In most countries, the government is the largest single buyer of goods and services. As most government purchases invariably need to go through a public procurement process, one cannot understate the role that public procurement plays in spurring the economy.

In recent years, there has been a notable shift in the way governments are looking at public procurement, with a growing emphasis on Environmental, Social and Governance (ESG) considerations.  

The first key pillar of ESG in public procurement is environmental sustainability. Governments (and by extension, public entities) should increasingly be prioritizing the procurement of goods and services that minimize negative environmental impact. This can be achieved through sourcing goods made from sustainable materials, reducing energy consumption, and minimizing waste generation throughout the supply chain. By embedding environmental criteria into procurement decisions, governments can leverage their purchasing power to contribute to broader efforts to address environmental challenges such as climate change and resource depletion.

The second pillar relates to the social considerations in public procurement. Public entities should actively promote fair labour practices, diversity, and inclusion within supply chains. This involves ensuring that suppliers adhere to ethical labour standards, pay fair wages, and provide safe working conditions for their employees. It also extends to supporting marginalised groups such as persons with disability, ensuring diversity in the supply chain and safeguarding a piece of the pie for small businesses. The social considerations don’t only apply to suppliers. Public entities must also be fair to their suppliers by ensuring fair competition during procurement and timely payment of suppliers. Overcoming challenges such as pending bills, which have plagued many such entities, is integral to the ESG discourse, underscoring the need for fairness and integrity.

The governance aspect of ESG in public procurement, underscores the importance of ethical and transparent conduct in procurement processes. By making procurement decisions objectively and in line with ethical principles and established standards, public entities can mitigate risks such as corruption, fraud, and conflicts of interest in procurement, thereby enhancing public trust and confidence in the procurement process.

While building an ESG-compliant procurement regime may pose challenges, the benefits significantly outweigh the cons. These benefits include an enhanced reputation, which in itself can help attract investors with heightened environmental and social consciousness, mitigation of procurement risks, increased transparency in the supply chain, greater engagement with the private sector, better value for money and traction in the fight against climate change.

There is a wise saying that “you can't improve what you don't measure.” An amplified ESG framework for public procurement must therefore include a mechanism where government can step back to monitor and evaluate its own performance and that of its suppliers against the set ESG metrics. Importantly, this should not be a one-off evaluation, but rather, a continuous process throughout the duration of procurement contracts.

All in all, ESG is here to stay. By prioritizing environmental sustainability, social responsibility, and ethical governance, public entities can wield their purchasing power to drive positive societal and environmental outcomes. Moving forward, it is imperative for governments to steadfastly integrate ESG principles into their procurement strategies thus fostering collaboration with stakeholders to advance sustainable and inclusive procurement practices globally. Only through concerted efforts can the full potential of ESG in public procurement be realized to ensure a more equitable and sustainable future for all.

The article was published in the Business Daily on 13 March 2024 and can be accessed here.