ESG-driven vendor selection has moved from an afterthought to a priority within the Energy space. In the last 12 months, end users (E&P Operators, Midstream Companies, and Renewable Developers) are utilizing ESG scorecards to assess their vendor base. However, due to the nascent nature of the ESG movement, a global template has not yet been developed. Each company is developing their own ESG initiatives and assessing how their plan will effect their operations, personnel, and their supplier network.
Conceptually, ESG criteria serve as a north star for environmentally friendly, socially acceptable, and ethically righteous supply chain activities; especially in the procurement, sourcing and supplier relationship management-related activities. The jury is still out on what this looks like practically for businesses individually.
ESG Assessment & Focus
Assessing your supplier base from an ESG-centric perspective is vital to retaining your current customers and acquiring new ones. Traceability and transparency into your supplier network has become necessary to manage ESG related risks.
In recent years, Boards and Management teams are focusing more discussions around ESG issues and risks. Pressure for ESG disclosure mounts as investors and stakeholders grow weary of a lack of ESG-related focus. "How do we measure and manage ESG risks when there's no common standard? Where should we focus, when the list of risks is exhaustive?" "What opportunities can we identify to solve big problems and build value in new ways?" The answers to these questions are interrelated.
Through 100+ conversations with with CEOs, COOs, and Heads of Procurement of Oil & Gas related service companies (mainly manufacturers and fabricators), we have identified a common thread. "We're very interested in developing an ESG plan so we can demonstrate to our end-users we're focused on a more sustainable future. However, our teams are working around the clock to ensure our businesses survive. The downturn and price compression from our customers has put us in a really difficult spot. So, when they ask about ESG-related initiatives, we feel like we're stuck between a rock and a hard place."
This sentiment is all too familiar. As fabricators and manufacturers grapple with compressed margins, they are also tasked with developing an ESG plan without a clear roadmap.
Starting Point: Supplier Analysis
One ESG-related initiative fabricators and manufacturers are beginning to assess is their own supplier network. Indicating "we must walk before we run", they're working with 3rd parties to assess their own supply base. The companies are moving towards cloud-based vendor management tools that allow them to track and rate supplier performance. Additionally, leveraging online supplier networks to unlock previously unidentified suppliers is front of mind. "Moving away from our traditional model of working with the suppliers we have always worked with has allowed us to not only connect with new suppliers that can provide more economic prices, higher quality, or shorter lead-times, it has also allowed us to adopt data to analyze our current supplier base, which allows us to tout ESG initiatives to our end-users. We can now win more jobs we weren't previously considered for."
The ESG movement is in infancy, but should not be ignored. The companies that begin developing ESG initiatives today will unlock new opportunities and significant value for all stakeholders involved.
"We are hyper-focused on assisting the companies that built the industrials space (fabricators and manufacturers) in managing their current supplier base, identifying new suppliers, and developing ESG initiatives so they can grow current revenue streams and diversify into new ones." - Founders of PARQ.