This powerful statement was made a decade ago, yet remains as true for businesses today as it did then. With the world witnessing climate change, economic crises, and social inequalities, the urgency of adopting sustainable practices has never been more relevant. A sustainable business doesn’t just benefit the planet, people, and profit; it also plays a crucial role in addressing these global challenges.
Amidst these challenges, sustainable procurement has emerged as both a corporate responsibility and a strategic necessity. It’s not just about meeting businesses’ rising concerns and demands but also about contributing to a safer, more environmentally friendly future.
Sustainable procurement incorporates Environmental, Social, and Governance (ESG) principles into the procurement, purchasing, and supplier selection process. It should deliver value for money while minimizing its environmental, social, and economic impact.
According to one study conducted by Maseno University, Kenya states that selecting suppliers based on sustainable (ESG) criteria can increase procurement performance by a staggering 76.4%. This statistic highlights the significant advantages that businesses can gain by adopting sustainable procurement practices.
Going beyond the traditional focus on price and quality, sustainable procurement aims to reduce negative environmental impacts, support social growth, and facilitate ethical governance practices throughout the supply chain.
Today, what businesses are facing is massive pressure from investors, consumers, and regular bodies to act responsibly and ensure sustainability in the long run. So, to suppress this pressure, we’ll delve into the benefits of sustainable procurement, explore the role of ESG criteria in supplier selection, and provide practical steps for integrating these ESG factors to build sustainable supply chains.
Benefits of Sustainable Procurement
As per McKinsey’s research, ESG criteria can lower business costs by 5-10%, focusing on waste reduction and operational efficiency. Sustainable procurement offers multiple benefits that impact businesses’ social, environmental, and governance state. A few benefits are listed below:
- It reduces supply chain risk by ensuring suppliers adhere to standard ESG practices.
- Lowers the operational cost by implementing energy-efficient processes, leading to long-term savings.
- Incorporating sustainable, transparent, and ethical practices enables businesses to strengthen their reputation and gain a competitive edge.
- It ensures that businesses remain compliant with industry standards and regulations.
- It facilitates stronger and more collaborative relationships with the suppliers.
Role of ESG Criteria in Sustainable Procurement
ESG in procurement implies that procurement teams must look beyond cost and quality by considering environmental and social criteria in the purchasing processes and decisions. An ESG-based approach can enable businesses to meet their financial and sustainability goals. Let’s understand the ESG criteria and their role in gaining sustainability in procurement.
- Environmental Criteria- The Environmental criteria deal with challenges like carbon emissions and footprint, climate change, deforestation, and pollution. ESG in sustainable procurement helps businesses reduce environmental impact, carbon footprint, and energy consumption.
- Social Criteria- The Social aspect focuses on health and safety, diversity, human rights, equality, and community impact. ESG-oriented sustainable procurement may require an upfront investment, but it leads to massive long-term savings. It also improves supplier relations and builds collaborative and sustainable relationships.
- Governance Criteria- The Governance criteria deal with internal business practices, procedures, and controls, including auditing and accounting, corruption, and bribery. ESG in sustainable procurement helps businesses comply with diverse regulations and safety standards and sell directly or indirectly to local government organizations.
Following these criteria can help businesses assess their sustainability efforts and impact. Furthermore, it aligns business functions with global sustainability and promotes long-term stability and success.
At Moglix, we’re actively integrating ESG principles into our procurement solutions, especially in the areas of green energy and custom fabrication. We’re driving the adoption of sustainable energy sources for businesses, reducing dependency on fossil fuels, and aligning with net-zero goals by promoting biomass briquettes and solar energy as sustainable fuel alternatives.
How ESG Criteria Help in Supplier Selection
- The Environmental criteria ensure that businesses collaborate or purchase from those suppliers who fulfill all their environmental responsibilities. These responsibilities include efforts to minimize carbon emissions, manage resources and services efficiently, prevent pollution, and contribute to biodiversity. Businesses prioritizing this criteria in procurement decisions and supplier selection are better equipped to reduce pollution, save the environment, and protect the planet.
- The Social criteria will assess a supplier’s impact on people and communities. It includes determining labor practices, human rights adherence, community engagement, and his efforts to promote diversity. This means selecting suppliers who treat their employees well and contribute to the health & well-being of local communities. By integrating this criterion into procurement decisions, businesses can avoid risks associated with unethical practices and improve their brand image as a sustainable organization.
- The Governance factor includes evaluating the supplier’s transparency, accountability, and ethical standards. Businesses should assess how suppliers manage corruption risks, ensure compliance with regulations, and follow ethical business practices. Strong governance in the supply chain ensures that suppliers work with integrity, transparency, and ethics. By choosing suppliers who consider governance frameworks, businesses can keep up with the ethical standards throughout the supply chain.
Here at Moglix, we work with suppliers adhering to sustainable procurement practices by sourcing eco-friendly materials such as biomass briquettes made from agricultural waste. This practice contributes to a circular economy and reduces environmental waste. We ensure that our suppliers follow a Quality Adherence Procedure (QAP) and Quality & Cost-Based Selection (QCBS) framework, aligning with sustainability and ESG goals.
How Businesses can Integrate ESG Criteria to build Sustainable Supply Chain
Today, businesses are rapidly integrating ESG factors into their supply chain to foster sustainability and achieve long-term success. Below are some ways businesses can use to integrate ESG into their supply chain process:
- Choose suppliers prioritizing environmental sustainability by using renewable resources, minimizing resource consumption, and practicing efficient waste management.
- Optimize routes to reduce carbon emissions, decrease fuel consumption, and consider shifting to electric or hybrid vehicles for delivery.
- Consider sourcing raw materials that are renewable, recyclable, and biodegradable. This will help reduce environmental impact and ensure that materials used in the production have minimal harm to nature.
- Businesses should develop a clear and fair code of conduct that outlines ESG expectations from suppliers. This should include regulations to be followed, guidelines on ethical behavior, environmental practices, and social responsibilities.
- Conduct regular audits and assessments of suppliers to ensure they follow ESG criteria. Leverage third-party auditors to cross-check to ensure transparency.
- Integrate tech and tools like blockchain to navigate the origin of materials and monitor the workflow within the supply chain. This will ensure compliance with ESG standards and build trust with consumers and stakeholders by offering transparency.
- Collaborate with suppliers to develop innovative solutions that reduce environmental impact like new production techniques and waste reduction methods.
- Organize training and educational programs for suppliers to help them learn ways to implement ESG practices in their business. Companies like Mars and Unilever are helping suppliers increase resilience to situations like drought and humidity.
- ESG integration is an ongoing process. Therefore, continuously refining and assessing the supply chain practices and adapting to new challenges & opportunities can lead to sustainable outcomes. This will help businesses remain sustainable and align with global ESG trends.
By integrating ESG criteria into the supply chain, businesses can contribute to a more sustainable and environmentally friendly world. This will help enhance their reputation, resilience, and long-term profitability.
For instance, at Moglix, we use cloud-based SaaS systems for managing procurement logistics, order tracking, and supplier performance, ensuring transparency and compliance with ESG standards. Our real-time tracking and digital monitoring tools aid in reducing carbon emissions, optimizing transportation, and enabling the efficient sourcing of sustainable materials.
Conclusion
Integrating ESG criteria into the supply chain has become crucial for businesses to build sustainable, environmentally friendly, and resilient businesses worldwide.
Interesting Fact: Globally, 60% of consumers consider sustainability an essential purchase criterion.
Businesses can accelerate change, drive growth, and gain long-term success by prioritizing environmental sustainability, social responsibility, and robust governance. Selecting suppliers who align with these commitments can help businesses build strong relationships with suppliers and stakeholders.
How can Moglix help you integrate ESG into the Supply Chain?
Our sustainable procurement solutions can help your business improve social and environmental impact. We aim to build a sustainable supply chain through sustainable sourcing, operations, and management. Contact us today. Let’s take your business to sustainable growth.
