In the past, the Chief Procurement Officer's (CPO) main duty revolved around procuring company goods and services, all while keeping costs low. However, the 2023 ProcureCon CPO Report highlights a significant evolution in the role of CPOs in recent times. They have transcended their traditional scope, embracing added responsibilities in areas like finance, risk management, sustainability, and technology. As a result, CPOs have emerged as vital players in boosting the overall health and success of the business.
Corporate responsibility has never been more critical, especially in the wake of global calls for sustainability and ethical practices. This is particularly evident in the ever-changing role of procurement departments, which have become pivotal in driving forward initiatives related to Environment, Social, and Governance (ESG).
Procurement Leadership: A Strategic Player in ESG Decision-Making
Traditionally, procurement departments' role in ESG has been mainly about launching and supporting these initiatives. One of their key duties is ensuring suppliers adhere to ESG guidelines, with sustainable procurement taking center stage. However, social and governance issues are equally significant in risk reduction strategies.
According to the recent CPO study, 66% of respondents noted that their procurement leaders played a moderate role in ESG decision-making within their organization. This figure indicates that while Chief Procurement Officers (CPOs) and their peers participate in ESG strategy formulation, they might not be the primary decision-makers. Only a small fraction (16%) reported their procurement leaders played a large role in this regard.
Advancing Visibility: New Monitoring Tools Shed Light on ESG Metrics
Despite the aforementioned role division, procurement leaders serve a pivotal function in translating an organization’s ESG policies into action, both internally and externally with suppliers. Technological advancements in ESG monitoring tools have facilitated real-time tracking of suppliers' activities, providing insights into their impact on the company's overall carbon footprint.
In the most recent survey, 59% of respondents rated their procurement teams' visibility into supplier ESG metrics as “good,” on par with their competitors. Additionally, 8% considered their visibility as “excellent,” surpassing their rivals. These metrics reflect significant progress made by procurement departments in enforcing ESG policies amongst suppliers. Enhanced visibility is fundamental for collecting upstream data in the supply chain, empowering companies to negotiate sustainability and governance issues based on solid evidence.
Linking Procurement KPIs to Enterprise ESG Goals: An Ongoing Journey
An interesting facet of the ESG–Procurement interplay is the degree of alignment between procurement Key Performance Indicators (KPIs) and the wider ESG goals of an enterprise. Last year, 55% of respondents reported a connection between these two areas, with about a third (33%) denying any such correlation.
The recent study paints a slightly improved picture. A significant 79% of respondents believe their procurement KPIs are somewhat closely linked to their company's ESG goals. Another 7% see a very close linkage. Although there's room for improvement, these findings suggest an ongoing effort among procurement leaders to align their KPIs with their organization's ESG goals.
Such alignment presents a challenge, as procurement departments must prioritize business-critical KPIs, which might not always directly align with ESG objectives. Nonetheless, the progress made so far is encouraging and signals the increasingly vital role of procurement in navigating the ESG landscape.
In conclusion, as corporate ESG goals become ever more crucial, the role of procurement departments in their enforcement and reporting is set to expand. Aided by new monitoring tools and a growing focus on aligning KPIs with company ESG goals, procurement departments are well-positioned to make a significant contribution to their companies' sustainable futures.
Other articles in the series:
Part 1: Insights and Challenges
Part 2: High‑Level Decision‑Making
Part 3: Top Priorities in 2023
Part 5: New Frontiers
