Dispelling the Myth: ESG Principles in Supply Chain Management Enhance Returns

Dispelling the Myth: ESG Principles in Supply Chain Management Enhance Returns

In the world of supply chain management, there is a common misconception that incorporating ESG principles into supplier selection means sacrificing returns for the sake of profitable outcomes. However, this is not true. In fact, many procurement professionals and executives consider following ESG principles as a way to limit downside risks and facilitate better returns.

Financial Implications of ESG in Supply Chain Management:

While there may be some approaches to ESG in supply chain management that could breach fiduciary duty, in many parts of the world, failing to consider ESG risks and opportunities would be more likely to constitute a breach of fiduciary duty. This shows that ESG is not just a moral or ethical consideration, but also a financial one.

ESG in Procurement:

ESG stands for Environmental, Social, and Governance, which are factors that some procurement professionals and executives consider when deciding where to spend their money. Contrary to the misconception, working with or partnering with companies that care about the environment and society does not necessarily mean giving up profits. In fact, incorporating ESG factors into supply chain management can actually help limit risks across a range of factors

Varied Approaches to ESG Investing:

While some executives may intentionally choose to accept lower returns in order to buy from or partner with companies that prioritize ESG factors, others who use ESG simply may not make as much money as they would if they didn't consider these factors, but that's not their intention. It's important to note that there are many different approaches to ESG investing, and it looks different for each investment manager. Some managers may choose not to invest in companies that are considered high-risk for ESG factors, while others may invest in those companies but work to help mitigate those risks

The Financial Advantages of Incorporating ESG Principles in Supply Chain Management:

Overall, investing in "ESG-forward" partners does not necessarily mean sacrificing profits. In fact, it can be a strategic decision to mitigate risks and enhance returns in the long run. Incorporating ESG principles into supply chain management is not only socially responsible, but it can also be financially beneficial, contrary to the misconception that it sacrifices profits. Procurement professionals and executives should consider the potential positive impact of ESG factors on their supply chain management strategies, and how it can contribute to a more sustainable and profitable business