2024 Global SRM Research - Return on Relationships

2024 GLOBAL SRM RESEARCH REPORT

CASE STUDY: WESTPAC - RAISING PERFORMANCE TOGETHER

ESG risk management As a result of procurement’s close working relationships with suppliers, strides have already particularly been made in the areas of environmental, social and governance (ESG) risk management, supplier diversity, and sustainability partnerships. Westpac suppliers are considered according to a number of risk classes, one of which is responsible sourcing. Part of the company’s commitment to its customers and their communities means ensuring Westpac is conscious of any risks its supply chain might represent in terms of environmental and/or social harm. As such, it’s important the bank assesses, and actively manages, any such risks with its suppliers. It does this in a number of ways. The first step is a self-assessment. These have so far focused on the industries, countries and business practices with the highest inherent risks. Suppliers are judged against predetermined benchmarks to identify any areas where the bank thinks there could be shortcomings. Where issues and gaps are identified, Hagen says the company prefers to work with that supplier to make improvements. The team that oversees responsible sourcing works with category managers, the business, and the suppliers to drive action plans to bring about change.

“Simply saying: ‘You don’t measure up, out you go’ does nothing to reduce the risk of harm to vulnerable groups,” says Hagen. “Taking a cooperative approach means that the risk is reduced across the whole operation of that supplier, not just for the parts of their business that deal with Westpac.” It began this work in early 2022 as one of the first steps in its digital transformation. It has since assessed more 1,100 suppliers and closed more than 800 actions with them. It has also partnered with some suppliers to conduct deeper reviews into their suppliers. Where it has strong, trusting relationships with its tier one partners, it has been able to more readily explore potential risks at the second tier and beyond. “We are using some technology to support these endeavours but it still relies on building trust and having common goals. We’re still working on this and it’s going to continue to rely on relationships, but we’re definitely making progress.” Supplier diversity Another key part of Westpac’s approach to sustainability is to help address inequalities and ensure opportunities are more evenly spread. “We can all recognise that there are sections of our society that

have historically been denied full economic participation,” says Hagen. “We see that as a chance to actively seek out supplier partners that can first and foremost meet our service requirements, but that are also doing more to create economic equality.” He says this can be as simple as working with businesses owned by Indigenous Australians (who are in turn more likely to employ Indigenous staff) or social enterprises that use profits to finance social programmes and bring about positive community change. It also recognises and partners with lots of other businesses who are doing good in the community. Making progress in this area requires building strong relationships internally and externally. “It’s as much about bringing the business along on the journey as it is getting the supplier ready to work with a big, heavily regulated business like ours,” he says. “The key ingredient is trust – suppliers have to trust that they are going to get a fair go, and the business needs to have faith that the supplier can deliver on its promises.” To ensure it is making progress, procurement measures itself against aspirational annual targets, which are reported at the executive level.

He says one great example of this is its main uniform supplier working with a small not-for-profit that employs refugee women and gives them a start in the Australian workforce. “Developing that relationship between the two parties has given that business the experience of dealing with large corporates, which gives them some scale to expand their social programme. In terms of dollars it’s small, but in terms of impact to that business, it’s huge.” He says because many of these enterprises operate with a social or environmental outcome in mind, partnerships typically deliver on multiple levels. He cites the example of an Indigenous-owned business that removes and repurposes Westpac’s unneeded office furniture. “The work they do for us gives them an opportunity to employ more Indigenous people, reduces our waste-to-landfill, and provides much needed equipment to community support operations.” Despite the extra work and energy required to set up such arrangements, the payoff in employee engagement is fantastic, he says. “There’s a feel-good factor that is really noticeable.” Sustainability partnerships For some supplier relationships, the opportunities to partner are multi- level and more complex, with no one way to make something work.

Hagen says this is especially the case when it comes to paper or plastic or emissions reduction. “As a consumer, rather than a producer, we obviously need to work closely with suppliers to make change.” For instance, he says, a supplier risk assessment may have highlighted an issue they have in, for example, environmental management, which requires them to make changes to their products. Or, it could be an engagement about tier two diverse suppliers that helps them recognise they can be more thoughtful about where they spend their money. “Often we’ve looked at our overall response to an issue, such as climate change or human rights, and recognise that we need our suppliers’ help. In other cases, we are enabling our suppliers’ own programmes.” The common theme is about fostering relationships. “We have to get on the same page about what we want to achieve before any meaningful steps can be taken. It’s important we are consistent in what we ask for, that we go at a pace that everyone can manage, and resource it appropriately.” Westpac has published targets to reduce its Scope 3 emissions which have so far been tracking to plan but require ongoing attention. It has also made progress on some specific projects. For instance, all the plastic in its credit and debit cards is now

100% recycled, and it is working with a third party on up-cycling obsolete uniforms. In November 2023, it released its first Natural Capital Position Statement , which includes an aim to work with key suppliers on reducing deforestation. Key facts • Westpac Foundation has helped to create 7,204 jobs since 2015 • A tier 2 supplier deep dive is helping to reduce modern slavery risks • 80% of Westpac’s energy portfolio is renewable The approach always has to be ‘working together’, says Hagen, which will sometimes require a shift in priorities, or a difficult conversation about cost. “If we’ve done the groundwork of building trust through our words and actions – and being open to hearing suppliers’ needs – we can normally find a path.”

In markets where options are slim, it encourages its non-diverse suppliers to find ways to incorporate diverse providers into their service delivery. Hagen says this work has achieved a steady trend of increasing its spend with diverse suppliers. He recognises this is an easy metric to track, while “the true measure of success” – the impact on target communities or groups – is harder to determine because it varies from supplier to supplier, and job to job. “We’ll keep measuring spend and aiming to grow there, but we find the stories that accompany the spend are what gets people excited.”

Supplier Days: Communicating plans and preferences

Photo supplied by Westpac New Zealand

Procurement brings together its top 100 suppliers at an annual Supplier Partner Day to update them on the bank’s strategy and key things it is doing. “If we’re transforming the way we do business with suppliers – such as our move to digitise the purchasing and procurement process – we use this forum to communicate directly. We’ll also update them on areas like our sustainability and diversity pillars,” says Hagen. He says the event gives suppliers content and context so they can pitch to Westpac at the right level

for the right things. He also uses it to outline the dos and don’ts for a healthy relationship and reminds suppliers how best to engage with the business. The event is followed by networking. Procurement also works closely with Westpac’s technology division to put on three technology-specific partner days to ensure suppliers are well informed. “If you put time into having the right framework, with the right partners and align them to the right people, you can collectively raise their performance and your own.”