Huge insurers leverage procurement for sustainability features
By revising procurement policies and procedures, airlines can quickly increase their support for environmental and social sustainability.
Insurers can expect their commitment to sustainability to be increasingly scrutinized by 2021. They can make great strides by carefully managing their sourcing of goods and services – like the big transportation companies Zurich Insurance, Allianz, and Swiss Re, which use their procurement spend to promote sustainability within their own organizations and among their suppliers.
It is important that insurers view sustainability as an integral part of their corporate strategies in order to meet the demand for sustainable solutions from all areas of society, to manage increasingly complex risks and to develop new business solutions. You need to morph into what I described as “sustainable insurers” earlier in this blog series. Such far-sighted insurers place sustainability at the center of all of their key decisions. They take into account the possible effects of their decisions on the environment and on all areas of society.
Business strategies that successfully implement sustainability must cover a wide range of business functions and resources. I have already discussed the importance of sustainability ecosystems, which can provide insurers with a network of partners to help them achieve their sustainability goals. I also talked about how insurers can use digital technology, especially cloud services, to increase their support for sustainability.
So how can you use procurement as a lever?
Procurement offers insurers numerous opportunities to quickly increase their commitment to sustainability. By revising their procurement policies and procedures, freight forwarders can quickly improve their sustainability traits. For example, you can choose service providers who are committed to sustainability initiatives such as environmentally friendly manufacturing, employment diversity or job creation in low-income communities. Energy procurement is particularly ripe for sustainability improvements. If offers insurers the opportunity to promote green energy and reduce the demand for fossil fuels.
Well-managed supply chains reduce the risk of reputational damage.
Several major insurers in Europe have already identified procurement as an important feature of their drive for sustainability. Zurich Insurance, Allianz and Swiss Re as well as other airlines such as Munich Re and AXA have based their codes of conduct for suppliers on the principles of the United Nations Global Compact (UNGC). These principles prohibit slavery and discrimination and promote human rights, environmental protection and sustainability in supply chains.
Sustainable supply chain management enables insurers to achieve their own sustainability goals while encouraging other companies to move forward with them. It can also lower costs, increase profitability, and increase shareholder value. In addition, improved supply chain controls can reduce the risk of reputational damage that an insurer could suffer from the actions of one of its suppliers.
- Zurich Insurance, the top rated insurer in the Dow Jones Sustainability Index 2020, has developed a global vision for sustainable procurement to strengthen its commitment to sustainability. The vision, which supports the UNGC Principles, provides a framework and set of values to ensure that sustainability is an important factor in all of the company’s sourcing and sourcing decisions. It takes into account the social, ecological and ethical behavior of the suppliers. Zurich also works with its suppliers to promote social and environmental initiatives. For example, it worked with Ninety Consulting to fund a clinic in Kenya. It has also partnered with Wildhearts Group to fund programs that address gender inequality and promote social mobility.
- Allianz has used its procurement activities particularly effectively to improve its contribution to sustainability. By the end of 2019, around 97 percent of the suppliers who were responsible for combined invoices of 1.8 billion euros had committed themselves to the Allianz supplier code. The code complies with the standards of the UNGC and the International Labor Organization (ILO). The alliance has also reconfigured some of its ordering systems to prioritize sustainable solutions and is revising its vehicle fleet policies to curb fossil fuel use.
- Swiss Re uses EcoVadis’ sustainability assessment platform to determine whether its suppliers adhere to the UNGC-oriented group sourcing standard. The platform enables the insurer to systematically measure the performance of its suppliers and, if necessary, to help them improve. Swiss Re planned to evaluate all major providers by the end of 2020, who collectively receive around 80 percent of the insurer’s expenses.
- Munich Re expects its suppliers to adhere to the UNGC principles. By the end of 2019, compliance with the UNGC principles had been introduced in almost 80 percent of the framework agreements with suppliers.
- AXA requires its suppliers to adhere to ILO principles that prohibit child labor, forced employment and discrimination and promote the wellbeing and freedom of expression of employees. In addition, the company has conducted a corporate responsibility risk assessment of its suppliers to measure their contribution to environmental and social recovery, the impact of their services and products on end users, the quality of their supply chains and the integrity of their companies.
As 2021 progresses, insurers must increasingly demonstrate their commitment to sustainability. By improving the management of procurement practices, insurers can increase their support for sustainability while encouraging their business partners to follow suit.
In my next blog post I will look at another powerful lever that insurers can activate to become “sustainable insurers”. I will discuss how insurers can use their roles as financial investors and real estate financiers and managers to drive their commitment to sustainability. For more information on how insurers can increase their support for sustainability, see the links below. Or send me a message. I would love to hear from you.
Delivering the Decade: The UNGC Accenture Sustainability Strategy CEO Study.
The green behind the cloud.