UPPING THE ANTE ON ESG

As organisations come under more pressure to reduce carbon emissions and improve their sustainability credentials, procurement must now demonstrate how it can play its part. This means looking internally but also at the wider supply chain.

Environmental, social and governance (ESG) issues are now front of mind for procurement professionals, as the pressure to reduce carbon emissions from the supply chain and ensure businesses operate responsibly continues to grow.

The 2025 Indirect Procurement Report, produced by RS and the Chartered Institute of Procurement & Supply (CIPS), finds almost two-thirds (64%) of respondents say ESG is now an important part of their company strategy – up from 52 per cent a year ago – and just 11 per cent feel this is unimportant, down from 21 per cent in 2023.

This emphasis is reflected in procurement’s own focus; more than half (53%) now have a sustainable and ethical procurement policy – up from 26 per cent in 2023 – and just under half (48%) have a strategy to reduce their carbon footprint.

Helen Alder, Head of Knowledge & Learning Development at CIPS, says the growing prominence of ESG is due to a combination of the wider pressure on businesses to improve their sustainability credentials and an increasing emphasis on reporting emissions through legislation such as the EU’s Corporate Sustainability Reporting Directive.

“This is starting to apply not just to organisations that investors have to put a value on,” she points out. “I think it’s going to become a social norm that all organisations of a certain size have some kind of carbon rating on them, and they will thrive or not because of that.”

Holding carbon to account
The main areas of focus for organisations when it comes to reducing carbon footprint are waste recycling, used by 72 per cent, energy management (58%), reduced energy usage (56%) and cutting down on plastic packaging (54%). But Alder points out that, while these can have an impact, the biggest potential for positive improvements is likely to come from within the wider supply chain.

“Trying to get a grip of what that carbon is in the supply chain is essential.”

Helen Alder, Head of Knowledge & Learning Development, Chartered Institute of Procurement & Supply

“Trying to get a grip of what that carbon is in the supply chain is essential,” she says. “Organisations have got to take into account the goods and services they’re buying in and how much carbon that generates, and that’s much trickier to do.”

There are indications, though, that procurement is turning its attention to the activities of suppliers. Four in five respondents undertake some means of assessing ESG credentials during sourcing, onboarding and management of relationships, although the approach they take varies.

The most common method, deployed by 39 per cent, is to use a weighted evaluation criteria in bids and tender processes. More than a third (36%) specify ESG requirements in onboarding processes through a supplier code of conduct, and 33 per cent regularly requalify existing suppliers.

However, there are also informal ways in which organisations can encourage suppliers to improve their ESG credentials. “One of the simpler things they could do is to try and get insight into what other customers are saying about that supplier,” says Alder. “They can also run supplier workshops, where they get suppliers together so they can all learn from each other.” This could even lead to award ceremonies where organisations can recognise suppliers that have made progress, and encourage others to do the same, she adds.

More than a quarter (27%) say they include specific ESG provisions in contracts and regularly audit suppliers against these requirements. But a thorough supplier audit can be hard to conduct, particularly if suppliers are based overseas. “You generally have to do it unannounced and it can be expensive and time-consuming,” points out Alder. “It can also be difficult to make assessments about what’s really going on.”

One way around this could be to use a distributor which has implemented its own auditing processes. “It’s about making sure that you’ve got an MRO provider that offers clear guidance and fact-based claims around product choices,” says Liam Kettlewell, Commercial Director at RS. RS itself is assessed by EcoVadis, and currently has a platinum rating – the highest possible – which can help to offer reassurance to customers, he adds.

The pressure of price
Despite the growing focus on ESG, organisations are less willing to pay more for sustainable products than they were a year ago. Almost four in 10 (38%) say they would not pay more, compared to 18 per cent in 2023. The number of respondents saying they would be prepared to pay more has fallen from 82 per cent to 62 per cent.

This is likely to reflect the current economic environment, believes Alder, and the pressure procurement is under to deliver cost savings. “People are feeling the pinch, because energy prices and other costs keep fluctuating but trending upwards, and there’s a shift back to focusing on cost,” she says. “But it might be that it’s not really more expensive if you look at the whole-life costs.”

It’s a point echoed by Kettlewell, who urges procurement teams to consider the longevity of any product. “If it’s a product which is going to last three four times the average lifecycle of a product, then you might expect that there are more expensive materials in that,” he says. “But the increased product cost could very quickly be reflected in the total cost of using that product over three or four cycles. There are also products that exist which don’t come at an inflated cost, and which have very clearly stated sustainability impacts.”

The pressure to improve ESG credentials is another factor behind the increase in spend on MRO, which has risen by 20 per cent to an average of £2 million, says Agata Evans, Senior Procurement Manager for MRO at Aston Martin. “A lot of businesses are making strategic, smarter decisions about maintenance,” she suggests. “From a sustainability point of view, companies are trying to prolong the life of equipment, instead of buying too quickly and sending more waste to landfill.”

To download the 2025 Indirect Procurement Report, click here.