by 2033.
Efforts undertaken in procurement to boost ESG goals include:
- Reduction of environmental impact
- Promotion of social responsibility
- Support of robust governance structures
- Creation of safer reporting systems for employees
"Driving visibility and change with these ESG initiatives relies heavily on action from procurement organisations," explain George Webb and Nikolett Gábriel, members of the IBM Procurement Analytics as a Service, via the Institute for Supply Management.
The duo highlight the connection of procurement operations across various supply chain levels and their influence on sourcing decisions and business partnerships.
Moreover, the complexity of tracking ESG goals is underpinned by the integration of not just direct suppliers but also secondary and tertiary suppliers. Effective risk management and data analysis are therefore vital for maintaining transparency and achieving these objectives.
Practical steps to improve ESG analytics
George and Nikolett offer a five-stage framework to strengthen procurement's role in sustainable practices:
1. Establish a clear data standard
Setting uniform criteria for data measurement across the organisation is crucial for accurate ESG tracking and analysis.
2. Secure reliable data sources
Given that most ESG-related data isn't automatically included in traditional ERP systems, identifying and validating reliable data sources is essential. Possible sources can include corporate social responsibility reports, expert service providers and trusted publications, amongst others.
3. Target-specific procurement needs
Adapting the data presentation in user-friendly formats through business intelligence tools can help different stakeholders from CPOs to tactical buyers understand and utilise the data effectively.
4. Gradually expand the ESG framework
Once a solid foundation is established, organisations should aim to gradually broaden their ESG framework to align with ongoing sustainability targets.
5. Proactively manage risks
Actively seeking and rectifying potential risks by setting stringent compliance and quality checks for suppliers guarantees not only adherence to standards but also aligns with broader corporate responsibility goals.
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