How Procurement can Positively Influence Supply Chains to Achieve ESG Ideals

Companies looking to positively influence supply chains to gain the desired environmental, social, and corporate governance (ESG)-related outcomes would do well to begin the journey by developing a rigorous Supplier Code of Conduct (CoC) that sets out key expectations across the most pertinent areas. These would include compliance with the law, business integrity and ethics, human rights, health, safety and environmental protection. 

By making this the starting point, a company is sounding out the posture and attitude its suppliers are expected to uphold and defend. When this is firmly in place, everything else can be reasonably expected to fall into place. 

This has been our experience at OCBC Bank (Malaysia) Berhad. Once the CoC has been understood by our suppliers, we have been able to seamlessly ensure that our procurement discipline incorporates the use of recycled materials, green certifications and energy efficiency of equipment, among others. We cannot emphasise more how vital it is for the CoC to be incorporated into the supplier onboarding process, which should then be acknowledged by suppliers before an engagement can commence.

Sustainable Procurement

The assessment of supply chains is best carried out by establishing environmental and social performance indicators for all vendors with regular progress monitoring, by conducting capacity-building programmes and by facilitating knowledge-sharing. Companies might find incorporating ESG weightages and due diligence checks in the procurement of products and services in this manner to be most beneficial. 

In recent times, companies have become more conversant and drawn into progressively placing greater emphasis on procuring environmentally friendly products and services over others during the screening and selection of suppliers. This is a good sign but there is still a long way to go before the desired take-up rate is achieved. Toward achieving this end, we believe that the CoC should firmly govern the ESG standards and expectations of all suppliers.

Familiarity with the 17 UN Sustainable Development Goals (UN SDGs) would be a fair expectation. Areas of particular importance for consideration as highlighted above are compliance with the relevant laws, business integrity and ethics, human rights, health and safety and environmental protection. When procuring paper supplies or serviceware, for example, we at OCBC Bank focus on purchasing biodegradable serviceware and Forest Stewardship Council (FSC)-certified or Programme for the Endorsement of Forest Certification (PEFC)-certified paper for administrative use. 

To cap things off, companies should periodically ask their vendors for information about their own social and environmental initiatives. This can serve as a useful part of the selection and onboarding or renewal process. 

Supplier/Vendor Engagement Efforts

It is also important to proactively engage suppliers in conversations related to proper ESG practices. Heightened ESG awareness better informs suppliers of the relevant risk management considerations, thereby enhancing their own supply chain resilience whilst helping to create the desired positive community impact. 

In addition to the ESG criteria applied within the vendor onboarding evaluation process, a company’s Central Procurement Office (CPO) could consider communicating its CoC to all its suppliers at least annually; this will help to ensure the subject remains on the table and becomes part of their vendors own agenda over time. The CPO could also regularly reach out to suppliers to stay up to date on their sustainability initiatives and emerging trends impacting their industries. This will ensure there is two-way learning.

Beyond these, we have found that it does lend a nice touch to issue monthly ESG newsletters to suppliers featuring bite-sized sustainability information, commentaries and guidance to cultivate an ESG culture within the organisation. This keeps stakeholders informed and updated on things that are relevant not only to their appreciation of ESG practices but also their continued place on the list of vendors.

At OCBC Bank, we have begun engaging some of our vendors to incorporate sustainability readiness as part of the contract renewal process. Today, our vendor empanelment assessment includes a weightage on the practice of sustainability values. 

A thriving society is dependent on a healthy environment. As a responsible business, we are duty-bound to limit negative impact on the environment and do our part to protect the vital ecosystem that supports life on our planet. Not doing so presents risks to the long-term viability of our business and the wellbeing of our stakeholders. By putting the proper protocols in place, we are demonstrating the highest levels of dedication to ESG procurement at every step of the industry supply chain engagement journey. 

We believe that when the conversation flows freely through every part of the supply chain, the cause of the environment will be well served.

For details on OCBC Bank’s procurement and supply chain approach, please refer to the OCBC Malaysia Sustainability Report 2021.