This guide explores how to implement more sustainable supplier management to build a supply base that is ESG-compliant.
What is ESG?
As organisations are working towards sustainable, fairer, and compliant operations, companies are revising their approaches to key concerns.
These topics are categorised into an Environmental, Social or Governance concern, abbreviated as ESG.
Each different section of ESG covers numerous issues for which companies need to make sure they are compliant. It’s essential if they wish to maintain responsible internal practices and output, whilst maintaining investor interest.
Environmental
The environmental pillar of ESG refers to the impact on the natural world. From a supplier management perspective, it’s the impact your suppliers have on the environment.
For example, to reduce environmental impact, companies could set targets in-line with The Paris Agreement and commit to a Science Based Target.
By picking a supplier, you are picking an organisation to conduct work on your behalf, therefore, there is an indirect environmental impact.
This impact must be considered throughout the entire lifecycle of the product. For example, can the products be disposed of in a safe and sustainable manner? Where are the raw materials of the product coming from? How much waste does this product generate?
In short, environmental concerns in supplier management refer to the level of impact your suppliers have on the environment. To pick suppliers that are limiting this impact, consider environmental impact as a selection factor during the sourcing stage.
To learn more about sustainable sourcing, see our article here.
Social
This refers to the company’s ‘social responsibility.’ This can refer to the way companies interact with other parties, how the organisation treats its internal employees and how they interact with their consumers, suppliers, and other stakeholders.
In supplier management, this involves conducting due diligence to ensure your suppliers are socially responsible. For example, do they have satisfactory health and safety measures in place for staff? Do their products fulfil the intended purpose, and limit risk to the consumer?
The ‘S’ in ESG is concerned impacting the world in a safe, respectful, and compliant manner.
Governance
Governance is concerned with the way the company is run, and the structure of leadership. This encompasses issues such as diversity and equality on the director’s board.
From a supplier management perspective, it would include whether the company is adhering to ethical practices, and is free from corruption, compliant with acts such as anti-bribery.
The way a company is governed sets a standard for the rest of the company and demonstrates its commitment to positive and safe practices for its employees.
To learn more about ethical supplier management, see our article here.
The Importance of Sustainable Supplier Management
By opting for more sustainable supplier management, you can have confidence that your supply chain has a lesser negative impact.
Less risk to brand reputation is an additional benefit. With more informed decisions regarding the supplier, and additional due diligence, you’re less likely to uncover risky supplier behaviours.
ESG is a key concern for investors, so it’s never been more important to have sustainable supplier management targets and projects in place to demonstrate work in these areas.
To do this, there needs to be transparency with your suppliers, however, this is easier said than done.
How can you implement sustainable supplier management?
ARCUS® Supplier Management Software allows you to select, onboard and manage more sustainable suppliers, significantly increasing supplier transparency.
Our modules across source-to-contract allow users to embed ESG considerations into each stage of the process.
Users can ensure they are collecting all the ESG information they need from suppliers with configurable questionnaires.
By integrating with various other systems across ESG activities, ARCUS® centralises data within the system, including information integrated directly from an original source.
This removes data silos and allows you to view information within a real-time dashboard. This offers a comprehensive visual oversight of ESG activities across your supply base.
To learn more about ARCUS® and ESG see the webpage here.