The tipping point for sustainable procurement may be here: 51% of global businesses surveyed by Stanford Business School have a sustainable procurement policy in place.
Sustainable procurement—the process of making purchases that meet an organization’s environmental, social and governance (ESG) goals in addition to financial requirements—is growing globally. An MIT survey found that COVID-19 has not deterred sustainable procurement from spreading: 82% of firms surveyed exhibited the same level or greater commitment to sustainable supply chains during the pandemic as they had before. Firms in Africa and Asia led the charge to step up commitment, with 53% and 44% of firms in the respective geographies responding that they had increased their dedication to supply chain sustainability after COVID-19. Though sustainable procurement looks different in every organization, many companies are engaging in supply chain mapping, supplier benchmarking, and sustainable procurement plan development to drive progress.
Both public and private sector organizations have played a role in the tipping point: public sector actors like governments and non-profit organizations spend $13 trillion annually on procurement. The U.S. government, the world’s single largest buyer of goods and services, is joining the sustainable procurement movement. The Biden Administration recently announced that major federal contractors will now be required to disclose their environmental data and reduce their greenhouse gas emissions under the Federal Supplier Climate Risks and Resilience Rule. Organizations large and small, public, and private, are committing to sustainable procurement—and those who fail to do so may face competitive disadvantage.
Benefits and challenges of sustainable procurement
There are many benefits to building a supply chain sustainability program beyond keeping up with the competition. Some of the key benefits include:
· Connecting with customers. A growing number of individual and institutional consumers prefer to do business with sustainable companies. Incorporating sustainability into procurement is a great way to demonstrate your organization’s leadership. No matter the business model, investment in sustainable procurement can improve brand image and financial performance.
· Reducing risk. Conducting supplier evaluations can bring up areas of concern on ESG topics with existing suppliers and help you avoid new ones. Limiting these risks now will cut down on unnecessary costs in the long run.
· Strengthening supplier relationships. Supply chain sustainability can also help improve relationships with suppliers. Building rapport with suppliers over sustainability topics before challenges emerge means supplier relationships will be strong when they do.
· Capturing Scope 3 emissions. Strong relationships and visibility across the supply chain can feed into broader sustainability goals like measuring and reducing greenhouse gas emissions. Scope 3 emissions are emissions from upstream and downstream in a company’s value chain. While these emissions are not directly under a company’s control, they make up 65-95% of a company’s total carbon impact and are a major area of concern for investors and consumers. Strong partnerships across the value chain, especially with upstream suppliers, are critical to collecting the data required to calculate Scope 3 emissions.
Though a critical mass of global firms have committed to sustainable procurement policies, many are still in the early stages of the process. After carefully designing sustainable procurement plans, newly dedicated firms have expressed frustration with implementing their strategies.
A Stanford Business School survey found that across industries and geographies, firms have three major challenges with implementing sustainable procurement plans: lack of internal resources, difficulty tracking supplier performance and concerns with cost.
These frustrations are real, but not insurmountable: external support from experienced consultants and procurement personnel can help build capacity in the design and implementation phases. Digital tools for managing procurement and supply chains are emerging rapidly, many with built-in ESG integration. Don’t let the fear of temporary implementation roadblocks prevent you from establishing a sustainable procurement plan that will contribute to long-term financial and sustainability performance.
Triggering a sustainable procurement tipping point in your own organization can seem overwhelming. These action steps can help you lead the charge to develop and implement a sustainable procurement plan:
1. Make the case. Creating a sustainable procurement plan will require an investment of the company’s valuable time and effort. To convince co-workers and senior leadership of the value that sustainable procurement will add, try to quantify the different opportunities you’ll gain and risks you’ll avoid—both as a procurement team and as a business.
2. Apply frameworks and standards. Existing standards and frameworks for sustainable procurement can take the guesswork out of developing your program. The ISO 204000 is an internationally accepted standard that provides guidelines for sustainable procurement that all industries and organization types can utilize. The UN Global Compact’s Decent Work Toolkit for Sustainable Procurement guides organizations in evaluating human rights concerns in procurement. Industry groups like the Sustainable Purchasing Leadership Council and the Sustainable Procurement Pledge can offer additional insight and guidance.
3. Develop a supplier sustainability scorecard or checklist. Streamline the process of evaluating new and existing suppliers’ sustainability performance with a standardized scorecard in Excel or another data management system. Consider the different ESG topics that are important for your company and for the types of goods and services you’ll be procuring. With this insight, you can develop criteria and associated grades to evaluate supplier sustainability.
4. Run a pilot program. Take your sustainable procurement program from theory to practice by testing the scorecard on a small group of key suppliers across different product or service types. Doing this will help you understand how to navigate sustainability conversations with your suppliers—and critically, how long to allocate for collecting responses.
5. Implement lessons learned. After completing the pilot program, reflect on what did or didn’t run smoothly. Were there gaps in the scorecard you designed? How straightforward or challenging did suppliers find your questions? What were the pain points for the parties involved? Reflecting critically on the test drive will help your sustainable procurement program run smoothly at top speed.
As sustainable procurement moves past the threshold from marginal to critical, the associated risks and opportunities are clear, but the path forward may not be. While the steps above can guide the development and implementation of a sustainable procurement plan, the change must start from within. Invest in sustainable procurement now to reap the long-term benefits for your organization later.