ESG Climbs to Second Top Priority for Procurement Executives, Says Deloitte Survey

ESG (Environmental, Social, and Governance) considerations have rapidly emerged as a major focus area for procurement executives worldwide, soaring to the number two spot in their list of top priorities, according to a recent survey conducted by global professional services firm Deloitte. This significant rise in ESG prioritization comes as companies face mounting regulatory and stakeholder pressures to address sustainability factors across their operations and supply chains.

The 2023 Global Chief Procurement Officer Survey by Deloitte gathered insights from approximately 350 procurement leaders representing more than 40 countries. This survey has been conducted by Deloitte since 2011, providing valuable trend data on procurement priorities over the years. In comparison to the previous 2021 study, ESG has made a remarkable jump from the seventh position to the second position in the list of top concerns for procurement executives.

As companies confront mounting environmental and social challenges, the focus on ESG extends beyond individual businesses to encompass their entire value chains. This includes factors like Scope 3 emissions (indirect emissions from the value chain) and human rights considerations in upstream supply chains.

One notable regulatory development that has contributed to the heightened importance of ESG is the European Union's proposed Corporate Sustainability Due Diligence Directive (CSDDD). The directive aims to compel large businesses to assess and address adverse human rights and environmental impacts within their value chains. Moreover, the International Sustainability Standards Board's (ISSB) new global climate reporting standard will require companies to report on emissions throughout their corporate value chain.

Deloitte's report underscored the pivotal role of the procurement function in driving the sustainability agenda. It highlighted that ESG is the top area where procurement plays an active and influential role in decision-making, with approximately 85% of firms actively involved. Corporate risk management and financial planning and analysis (FP&A) closely followed, with around 70% of firms playing an active role in these areas.

The report emphasized that procurement's contribution to enhancing ESG can range from baseline compliance with regulations to identifying more carbon-efficient suppliers and fostering sustainable practices throughout the supply chain.

Among the survey respondents, a substantial 72% cited "enhancing ESG/CSR" as a top enterprise priority. This made it the second highest priority, just behind "driving operational efficiency" at 74%, and tied with "digital transformation."

In the context of ESG, procurement executives targeted key factors like waste reduction and material circularity, with 72% of respondents focusing on these areas. Climate mitigation closely followed, with 62% of respondents directing efforts toward reducing their environmental impact.

Despite the rising significance of ESG, the study indicated that initiatives to quantify sustainability factors are still at an early stage. Although 60% of respondents reported measuring suppliers on sustainability to some extent, and 63% collaborated with suppliers on ESG initiatives, less than half (40%) stated that their procurement organizations had defined or measured their own set of relevant ESG factors.

The survey also highlighted the key investment areas related to ESG for CPOs (Chief Procurement Officers), which included assessments, the development of visibility and reporting platforms, the creation of supplier investment funds and consortia, and the incorporation of ESG into core people, processes, and consulting/transformation support.

The Deloitte survey clearly demonstrates the remarkable ascent of ESG as a top priority for procurement executives. As companies face growing pressures to address sustainability challenges, procurement leaders are increasingly recognizing their pivotal role in driving positive change across their value chains. The report underscores the importance of quantifying sustainability factors and fostering collaborative efforts with suppliers to achieve a balance between cost, resiliency, and ESG considerations. By leveraging ESG as a critical C-suite issue, procurement executives have a unique opportunity to bolster their organizations' long-term success while positively impacting the global sustainability agenda.