Analyst Insight:A December 2023 study reveals that 40% of procurement leaders have yet to integrate sustainability into their decision-making processes, and 37% remain unaware of pertinent legislation. No matter short-term priorities, sustainability isn’t going to go away.
Haven’t we heard enough about sustainability? It’s a topic that has dominated conversations, stakeholder demands and trend reports since before COVID-19. It seems to be a normalized part of company strategies, with 90% of Russell 1000 firms producing annual ESG reports promoting ambitioussocial and environmental goals. New laws in many markets promise a continued focus on corporate sustainability, including in supply chains.
But scratch the surface of the grand claims and a different picture emerges. The media is constantly highlighting instances of greenwashing, or of environmental damage tied to businesses’ activities, while political backlash to “wokeism” throws legislative plans into jeopardy.
Are procurement departments right to remain skeptical about sustainability? It’s certainly clear that they do. Recent research highlighted that 40% of senior sourcing professionals don’t consider sustainability factors at all when making procurement decisions. A stubborn 34% refuse to recognize any benefits associated with more sustainable practices—a shockingly substantial proportion. And with several new corporate responsibility laws already in effect, it’s worrying that 37% aren’t aware of the sustainability legislation that affects their business.
But it’s easy to blame procurement for failures to embrace a sustainable approach. Findings reflect the size of the gulf between company commitments and delivering against these, illustrating the scale of the challenge for cost-driven procurement teams.
Sustainability is not just the responsibility of the procurement department. Whole-business support is essential, in order to harmonize and align departmental goals for embedding more sustainable practices. Businesses will continue to face multiple sources of pressure to manage their supply chain risks, build operational resilience, improve energy efficiency and comply with legislation. All of these must be supported by core tasks that also foster a more sustainable approach, even when that isn’t a conscious priority.
Sustainability-Related Demands Aren’t Going Anywhere
With economic uncertainty and geopolitical conflicts taking center stage,investorsmay be moving away from ESG funds, and BlackRock CEO Larry Fink’s 2024annual letterhas drawn widespread attention by omitting ESG for the second year running.
These are just some of the factors driving companies to refocus on immediate short-term priorities, especially if they also note the gap between values and actions observed in consumer spending patterns. For example, consumers may say they demand sustainability, but ultra-fast-fashion brands still see theirprofits soar.
However, focusing on the mid-long-term, it is not wise to abandon, or continue ignoring, sustainability. Legislation will likely only go in one direction, and the consequences are increasingly severe for businesses failing to address social and environmental concerns. Look to the Uyghur Forced Labor Prevention Act for proof, where theU.S. Customs and Border Protectionseized over $1.46 billion worth of goods in 2023. There arepromises of greater scrutinyon the “de minimis” loophole. InEurope, the Corporate Sustainability Due Diligence Directive will likely include fines of up to 5% of global turnover for companies in scope. In this field of supply chain and corporate sustainability law, North America may follow where Europe goes.
Certain aspects of sustainability remain a business priority, especially on Scope 3 emissions and energy efficiency. McKinsey names “energy transition” as a top-three priority for CEOs in 2024, while the World Economic Forum thinks leaders are clearer than ever on sustainability’sbusiness case.
Helpfully, under the bewildering tangle of legislation and other demands, there are some key requirements and activities that remain constant, and can support more short-term focuses. These include supply chain risk assessment, supplier mapping and integrated data analysis of multiple datasets on suppliers and supply regions. Whether for legal compliance, nearshoring initiatives or sustainability-led objectives, knowledge is power.
No Benefits to Sustainability? Build Stability in an Unstable World
2023 brought recession fears, supply chain shocks and political tensions, putting immediate priorities sharply in focus. Globally, various crises continue to disrupt supply chains, from regional conflicts and vessel attacks to wildfires and floods that threaten local operations and raw material availability.
While we might not traditionally call it “sustainability,” tasks such as developing in-depth supply chain visibility, and understanding suppliers’ risk profiles are essential to both sustainability and business continuity. The insights gained empower procurement leaders to anticipate and respond to shocks and obstacles in key sourcing regions.
And yet, 34% of our procurement leader respondents said they recognize no benefits of sustainability. This seems short-sighted at best, downright ignorant at worst.
Procurement Is Essential to Accelerating Progress
Procurement teams already do plenty of heavy lifting when it comes to the tasks and processes that underpin sustainability-related demands. As scrutiny continues, and stakeholder attention narrows to the supply chain—as we see with Scope 3 emissions—it is clear that procurement plays a critical role in enabling the ambitious goals to be set by their CEOs, in legislation and beyond.
Gartnernotes that pressure to deliver on sustainable procurement goals has increased or significantly increased for 83% of organizations, and that although addressing greenhouse gas emissions remains a number one priority, just 16% are achieving this with Scope 3. Suppliers’ own capacity to address this issue, so they’re able to support customers’ goals, is a known gap.
Suppliers will respond to what their buyer customers prioritize—such as hearing from 40% that sustainability does not matter. Procurement teams are essential for both capacity-building and incentivization, to bring suppliers on board, and drive changes needed in the supply chain to support their company’s social or environmental goals.
A Business Case Beyond “Being Good”
The benefits of supply chain sustainability are well-known by this point, from brand reputation and legal compliance to efficiencies in energy usage and productivity. But the business case is even stronger than this, and goes beyond isolated arguments about being a “good” or “sustainable” company. Consider how the intimate knowledge of suppliers’ locations, practices, workers, and operations informs critical risk mitigation and resilience-building.
For those who still need convincing, the value of sustainable supply chain management activities like supplier mapping and global-scale data analysis are becoming clearer. AForrester-conducted studyidentified a 372% return on investment over three years, and payback on initial spending in just seven months.
Governments, investor demands and consumer habits may turn on a dime, but short-term pressures and longer-term goals don’t need to be mutually exclusive. Better visibility, risk management and planning that together enhance supply chain resilience will always have value, and also happen to be critical for meeting sustainability-related demands. Although none of these activities are quick to work, they do produce the immediate benefits of powerful, efficiency-enabling insights.
