In my last article, I commented on the risk that firms may decide to leave public stock markets and seek investment from private equity and similar if large investors such as fud and pension managers stop investing based on somewhat questionable “ESG” requirements. Defence firms or even those supporting governments in areas such as immigration or justice management might find themselves shunned.
Although ESG and procurement with purpose (PwP) are conceptually forces for good, an outcome where firms withdraw from stock markets and become less transparent would be an unintended and unsatisfactory consequence of that focus. Another example of potential concern comes in an area closer to home for procurement.
We need to guard against the risk that “procurement with purpose” leads to a contraction of supply markets and erects bigger barriers to entry to firms. Ironically, many of those may well be exactly the sort we should want to do business with under the “purpose” banner. Start-ups, smaller or more local firms, minority owned businesses, social enterprises and not-for-profits… one positive aspect of PwP is the move for more diversity in the supply chain, which is good news for organisations of those types. However, at the same time, are we putting barriers in their way when they want to do business with us?
Increasingly, potential suppliers are asked to jump through ESG-related hoops when they bid for our work. That might be demonstrating they have a net zero plan in place. It might be producing a “social value” proposition (common when bidding into the UK public sector), which might mean taking on apprentices, supporting local firms or worthy causes, or promoting diversity internally and through their own second-tier supply chains.
Or it might mean signing up to some certification or accreditation. That could be environmental, across a range of different issues – not just emissions but also deforestation, waste or water management. Organisations positioning themselves as “diverse” or minority owned are often asked to prove this by getting accredited. This is most common in the USA at the moment, and there is nothing intrinsically wrong with that approach, but some accreditations are pretty expensive for the organisation.
You can imagine a small, young firm looking at all these barriers and costs and wondering whether they should just focus on buyers who aren’t as demanding! Or they might just give up altogether. Or they will pay up and try and recover the costs from their customers (not good news for the buyer either).
So this is really a plea for procurement people and organisations to be sensible, and think about what they are asking suppliers and potential suppliers to do. Consider having various levels of ESG requirement depending on the size or criticality of the contract – even different requirements for distinct types of bidder (although that might be difficult in the public sector as it goes against the principle of “equal treatment”).
Focus on the aspects of ESG that really matter to you for that contract – don’t just use a lengthy, standard template list for every tender. Don’t stipulate that every bidder must sign up with half a dozen different and expensive accreditation bodies. If you want to go down that route, at least look at those that are reasonably priced, and offer lower prices or free membership for smaller firms.
What we must avoid is ESG leading to a situation where the biggest, more established firms dominate even more because of these well-meaning initiatives. Those firms can afford to put sustainability or ESG managers in place on their sales side (as well as on the procurement side). They know how to write impressive bids, promising all sorts of worthwhile activities if you give them the contract. Their net zero plans will look convincing. They will promise to recruit hundreds of apprentices, disabled or disadvantaged folk. Of course, you will never know how many they would have recruited independently of your work, or whether the same apprentices are being counted against every major contract they deliver!
I’ve nothing against big firms, I should add, but please let’s not allow Procurement with Purpose to play into their hands. We need innovative, dynamic, diverse firms in our supply chains – just make sure your PwP approach is not making life harder for them, and harder for you to benefit from their skills.