Procurement plays a pivotal role in achieving corporate sustainability goals. To make an impact, procurement teams must embrace and measure performance against quantifiable Key Performance Indicators (KPIs). With an increased focus on ESG (Environmental, Social, and Governance) reporting, you need more than one metric to demonstrate your organization’s commitments.
Here are the top KPIs for supply chain sustainability and how they drive tangible results.
Total Carbon Emissions
Tracking total carbon emissions enables companies to measure carbon output over a period of time, track progress, and comply with a growing number of regulatory requirements. It can also help procurement and sustainability teams uncover carbon-intensive business trends (e.g., business travel) and ways in which they can reduce emissions and costs. There are several methods to track and measure carbon.
One method is quantifying a company’s total carbon emissions (in metric tons), annually. This provides a high-level but easy-to-understand KPI that can be compared year-over-year. Another method calculates total carbon emissions via carbon intensity (kg CO2e per unit). Companies can calculate emissions per unit of production, transportation, or revenue to assess efficiency and set reduction targets.
Total Greenhouse Gas (GHG) Emissions
Companies must increasingly track, measure, report, and even begin to reduce their total greenhouse gas (GHG) emissions, which the Greenhouse Gas Protocol has broken down into three distinct groupings – Scope 1, 2, and 3.
- Scope 1 refers to the emissions a company owns or controls directly within its daily operations – including emissions from vehicles and anything that must be powered by a non-renewable-energy source.
- Scope 2 refers to the emissions indirectly caused by the production, transportation, and purchase of energy (e.g, electricity, heat, steam, solar, wind) used to power a company’s operations.
- Scope 3 refers to the emissions indirectly caused by the company’s entire value chain, which includes their customers and customers’ product use, logistics providers, service providers, and suppliers. In many industries this can be the biggest area of GHG emissions and worthy tackling. However, it can be the most difficult GHG category to quantify and track.
While many organizations today are tracking Scope 1 and 2, they need Procurement’s help with Scope 3. Tracking total GHG emissions in this manner enables companies to understand their environmental impact in ways that surpass basic carbon emissions tracking or looking “in house” at their total footprint. It provides greater breadth, depth, and clarity on where within the value chain a company is the least sustainable and thus, where there are the most opportunities to improve.
Carbon Neutral or Net-Zero Goals
Companies, countries, regional economic blocs, and the global community set these goals to balance or cut global GHG emissions over time to limit global warming to 1.5 degrees Celsius over industrial levels. Companies can reduce, capture an equivalent amount of GHG, or offset (e.g., by purchasing or trading offsets, or creating internal offsets) from their operations.
Committing to achieving carbon neutrality or net-zero emissions involves implementing effective changes to reduce carbon/GHG emissions, tracking progress, and communicating results with full transparency and accountability. The benefits, beyond limiting global warming and averting catastrophic climate change, include complying with laws and regulations, driving efficiencies, cutting energy costs, building a brand’s reputation, and top- and bottom-line financial results.
Cost Reduction and Efficiency
When businesses implement changes to operations, processes, products, and so on, to drive sustainability, they typically reduce costs and increase resource efficiency. Procurement teams must capture and quantify these savings and gains to demonstrate financial ROI.
Success breeds success. Quantified cost reductions and efficiency gains incentivize greater investment in procurement teams and ESG programs, including sustainability and supplier-diversity programs, as they show clear ROI.
Product Carbon Footprint
A product’s total carbon footprint accounts for the resources, production methods, and disposal methods needed throughout an individual product’s life cycle. Tracking carbon footprint enables businesses to more accurately account for the environmental impact of each of its products, at each stage of its life.
For businesses that offer hundreds or thousands of individual products, each of which must be produced, shipped through a supply chain to reach end users, used, and discarded, tracking product carbon footprint helps them assess the product’s specific and total environmental impact, instead of relying on industry averages. It also helps businesses better understand their environmental impact at scale, which can better position companies to follow Scope-3 emissions requirements.
Percent of Spend with Diverse and Sustainable Suppliers
Tracking spend with diverse and sustainable suppliers enables procurement teams to identify trends within their ESG programs and, if needed, allocate more budget with sustainable providers. Tracking spend also enables companies to publicly disclose progress made on supporting diverse and sustainable suppliers and is a requirement for certain government contracts and public tenders.
More importantly, driving spend with diverse and sustainable suppliers impacts the “triple bottom-line” – people, planet, and profit – which typically results in more innovation and less risks. A positive triple bottom line also improves brand reputation across their value chain, leading to greater customer loyalty, revenues, and profit.
Measuring and tracking ESG’s economic impact enables procurement teams to communicate these programs’ wider benefits – beyond the top- and bottom line. ESG programs have been shown to inject capital into the local economies, which can lead to job creation, greater wages, greater representation in leadership and executive roles, greater tax revenues, and greater local philanthropy.
Good governance ensures suppliers adhere to agreed-upon codes of business conduct, share values, and avoids human rights, environmental, and corruption violations. This is a critical area for an ESG program. However, historically organizations have not defined key metrics to track and manage the governance aspects of ESG.
Would you like to learn more about how Supplier.io helps procurement teams quantify key value drivers and communicate their success to stakeholders? Let’s talk. Click here to schedule a call with us.