How businesses spend their money can affect issues around the globe. Corporate social responsibility (CSR), a commitment to meeting or exceeding ethical, legal and commercial public expectations, not only helps make the world a better place, but is also increasingly critical to business results. Both consumers and government regulators require adherence to certain CSR standards, and buyers are increasingly choosing brands based on CSR values.
In partnership with Forrester Consulting, we conducted an online survey of how business decision-makers today view CSR, with a particular focus on procurement. It involved 940 respondents in a variety of industries, drawn from companies ranging from 500 to more than 20,000 employees.
According to the survey, companies with mature sustainability procurement programs in place realize greater return on investment across the board than their peers. That finding is based on lower costs, increased sales, higher levels of innovation, reduced supply chain risk and more. But what exactly does sustainability mean in the context of business? The answer is that it takes different forms, depending on the nature of the business and the culture of the company.
Harvard Business Review offered some illustrations of what sustainability in business can look like. They include using sustainable materials in manufacturing, reducing greenhouse gas emissions, relying on renewable energy sources to power facilities, and sponsoring education funds for youth in the local community. But while all of these actions can have genuine value, the greatest part of the social and environmental footprint for most companies comes from outside their walls, throughout the many layers of the supply chain that bring them needed goods and services.
That’s why the journey for sustainability starts with procurement leaders, and their ability to engage suppliers in this effort. Yet we found that monitoring of this sort is quite rare, with only 15% saying they measured the sustainability performance of more than three-quarters of their tier 1 suppliers. The number drops to just 3% for sub-tier suppliers.
The biggest challenge to improving those dismal figures, the survey found, is lack of visibility. Without it, there are few opportunities to implement effective, scalable collaboration with suppliers.
Of the one out of seven surveyed organizations with advanced CSR programs, approximately half identified three structural changes they believed would improve the impact of their companies’ programs: Incorporating sustainability key performance indicators (KPIs) into employee performance reviews, investing in supplier collaboration platforms, and digitizing key sustainability data. But the survey also uncovered a disconnect between these ideal strategies and their actual implementation, with only one-third having incorporated KPIs; 29% having digitized sustainability data, and just 28% having invested in collaboration platforms. In effect, almost every organization has significant room to improve.
There was another important disconnect. Eight out of 10 decision-makers claimed that their organizations had the resources, structure, policies, people and technology needed to succeed. But only half thought their organizations were doing an excellent job in meeting stated CSR objectives. In essence, there’s a tremendous unfulfilled potential. And the single greatest obstacle that companies encountered in making greater progress appeared to come from inadequate or unreliable data about suppliers’ CSR performance.
What we found among leading firms is that there are multiple ways of balancing suppliers’ CSR performance against the cost of their supplies. The three most successful balancing strategies used in working with potential suppliers were prescreening prospects based on CSR thresholds, providing suppliers with maximum flexibility in how they meet requirements, and digitizing collaboration throughout the supplier lifecycle to enhance visibility.
Companies are learning that sustainability-focused businesses not only tend to see better financial results than their peers, even during a pandemic, but they also think and operate differently. In most of those cases, the company’s suppliers, which are major contributors to their customers’ environmental footprints, are treated as partners, both in their clients’ CSR initiatives as well as in their product manufacturing. And it’s the procurement heads who are tasked with leading the effort to shape those partnerships.
David Khuat-Duy is chief executive officer of Ivalua.
Timely, incisive articles delivered directly to your inbox.