In today’s rapidly evolving business landscape, Environmental, Social, and Governance (ESG) principles are no longer just a buzzword; they are becoming a fundamental pillar of corporate strategy; however, due to different perceptions around sustainability, organisations are still finding it difficult to get the right balance. For procurement, in particular, embracing and implementing ESG is not merely about compliance or risk mitigation, but a significant opportunity to drive sustainable value, enhance brand reputation, and build resilient supply chains. Properly implemented, sustainable procurement can be transformative.
Sustainable procurement entails having a balance against the otherwise competing objectives such as ethical sourcing and cost-effectiveness, thereby upholding fairness, transparency, integrity and human rights principles that impact various stakeholders such as the suppliers, employees and the communities[1]. In the absence of a framework to guide the decision-making processes, it becomes a nightmare to balance these objectives.
Procurement, as the gateway to an organisation’s external spending, holds immense power to influence its overall ESG footprint. However, in the absence of the strategic alignment with the executive’s key performance indicators, procurement cannot drive sustainable goals. Such factors as lack of knowledge on sustainability, lack of transparency and governance and a mismatch of procurement strategy to that of the organisation, are the major obstacles to implementing sustainable procurement. A mismatch between the Key Performance Indicators (KPIs) and objectives of executive leadership and the procurement department can have significant and detrimental impacts on an organisation. This misalignment often leads to a disconnect in strategic direction, inefficient resource allocation, and ultimately, a failure to achieve overarching business goals. The misalignment will bring about the unintended consequences such as;
- Strategic drift and unfulfilled objectives due to conflicting priorities, lack of support for strategic initiatives, and suboptimal resource allocation and wasteful effort.
- Inefficient resource allocation and wasted effort as a result of misdirected resources, for example, procurement focusing on short-term cost-saving gains at the expense of the long-term benefits. Duplication of work due to a lack of strategic approach to procurement and standardisation, and budgetary inefficiencies, can lead to cost overruns or missed opportunities.
- Damaged relationships and internal friction. The promotion of a corrosive culture which promotes a “blame-game and resentment behaviour”, thereby making procurement a scapegoat, the self-insulation culture characterised by siloed operations, and a lack of trust, more so, where procurement actions appear to contradict executive directives.
- Missed opportunities and competitive disadvantage. Ultimately, this will lead to failure to capitalise on market trends, where the executive focus is on sustainability or digitisation, whilst procurement is inward-looking and transactional. Weakened and compromised supplier relationships will lead to increased risk exposure and vulnerability, and reputational damage or litigation.
- Negative impact on employee morale and motivation. Imagine procurement teams striving to hit their specific KPIs, only to find that their efforts are not recognised or valued by executive leadership due to misalignment. The unintended consequence would be confusion and a less organised organisation.
A clearly defined ESG framework provides a roadmap for not only implementing sustainable procurement but also having an integrated approach. A conscious decision to create structures that integrate an ecosystem for sustainable procurement practices. A framework will provide a policy directive on the implementation of sustainable procurement. A good framework will integrate the procurement strategy into the corporate strategy. Further, assist procurement in developing supplier evaluation criteria that embrace the aspects of ESG. Bringing the gap and aligning the KPIs and objectives should be the key aspects of the framework. The main objective is to align executive and procurement KPIs and objectives and mitigate negative impacts.
The key features of the framework will cover the following areas;
- Clear communication and shared vision. The executives must clearly articulate the organisation’s strategic goals and communicate them effectively to procurement. Procurement, in turn, needs to understand how its activities contribute to these overarching goals.
- Collaborative KPI development. The KPIs should not be dictated top-down. Instead, executive leadership and procurement should collaborate to develop a balanced scorecard of KPIs that reflects both tactical efficiency and strategic value creation.
- Balanced metrics. A shift from purely cost-focused procurement KPIs to a more balanced set that includes value creation, risk management, integrated supplier selection and evaluation criteria, and sustainability or ESG metrics. The table below indicates a typical integrated supplier evaluation criterion that integrates all the key elements of ESG. A procurement decision is then made on a holistic view, not just the price, but the total lifecycle.
| Evaluation Criteria | Weighting | Scores ( 1 = Poor – 5 = Excellent ) | ||
| Supplier A | Supplier B | Supplier C | ||
| Economic | 50% | |||
| Previous/current experience | 4 | 1 | 5 | |
| Cost competitiveness | 5 | 3 | 5 | |
| Financial stability | 5 | 4 | 4 | |
| Production/service capacity | 4 | 4 | 5 | |
| Design robustness | 4 | 4 | 5 | |
| Total | 22 | 16 | 24 | |
| Weighted Total | 11 | 8 | 12 | |
| Social | 25% | |||
| Ethical practices | 3 | 5 | 2 | |
| Workforce practices | 3 | 5 | 1 | |
| Sub-supplier practices | 1 | 4 | 1 | |
| Fair pricing practices | 3 | 5 | 1 | |
| Total | 10 | 19 | 5 | |
| Weighted Total | 2.5 | 4.75 | 1.25 | |
| Environmental | 25% | |||
| Distance from the customer | 5 | 3 | 4 | |
| Impact of materials and processes | 3 | 5 | 2 | |
| Impact of the end product | 3 | 5 | 2 | |
| Impact of packaging | 1 | 5 | 2 | |
| Total | 12 | 18 | 10 | |
| Weighted Total | 3 | 4.5 | 2.5 | |
| Grand Total | 16.5 | 17.25 | 15.75 | |
| Total Possible | 22.5 | |||
- Regular review and adjustment. Good KPIs and objectives should be regularly reviewed and adjusted to ensure they remain relevant to the evolving business landscape and strategic priorities.
- Technology and data. Invest and implement robust data analytics and reporting tools that provide real-time visibility into procurement’s performance against both operational and strategic KPIs. This allows for proactive adjustments and better decision-making.
- Procurement’s seat at the strategic table. The elevation of procurement’s role to a strategic function within the organisation involves them in executive-level discussions and strategic planning sessions, providing invaluable market intelligence.
- Invest in capacity development and training. The knowledge of best procurement practices for implementing sustainable procurement should not be limited to the procurement function, but to be rolled out as a company-wide strategy to entrench a new culture of collaboration and integration.
In conclusion, by proactively addressing the potential mismatch in KPIs and objectives, organisations can unlock procurement’s full potential as a strategic value driver, ensuring that its efforts are directly aligned with the company’s overall success. By strategically embedding ESG into every aspect of the procurement function, organisations can not only mitigate risks and meet regulatory demands but also unlock significant opportunities for innovation, cost savings, and long-term sustainable growth. Procurement is no longer just about cost and efficiency; it’s about building a better, more responsible future through the power of ethical and sustainable sourcing.
