Sustainability and corporate social responsibility (CSR) are now important or critically important items on the supply chain agendas of organizations around the world, according to a new survey. However, organizations need to continue to drive improvement in the implementation of their sustainability/CSR programs to ensure risks and compliance are managed, and brand reputation protected.
Some 97% of organizations surveyed in the 2017 HEC/EcoVadis survey, “Scaling Up Sustainable Procurement”, now consider sustainable procurement either important or critically important. This is a significant rise since 2003, when just 40% of organizations surveyed believed this.
The survey, conducted in two parts, was published in February 2017, covered nearly 500 buyers and supplier companies in Europe and the US. Companies with annual revenues of at least $500 million were selected for analysis in the report.
Pushing the rise in importance higher are a number of business drivers including brand reputation (identified by 63% as a critical factor); risk mitigation (61%) and compliance (57%). Interestingly, these factors are in the top three on both sides of the Atlantic, signaling an alignment of priorities. However, in the US, the primary driver is risk mitigation while in Europe the top driver is brand reputation.
Boards are on board
These are themes that resonate loudly with boards of directors, and the survey shows support at that level firming up significantly. Less than one-quarter of respondents reported a lack of executive or board support this year, down from 50% in 2013, when it was the top obstacle to an effective sustainable procurement program.
Organizations considered by the creators of the survey to be “SP Leaders” are seeing strategic payback for investment in Sustainable Procurement as well. The survey reported a significant increase in the benefits of an SP program, including improved brand reputation (90%); and stronger, more reliable, and longer-lasting supplier relationships (70%). Half of SP Leaders also attributed more “innovative, sustainable products and services that resulted in increased sales” to their sustainable procurement program. These are benefits that also capture the attention at the executive and board of directors level.
Implementation progress mixed
In some areas of implementation, strong progress continues to be made. For example, some 88% of respondents reported having a supplier code of conduct or a sustainable procurement contract clause in place – an increase of 12 percentage points since the last survey, in 2013.
As well, more than half of all respondents said they set targets for buyers/category managers on supplier CSR monitoring and/or performance. More than 40% reported using a balanced scorecard approach to sustainability measures and goal setting, too.
In another positive sign, the coverage of the global supply chain base has expanded dramatically. Measured as the “percentage of suppliers covered by the SP program”, some 45% of organizations reported that their SP program covers more than 75% of their strategic supplier base. This is an increase of 18 percentage points over the 2013 result, showing significant progress being made. Coverage of high-risk suppliers showed similar gains.
Governance structures within organizations also show great improvement, with 67% of those surveyed saying they have a sustainable procurement champion identified. Some 65% say key procurement staff have received CSR training.
As well, some 75% of organizations use CSR data when selecting new suppliers, and 63% have specific CSR weighting requirements when managing RFPs, RFXs, and tenders. In their ongoing review of vendors, 58% use CSR data during their annual supplier evaluations, while 45% use CSR data during the contract renewal phase of negotiations.
However, in spite of these improvements, there is still much work to be done to really bed in sustainable procurement and CSR programs within organizations. According to the survey, the most significant challenge these organizations face is a lack of internal resources, with 57% of respondents reporting this problem, up from 28% in 2013.
More resources required
Some 37% of companies report difficulty in tracking supplier sustainability performance. Indeed, supply chain and CSR visibility remains challenging, with only 15% of organizations saying they have complete supply chain visibility into the CSR and sustainability performance of both Tier One and Tier Two suppliers. Only six percent say they have full visibility into Tier Three and beyond. This is of particular concern since so many risk issues have historically caused losses for companies at that Tier Three level.
The overall price tag of a good sustainable procurement program may be part of the problem – 33% of respondents named this as a challenge. This may be preventing some of the more structured approaches to sustainable procurement from being implemented. Just 22% of organizations use Total Cost models that include sustainable development criteria, and less than two-thirds have a supplier audit program and corrective action plan. The number of organizations performing supplier self-assessments has actually declined seven percentage points since 2011 to 57%.
Another area that is in need of improvement is the linking of sustainable procurement to individual performance objectives and appraisals, by including sustainable procurement factors. Just 38% of organizations surveyed do this – and this has edged down two percentage points since the previous survey in 2013.
Reporting is another area that is of need of focus at companies. Only 55% include supplier sustainability indicators/performance in their external annual CSR report. And just 30% of organizations use SP or CSR performance to help steer the future strategy of their company.
Clearly, great progress is being made within organizations to build a strong approach to sustainable procurement – and organizations who have made the investment are seeing the benefits. However, while most companies have a good governance structure for SP/CSR in place, many need to invest more resources in their overall “where the rubber meets the road” infrastructure, including data, technology, and human resources.
To find out more about how Aravo is helping some of the most respected Global 2000 companies with successful Responsible Sourcing programs, contact us today.
With Aravo you can:
- Gain a transparent view of the social and environmental opportunity and risk in your supply chain and wider third party network
- Apply a risk-based approach across your global base of suppliers and across all tiers.
- On-board, validate and verify suppliers and third parties, risk assess and conduct on-going monitoring to identify changes in risk profile
- Assess new suppliers and third parties with questionnaires, dynamically mapped against your company’s own risk frameworks
- Have a clear individual and aggregated view of risk and performance for each supplier and third party
- Incorporate the Ecovadis’ Sustainability Ratings into your overall third party management programs in order to gain visibility to these important factors along-side other risk factors that may impact your business.
- Leverage full reporting and audit capabilities to deliver supplier sustainability indicators/performance results for your annual CSR report
- Minimize exposure to reputational risk, compliance risk and regulatory risk (including environmental, health & safety, human slavery/trafficking and conflict mineral regulations).
For a comprehensive examination into the business motivations that drive a successful business case for TPRM, read our complete White Paper The Business Case For Better Third-Party Risk Management.