Corporate ESG programs often focus on two key areas: decarbonizing operations and diversifying suppliers.
Decarbonization typically involves a measurement and goal setting process, development of a decarbonization roadmap, and a plan for implementation and reporting. These efforts quickly descend into a range of activities focused on energy demand and supply. Energy efficient programs and clean energy procurement are typically the favored solutions for meeting environmentally focused ESG goals.
Supplier diversity programs are different. Here, the focus is on assessing the diversity and inclusion status of an organization and then developing a set of programs designed to improve diversity metrics to achieve ESG objectives in this area. The assessment focuses on existing supplier diversity policies, processes and metrics. Supplier diversity programs are focused on achieving progress across a range of spend categories.
On the surface, decarbonizing and diversifying efforts appear distinct. However, when it comes to implementing programs to measure and improve emissions and diversity, the similarities are striking. Companies can leverage these synergies in a holistic approach to “E” and “S” goals and pursue them simultaneously.
A good starting point for supplier sustainability and diversity assessments is to create a “category assessment matrix” (Figure 1). This quadrant chart helps companies identify spend categories that represent the greatest opportunity for improvement, enabling them to execute successful programs at the lowest cost by focusing on the most impactful and “easiest” categories first.
Within a category assessment matrix, two dimensions are used to identify those categories with the greatest improvement potential for both environmental and diversity programs: (1) potential impact; and (2) ease of implementation. For sustainability, potential impact is the potential for carbon reductions in each category. For diversity, potential impact is the potential for diversity improvement. Spend in each category is often the best proxy for potential impact.
Ease of implementation is a bit more nuanced. For diversity, this relates to the risk of switching suppliers and the presence of alternative suppliers. For sustainability, ease of implementation is a function of the decarbonization difficulty for suppliers. Some suppliers may operate in energy intensive industries that are difficult to decarbonize; other’s may have a plethora of decarbonization options at their disposal that they haven’t yet activated. In both cases, ease of implementation tells us the location of the low-hanging fruit.
This approach can be used by any organization that has supplier-related ESG goals and wants to determine where to start. However, a robust assessment requires high-quality data, which can be challenging to obtain. But when good data is acquired, cleansed and cast into a category assessment matrix, the benefits are enormous. Companies that have already started their ESG roadmaps can use the chart to prioritize projects and redirect resources as needed.
Just because ESG goals are targeted toward various ends doesn’t mean they can’t be pursued in a least-cost manner. With proper coordination, many of these programs can actually save money. There’s no better place to start than with a clear-eyed view of the potential impact and ease of implementation across spend categories.
Brandon N. Owens and Rod Robinson work for Insight Sourcing Group.
Read more of SupplyChainBrain's 2022 Supply Chain ESG Guide here.
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