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Inverto chief warns Lack of procurement sustainability strategy will result in serious legal woes

Next year, Germany will become the first country to punish companies for failing to identify risks of environmental destruction or human rights violations in their supply chains

ESG Insight caught up with Thibault Lecat, Managing Director of supply chain management consultancy INVERTO, part of the Boston Consulting Group.

More than 9 in 10 businesses in Britain now have a corporate sustainability strategy in place or underway, a leading industry insider told ESG Insight this morning.

To be more specific, around 60% of companies already have a corporate sustainability strategy in place and 33% are in the process of implementing one.

However, data from Boston Consulting Group subsidiary Inverto showed that 39% of businesses do not yet have a procurement sustainability strategy in place, or in progress.

Considering the level of emissions that a company’s supply chain is responsible for, this lack of focus on a sustainable procurement strategy could put their sustainability targets at risk.

“Procurement can account for as much as 80% of a company’s CO2 emissions that businesses plan to cut but many businesses have not yet adopted a procurement sustainability strategy,” explained Thibault Lecat, Managing Director of Inverto in the UK.

Lecat told ESG Insight that “businesses that fail to adopt a procurement sustainability strategy are taking a big risk and may find themselves wrongfooted by regulation as well as under pressure from their more ESG-focused shareholders.”

Strict new laws

The lack of a sustainable procurement strategy could also put them at risk of breach of strict new laws coming into force over the next two years that will force businesses to take more responsibility for their supply chain.

Germany will become the first country to punish companies for failing to identify risks of environmental destruction or human rights violations in their supply chains.

Under the Corporate Due Diligence in Supply Chains Act, businesses can be fined up to 2% of their revenues.

Also, the EU’s Corporate Sustainability Due Diligence Directive, set to come into force in 2024, obliges large companies to identify environmental impacts and prevent or mitigate these in their own internal operations and supply chains.

Failure to comply could result in directors being found guilty of a breach of fiduciary duty and/or companies being subject to civil liability claims, allowing victims to sue for damages.

More countries are expected to make businesses legally responsible for their supply chain sustainability in the coming years to fulfil national ‘Net Zero’ carbon targets.

Carbon footprint

According to Invetro, only half of companies consider carbon footprint as a factor at present when selecting their suppliers.

Although 64% have defined emission targets, only 44% of procurement functions track decarbonization or energy consumption (45%) KPIs.

This would leave many businesses lagging behind both legislative developments and the expectations of their shareholders and stakeholders.

“It is reassuring though that only a small and shrinking minority of businesses are ignoring the need to implement a corporate sustainability strategy.”

Thibault Lecat

“However, businesses that have been slow to react will want to start planning procurement sustainability strategies,” Lecat stressed.

Only half of companies believe that their procurement targets and strategy are aligned with their sustainability strategy.

To improve this, Lecat said that companies should upgrade their sustainability training and provide stronger employee incentives for reaching sustainability goals.

Only half judge their sustainability training for procurement teams as very good or good; 41% rate their employee sustainability incentives as in need of improvement.

Other notable findings from the study include that one-fifth of companies have a ‘Net Zero’ decarbonization target, 19% of companies are aiming for a 20% reduction in their emissions and 17% of companies are aiming for a reduction in emissions of at least 40%.

Also, 72% of companies do not work with the majority of their Tier 2 suppliers on sustainability issues; 79% do not work with the majority of their Tier 3 suppliers.  

Moreover, Businesses rely on simple sustainability approaches, such as supplier codes of conduct (75%), rather than other more effective solutions such as emissions targets (64%) or sustainable supplier selection measures (63%).

Finally, securing supply and managing supply-related risks was the most relevant focus topic for procurement (82%), ahead of ensuring sustainable and socially responsible value creation (62%).

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