Our recent Sustainable Procurement Survey of more than 300 chief procurement officers (CPOs) around the world revealed a growing momentum in the implementation of environmental, social, and governance (ESG) issues. Four out of five companies now report that they have begun to translate their sustainability ambitions into procurement objectives.

CPOs are in a unique position because of their significant influence over the sourcing of raw materials and parts, providing an opportunity to guide suppliers toward more sustainable practices and align the supply chain with broader sustainability goals.

Companies are increasingly recognizing that achieving their sustainability goals depends on the ESG performance of their suppliers. For example, the sustainability performance of a consumer goods company depends on the environmental impact of its packaging suppliers; a food company depends on the agricultural practices employed by its dairy or grain suppliers; a train operator is affected by its locomotive and rolling stock manufacturers — and so on. All players in a value chain are interconnected when it comes to sustainability.

Consequently, companies committed to ESG performance need to engage and challenge their suppliers on their sustainability journey. This process consists of three steps that CPOs should follow: assess, engage and monitor, enable.

Assess — foucs on supplier base to define a license to operate

With supplier networks ranging from a few hundred to over 20.000, large companies cannot assess all their partners individually. Therefore, advanced players adopt a “mass balance“ philosophy that involves focusing efforts on a shortlist of key suppliers, while assessing the entire supplier base using a standardized approach. This defines the minimum requirements suppliers must meet to qualify and ensures that they are met efficiently.

Mature players typically develop a responsible sourcing policy, signed by all suppliers, supplemented by standardized questionnaires and/or automated assessments using external databases, such as the CDP guidelines for carbon, water, and forests and Ecovadis‘ for supply chains. Suppliers that do not meet the defined minimum requirements (such as the CDP grade, Science Based Target initiative goals, or certain percentages of renewable energy in operations) are excluded from the supplier network.

While this approach is a step forward, it can create an administrative burden and is often perceived as a bureaucratic exercise. Focused efforts on a subset of suppliers and key ESG dimensions will implement deeper assessment methodologies. This subset is defined by business size, operational dependency, materiality of sustainability concerns and inherent risk of the purchasing category, such as palm oil, coffee beans, and cobalt for batteries. This second level of assessment often consists of more detailed questionnaires, ratings, and audits.

Based on this shortlist of suppliers and selected ESG dimensions, the next step in the sustainability journey, “engage,” can be activated.

Engage — motivate suppliers with positive engagement and rewards

Engaging key suppliers requires a mix of incentives and accountability. Mature players find the right balance between pressure to act and positive rewards. This type of engagement requires significantly more energy and commitment than the in the first level, often focusing on a subset of 50 to a few hundred suppliers.

In another example, a major player in the sportswear industry has established an internal supplier ranking of bronze, silver and gold, with key performance indicators (KPIs) underpinning the system. While the first two tiers are compliance measures, the gold tier rewards suppliers that go the extra mile in areas like employee benefits, that lead to increased business and visibility.

For example, a major technology manufacturer has created a formal business incentive program to reward sustainable supplier behavior, offering flexible payment terms, financial incentives, contract accommodation, and shared resources.

Organizing special events, meetings, or seminars can also foster a sense of community among suppliers while addressing sustainability issues. For example, a major cosmetics company hosts an annual sustainability seminar called "Spread the Green Vibes," which encourages suppliers to communicate publicly about their sustainability efforts.

At the same time, a thorough approach to supplier engagement includes monitoring progress, leading to remediation actions if there is no change in previously identified risks. Advanced players integrate these ESG performance monitoring efforts within traditional supplier performance management processes.

One leading IT manufacturer has implemented measurable KPIs per sourcing category that trigger quarterly meetings and remediation plans if thresholds are not met. This multiyear remediation process results in joint efforts with suppliers to improve performance, with termination as a last resort.

Ultimately, supplier engagement balances rigorous policy enforcement and monitoring with positive engagement, collaborative efforts and rewards.

Enable — offer advanced supplier support in sustainable procurement

Several advanced players in sustainable procurement have recognized the need to go beyond monitoring and rewarding key suppliers. After years on this journey, there is a limit to what can be achieved without providing direct concrete support.

We have identified high-impact supplier enablement initiatives related to access to financial resources, intellectual resources, or both:

• In-house financing mechanisms: Mature players in the retail and beverage industries are partnering with banks to offer sustainable supply chain finance programs tied to specific sustainability criteria, benefiting suppliers with increased cash flow, loans, or advance payments.
• Support for leveraging external funding: Companies can facilitate access to public funds and financial pooling initiatives aimed at improving ESG performance. For instance, Germany's €4 billion subsidy program supports energy-intensive industries transitioning to green production.
• Access to coalitions: Enabling suppliers to join sustainability-focused coalitions helps them share best practices and resources. These coalitions often include businesses, NGOs, and government organizations, providing collective expertise and resources.
• Access to ESG knowledge: Mature players offer training programs and workshops to help suppliers understand and effectively implement ESG principles. Utilizing supplier development units can engage suppliers beyond simply sharing resources, empowering them to make informed decisions for improved sustainability outcomes.

In conclusion, the journey toward sustainable procurement is a collaborative endeavor that requires companies to assess, engage, and enable their suppliers. By taking a proactive approach, organizations can drive meaningful change across their entire value chain. This not only enhances the sustainability performance of the suppliers, but also strengthens the company's own ESG commitments. As businesses continue to prioritize sustainability, fostering strong partnerships with suppliers will be crucial in achieving long-term environmental, social, and governance objectives. Through these collaborative efforts, companies can not only achieve their sustainability goals, but also contribute to a more sustainable and resilient global economy.