Financial Hurdles: Why ESG Challenges Procurement Strategies

Danish fintech company Pleo, a leader in expense management solutions, has released its Finance and Businesses Synergy Report, shedding light on the financial challenges UK companies face in integrating environmental, social and governance (ESG) initiatives. While many businesses value sustainability, the report exposes a stark reality: funding these initiatives is a persistent barrier, often sidelining ESG within procurement and broader operations.

The cost of ethical procurement

Pleo’s report outlines a troubling disconnect between businesses' sustainability goals and their ability to fund them. According to the findings, 62% of UK businesses recognise the importance of ESG reporting in improving their environmental and ethical impact.

Despite this, 57% admit that the costs associated with ethical spending make ESG initiatives financially unfeasible, especially under current economic pressures.

This mirrors wider trends seen in the corporate world. For example, EY’s Future Consumer Index highlights that sustainability is often deprioritised during periods of financial difficulty. ESG efforts — particularly within procurement — can appear costly, but cutting back on them risks non-compliance with expanding ESG regulations. In many regions, reporting requirements are growing, adding both financial and administrative burdens to companies of all sizes.

Crucially, ESG extends beyond compliance. As Søren Westh Lonning, Chief Financial Officer of Pleo, puts it: “The brutal truth is that, to some, sustainability and social impact can feel distracting. For ESG to move up the business agenda, a shift in mindset is essential. Leadership teams need to integrate ethics into core business opportunities.”

This is especially relevant for procurement, where aligning supply chains with ESG standards often incurs higher upfront costs. However, businesses that fail to embrace these practices risk long-term reputational harm and increased scrutiny from stakeholders.

Economic pressures and short-term thinking

The report comes at a time when many companies are under immense economic pressure. Pleo’s research reveals that 87% of UK businesses have reduced spending over the past 18 months.

This widespread cost-cutting directly impacts procurement teams, which are often tasked with sourcing affordable solutions while meeting ESG objectives.

Short-term financial concerns dominate many decision-making processes, with 69% of respondents fearing that slowing or pausing spending could harm their growth prospects.

This creates a cycle where immediate financial pressures overshadow long-term goals like sustainability, undermining progress toward achieving ESG benchmarks.

The United Nations (UN) warns that short-termism is a significant obstacle to corporate sustainability. For procurement teams, this adds a layer of complexity as they must balance cost-efficiency with the responsibility to ensure ethical and sustainable sourcing.

Pleo’s findings highlight the urgent need for innovative approaches that allow businesses to pursue sustainability without compromising financial stability. Strategies such as identifying cost-saving opportunities within supply chains or leveraging technology for better expense management can help alleviate these pressures.

Collaboration: The key to progress

A notable insight from the report is the role of collaboration between finance teams and other departments in driving better spending decisions. Sixty-six percent of respondents believe that cross-departmental insights can enhance financial decision-making, while 72% agree that collaboration fosters resilience and long-term success.

In procurement, fostering collaboration could mean involving stakeholders across departments to identify inefficiencies, negotiate better terms with suppliers and redirect savings toward ESG priorities. However, building such collaboration isn’t straightforward. Nearly 59% of respondents perceive finance teams as challenging to work with, often due to anxiety surrounding financial discussions.

To overcome this, CFOs and procurement leaders must take proactive steps to improve communication and build trust.

Søren emphasises the pivotal role CFOs play, stating: “CFOs have a significant role to play by aligning ESG reporting with business models and value creation.”

By embedding sustainability into the core business strategy, finance leaders can ensure ethical procurement remains a priority, even in difficult times.

Rethinking leadership in ESG

The report highlights the growing importance of finance leaders, particularly CFOs, in driving ESG progress. As sustainability increasingly intersects with procurement and financial planning, the CFO is uniquely positioned to champion these initiatives.

This involves not only navigating the complexities of ESG integration but fostering accountability across the organisation. Procurement teams, often seen as the gatekeepers of business spending, can act as key allies in aligning operational goals with sustainability targets.

Yet, the perception of finance teams as enforcers rather than enablers remains a challenge. To change this, Pleo suggests finance leaders focus on developing soft skills, such as communication and empathy, to facilitate collaboration with other departments.

Strong leadership is essential for embedding ESG into procurement processes and ensuring businesses remain competitive in an increasingly sustainability-conscious marketplace.

Bridging procurement and ESG

As businesses continue to navigate an uncertain economic climate, the tension between financial stability and sustainability remains a pressing issue. Pleo’s report highlights the need for innovative solutions that make ESG not only a moral imperative but a practical component of procurement strategies.

Collaboration, transparency and long-term thinking are vital. By fostering cross-departmental communication and embedding ethics into core strategies, businesses can position themselves to achieve both financial and sustainability goals.

Failing to act risks not only non-compliance with evolving ESG regulations but also reputational damage. As Søren notes, achieving meaningful progress requires a “shift in mindset” — one that prioritises sustainability as a business necessity rather than an optional extra.

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