How will ESG become a scoring mechanism for procurement departments?

In the 1990s, the idea that procurement decisions would be shaped by Environmental, Social and Governance (ESG) considerations would have been unimaginable. Back then, the focus was on price, quality and delivery timelines. But today, the world of procurement looks very different. What we purchase, whether goods, services, or technologies, must now align with broader societal priorities, including sustainability, social impact and ethical governance.

The rise of ESG marks a profound shift in how organisations evaluate suppliers and manage procurement processes. No longer a peripheral consideration, ESG is now at the core of supplier selection and contract management. Recent research reinforces this transformation, with a KPMG study revealing that 66 per cent of procurement leaders view ESG-related requirements as pivotal to their strategies for the next three to five years. This evolution is set to formalise ESG into scoring mechanisms, fundamentally reshaping how procurement departments operate and deliver value.

The changing landscape of procurement

• In today's world, procurement is pivotal in addressing global challenges such as climate change, inequality and community development. 

This ESG-aligned approach means procurement professionals now pose questions to suppliers that extend far beyond traditional price and quality concerns. Key considerations include:

• Carbon footprints of products and suppliers
• Diversity and inclusion initiatives within supply chains.
• Suppliers making community contributions, such as partnering with social enterprises.

This shift reflects growing pressures from both internal and external stakeholders. Governments are leading by example, embedding ESG criteria into their procurement frameworks. Private enterprises are starting to follow suit, with many seeing both reputational and financial value in ESG-aligned supply chains.

Furthermore, Procurement Magazine notes that monitoring Scope 3 emissions has become essential to sustainable procurement as organisations strive to meet ambitious net-zero targets. These developments illustrate the growing momentum behind ESG as a core component of modern procurement strategy.

ESG as a scoring mechanism
Looking ahead, ESG is poised to play a pivotal role in procurement processes as a formal scoring mechanism. Traditionally, procurement professionals have relied on cost, performance and compliance to assess suppliers. However, ESG metrics are set to become equally significant, evaluating not just what a supplier delivers but how it delivers it.

Significantly, ESG scoring is evolving to encompass environmental concerns and critical social and governance factors. Modern procurement decisions are increasingly influenced by the following:

• Engagement with social enterprises - Suppliers actively addressing social inequality and promoting community development earn higher ESG scores. For instance, governments and corporations are recognising the impact of directing even a small portion of their spending, such as one per cent; to social enterprises, which could inject billions into disadvantaged communities.
• Responsible use of procurement dollars - Strategic procurement teams understand that spending choices have the power to drive societal change. Focusing on social impact purchasing is not just an ethical choice but also a strategic one, fostering goodwill and long-term value.
• Governance standards - Suppliers should demonstrate adherence to ethical business practices, transparency, and compliance with evolving regulatory frameworks. Strong governance fosters trust and mitigates risks, positioning suppliers as reliable partners.

This holistic view of ESG reflects a shift toward the "triple bottom line": people, planet, and profit. Suppliers with robust ESG credentials are proving to be just as competitive and innovative as traditional providers. Rather than being seen as compromises, social impact and sustainability are now key differentiators, reshaping the competitive landscape of procurement.

Balancing ESG goals with organisational realities
Our recent research report, 'Future-Focused Procurement: The Rise of ESG, shows that while ESG is a growing priority, many organisations are still figuring out how to translate policies into action. 57% of respondents indicated that ESG is a priority within their organisation, yet only 33% have formally adopted ESG practices. This gap highlights many companies' challenges in moving from intent to implementation.

Smaller organisations often struggle with ESG adoption due to resource constraints. Without dedicated personnel or budgets, it can be difficult to integrate ESG into procurement strategies. For this reason, medium and large enterprises are leading the charge, setting ESG benchmarks and paving the way for smaller businesses to follow.

Every organisation must define its own ESG priorities. Balancing these goals with procurement realities, such as cost pressures and supply chain risks, remains challenging.

However, forward-thinking companies understand that the long-term value of ESG-aligned procurement far outweighs the short-term costs.

The evolution of ESG in procurement from talk to action
Although ESG adoption is still in its early stages, the momentum is building. Leading organisations understand that ESG is not a passing trend but a fundamental shift in business operations. The challenge for procurement teams is moving beyond policy statements to tangible action, integrating ESG into every step of the procurement lifecycle.

This transformation will involve embedding ESG into supplier evaluation frameworks. Procurement departments should develop clear, transparent, measurable, and actionable ESG scoring systems here.

This is where technology can play a critical role in ESG reporting. Procurement software will be essential for tracking ESG metrics, ensuring compliance and generating real-time reports. Larger organisations can play a crucial role in helping smaller suppliers enhance their ESG capabilities, creating a more inclusive and sustainable supply chain.

Conclusion
Integrating ESG into procurement processes presents a win-win opportunity for businesses, communities and the planet. Suppliers with a social or environmental purpose are proving to be just as competitive and capable as traditional vendors. For procurement departments, aligning with these suppliers delivers operational value and enhances brand reputation and societal impact.

The future of procurement lies in ESG-driven decision-making, where procurement teams act as enablers of positive change. By adopting ESG as a formal scoring mechanism and using a procurement system to provide the necessary reporting, organisations can ensure that every dollar spent contributes to building a sustainable, inclusive, ethical future.

While the journey towards ESG integration may present challenges, it is one that all organisations must undertake. As all organisations realise the financial and societal benefits of ESG, aligned procurement teams will no longer be seen as a burden but as strategic partners that deliver lasting value to their organisation and society.