6/30/24, 9:30 PM How important is ESG in buyer’s decision making?

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How important is ESG in buyer’s decision

making?
Graham Ablett + Follow
Director of Strategic Proposals - part of an award winning team helping
sales, business development, marketing and bid, proposal and capture
teams to win bids.
Published Sep 8, 2017

Just how important is a company’s ESG (environmental, social and corporate

governance) in the bid process? Is it just a tick-box conformance exercise or
does it hold genuine weight in customer’s decision making?

Is ESG on the increase?

My curiosity was piqued in a recent conversation with one of this year’s SP Rising
Stars, as we discussed whether there had been an increase in the level of detail and
volume of questions relating to ESG in Requests for Proposals and Invitations to
Tender. Having thought about it some more, I had to agree that I’d experienced a
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similar increase across the deals that I’ve supported for my clients. One notable
example sprung to mind where I’d seen a set of questions in an IT hardware tender
that asked whether the manufacturer knew if the company mining the metals in the
components that went to the assembly line of the bidder, was ethically responsible.
Not easy to answer I can tell you! This all got me thinking about how important this
is for buyers…

Is it just a box-ticking exercise?

I recalled reading a piece of research a few years ago that showed that sellers
thought CSR was more important than procurers in a typical bidding situation. Since
then, I’d believed that CSR had become more or less a tick-box exercise. And to do
more than this during the bid is really quite difficult for buyers, as they really need
to understand their organisation’s ESG goals, the impact on their supply chain on
the purchase and the supplier market.

According to the International Association of Commercial and Contract

Management (IACCM), it’s also difficult to contractually pin down the selected
bidder on any ESG-related commitments. The IACCM found that CSR contractual
clauses are usually unilaterally imposed on suppliers, are vague and very difficult to
enforce.

So, the temptation is to think that ESG and CSR requirements are no more than a
box-ticking exercise. But then the anecdotal evidence I found didn’t seem to be
pointing to this. Further delving persuaded me there was more to this…

1. Investors think ESG is very important… a recent Harvard Business Review

survey of 413 global investment professionals showed that over 80% of investors
believe ESG data is material to investment performance. Why? Because it reveals
susceptibility to risks, including reputational, legal and regulatory risk. For example,
Måns Carlsson-Sweeny, senior ESG research analyst, reported that for the typical
listed retail company, ‘the majority of value viewed by investors comes from so-
called intangible drivers that include corporate governance, staff engagement,
occupational health and safety and supply chain management’.

2. ESG is a driver of consumer decision making… building on the above,

organisations selling to consumers are getting more concerned about the ESG-
related impression that they are creating. Why? Because consumers are increasingly
considering ESG factors when making their decisions to buy or not. The recent paper
called Competing on Social Purpose by Omar Rodríguez Vilá and Sundar Bharadwaj
backed this up when they reported that ‘consumers increasingly expect brands to
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have not just functional benefits but a social purpose’. They also recognised (and
we’ve all seen this) that brands ‘increasingly use social purpose to guide marketing
communications’. The influence of the consumer is therefore almost certainly
impacting the promotion of the importance of ESG when bidding in the B2C market.

3. ESG is looked at (by some) as a route to cost savings… by reducing levels of

waste and minimising spend by using less power or water, organisations are killing
two birds with one stone – reducing cost whilst demonstrating good business
discipline. This helps them to show that they have a wide social agenda and
conscience which reflects the positive culture of their organisation, and the
associated benefits: brand positivity, increased investment attractiveness, being a
great a place to work to retain and attract the best talent, and so on.

4. ESG is moving from a ‘nice-to-have’ to becoming a regulatory requirement…

for many industries regulation is forcing companies to take ESG more seriously and
report on it. Failure to do so can lead to financial penalties. Take the water industry:
one of our Board members shared with me their experience with one of the UK’s
major utility companies. These changes are pushing ESG to the centre of bid
decision making in these types of markets. So if you don’t put ESG at the heart of
your bid, then you simply won’t win.

So, what’s the view with procurement?

To help me try and find some more answers, I spoke to procurement guru Steve
Mullins. He reminded me that the corporate world has been on an extended journey
of awareness, regulation, legislation and adoption of CSR. Starting in the early
1990s, major UK companies formed divisions that eventually became CSR units. CSR
in turn became CSER, gradually morphing and widening its remit until it became
what we now know as ESG.

Steve immediately recalled an example of why this is such a difficult area: a

manufacturer of a leading brand of denture cream was asked to demonstrate it had
an ethical supply chain. Some of the ingredients only grow in Afghanistan, and the
buyer wanted to know if the company employing the people harvesting the crops
were following international employment law. An understandable request, but
asking someone to validate a supplier that we estimated was more than 15 steps
away from the source ingredient does seem a little harsh... doesn’t it?

Steve went on to explain that as the emerging CSR/ESG agenda has materialised,
some procurement teams are finding it challenging to understand what their
company’s policy focus is at any given time, resulting in it being hard for them to
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include anything but a standard set of compliance-based (tick-box) questions in

their RFPs. The procurement teams who struggle are those without the level of
senior-level support within their organisations – those labelled (perhaps unfairly) as
‘tactical’ due to their process- and price- driven approaches.

Key point 1: the more tactical procurers struggle to ask the right questions and
so are merely checking that potential providers are broadly aligned with their
general ESG standards

Knowing their customers and prospects, bidders’ sales or account management

teams should be able to spot if the procurement team is tactical. There will also be
clues in their RFPs – if they’re just asking for copies of policies and certificates, or a
short checklist asking for generic Yes/No answers. In this case, then the purchaser is
only really looking for compliance. You may be able to add value by uncovering
ESG-related benefits you can bring to the buyer, but I wouldn’t lead with this as it
won’t be on the recipient’s hot button radar.

However, and in stark contrast, more strategic procurement teams understand the
core sense of their current and evolving internal ESG policy framework and can
properly embed this into their RFPs. These procurers can do this because they can
translate their organisation’s ESG stance in relation to the nature of the supply
market and the profiles of suppliers within it.

Key point 2: if you are bidding in to a strategic purchasing organisation, ESG is

likely to be integral to the questions they ask and within their decision-making
criteria

The bidder’s response to the ESG element of the proposed solution, and the
articulation of how their solution supports the buyer’s ESG goals and targets, is
therefore far more important in this scenario. It should be obvious if this is the case
from reading their RFP/ITT - the ESG questions will likely be tailored to your offering.
Hopefully client relationship teams can bring insights to help customise your
responses in these sections. In this case take care to make sure you are giving the
responses an adequate level of thought and detail. Spend more time analysing what
your customer is saying on ESG on their website and in their annual report.

In conclusion

What did I learn from my ESG journey? For some clients, it’s a key area that will play
a big part in influencing the outcome of a purchasing process – due to investor
pressure or a knowledgeable and informed procurement team. For others, it will just

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be a tick-box qualification process whereby you need to meet the minimum

standard to be considered.

MAIN TAKEAWAY: Know your customers. Ask yourself…

Is ESG ingrained in their DNA?

What level of seniority does the person responsible for ESG have?

Does the person responsible have to report to regulators or stock exchanges?

What did it say in their last Annual Report?

Do they have an investor/founder/chairperson who is passionate about ESG?

How much does their ESG story impact whether people or other organisations buy from
them?

How high is their spend on the tangible aspects of ESG – power, water, and so on? And
can your solution help reduce any of these?

Understanding this before you start writing the response is clearly essential.

My other piece of advice is to review your standard CSR or ESG answers. Double
check that they are up-to-date and you have a good set of boilerplate answers so
you can quickly develop your drafts to the associated sections in your response. And
include mini-success stories to back up your facts to bring this to life, otherwise it
can feel very dry.

Good luck with your bidding exploits!

Like Comment Share 15 · 1 Comment

Nicole Thake CPP APMP 6y

Award Winning Strategic Bid Manager

Great food for thought Graham. I'm not sure I've noticed an increase in ESG questions, but we
probably do need to think more about our boilerplate and include some up-to-date examples.

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