At the sold-out European edition of its Inspire conference in Berlin yesterday, the big announcement from business spend management vendor Coupa was support for compliance with upcoming German legislation on supplier vetting. It was a powerful illustration of the relentless rise of Environmental, Social, and Governance (ESG) considerations in supply chain management.
There has been some criticism of the rise of companies publishing sustainable investment metrics, arguing that such criteria become just another reporting requirement that has little real-world impact on society and the environment. Are such measures just mindless box-ticking and red tape, or can they prompt genuine behavioral change? Coupa is determined to make sure it’s the latter. As Donna Wilczek, SVP Product Innovation & Strategy, explains:
I fundamentally think that we can help change how businesses spend. And if we change how businesses spend, then the impact will be very different than if we just help businesses report on it. That's ultimately how we're focused on looking at the actual process and the end, and the moments where people are making decisions ...
The time has passed for having lip service to these things. [It’s time for] really getting organizations to say we're going to make a difference.
ESG reporting is the first step
The German Supply Chain Due Diligence Act, or Lieferkettensorgfaltspflichtengesetz (LkSG) as it's known in Germany, comes into effect on January 1st, 2023. It requires companies with more than 3,000 employees in the country to monitor supply chains for human rights violations and comply with environmental standards. The law has been introduced because the Government felt voluntary efforts to meet these goals weren’t moving fast enough. This is a pattern likely to be repeated in other countries. Wilczek says:
I think the government of Germany in this case, they allowed companies to do the right thing without regulation. They didn't see the change that they wanted happen. And so now they're mandating, and I think we're going to see a lot of that in countries around the globe.
Reporting is a crucial first step, to establish a baseline from which progress can be made. But companies also need to take proactive action to improve matters and make a real impact. For Coupa, the emphasis therefore has been on helping companies make sourcing decisions that proactively change the diversity mix and advance sustainability across their spend. Wilczek explains:
What if every business dollar spent could be more sustainable and more inclusive? What if that was the ultimate goal? How would you make that happen? You wouldn't just report on it, you would take it all the way back to the process and say to yourself, as the decisions were being made, what could you do to introduce something to have that person make a different decision, make a smarter decision? Could we redesign the supply chain? Can we redesign the network to be better, to eliminate routes where they're inefficient, or they're more carbon heavy? Could we look at introducing more diverse suppliers? [Coud we do that] at the moment people are spending the money and making a decision, not just reporting on it and building an analytics layer? ...
We're basically saying, control the process all the way, from the beginning — instead of post-processing, trying to clean data, or trying to chase people for data later. Do it before they start transacting. Do it in the moments of the transactions, versus the tracing process.
'Democratize the ability to do good'
Coupa can be an enabler of that proactive initiative by automating the data analysis and reporting requirements so that people have the baseline data readily available. It also taps the data it collects from its customer community and other sources to suggest actions that can then yield improvements. Providing a template for automated compliance reporting, such as for the new rules in Germany, reduces the burden on companies whose internal resources are already constrained. Wilczek says:
The data is the same data that is being collected for all these suppliers globally. So if you can ask the questions more and more in a network model, where you're asking the questions one time, and then making it available for everyone in the community, you radically reduce the amount of time businesses have to spend on this. It goes from being this onerous, 'I can't possibly comply, I don't have enough resources,' to now it's feasible, to 'Now it's okay, now I have time to invest in actually driving the change, versus investing people in collecting data on record' ...
Every customer shouldn't have to do it themselves. We can provide a foundation of the data and the infrastructure and the technology that is aligned to the government regulations.
The same applies to other ESG goals, such as including more diverse suppliers in the supply chain. Again, this is a goal that shouldn't be restricted solely to those companies large enough to be able to resource a special initiative. Wilczek says:
The real intent here is that we can democratize the ability to do good. We can make it templatized. For these organizations, we can make diverse suppliers visible, regardless of what size company you are, that are using Coupa. Because historically, only the largest companies in the world could afford to invest in these programmes. And we said to ourselves, if we're really going to make a difference and create exponential change, how would we bring it to every customer?
I nurture some healthy skepticism about ESG reporting, but that's mixed with a pragmatic realization that at least reporting the data is better than nothing. It is only a first step, but at least once companies have the data, they can then act on it. Ideally they do so because they're committed to seeing real-world change, but even if they're only doing it because of pressure from employees, customers and investors, there can still be progress in the right direction. By packaging up the necessary tools to automate much of the regulatory burden, Coupa is making it much easier for its customers to make a real difference. I'm at the Berlin event and will be reporting some customer stories from sessions here in the coming days that show the impact that some have achieved.