As organisations decide to take action to become more sustainable, most of them soon realise that the vast majority of their impact lies within their supply chain. From a carbon accounting standpoint, it usually pops up in that pesky Scope 3 category known as purchased goods and services. De facto, this makes the procurement organisation a critical instrument on the journey to a more sustainable business. Carbon (equivalent) emissions are only one indicator of potential impact on climate change, and sustainability carries a much broader meaning. This blog post aims to explore what sustainability and sustainable procurement mean and the practical steps procurement leaders should consider in order to deliver on their employers’ sustainability ambitions.
What does Sustainable Procurement really mean?
In an area of business where common language is still a rarity, we seem to be witnessing some convergence towards a common understanding of the topics pertaining to corporate sustainability. A practical representation of it can be found in the now pervasive acronym ESG, which stands for Environmental, Social, and Governance. These three broad terms are indeed quite useful in framing the various sustainable business issues. While there is no standard definition, drawing from a number of current and future* sustainability disclosure and reporting frameworks, I would suggest the following simplification:
Not all topics are relevant to all companies, and some issues are certainly more prevalent in some sectors, industries, markets, or geographies than others. My advice to procurement leaders, as a very first step, is therefore to align their sustainable procurement approach to the topics the company has identified as being most material as a result of their Double Materiality Assessment, and focus on those that procurement can influence most.
Implementing sustainable procurement
Procurement practices and, in particular, supply base relationships are built over years, sometimes decades, and while there is certainly a high level of urgency in tackling some of the sustainability issues we are facing, it would be foolish to think that sustainable procurement can be implemented overnight. Below is a guide suggesting some sequential steps your procurement organisation can take to start this journey:
- Set or enhance your sustainable procurement policies: In line with your overall ESG strategy and commitments, ensure the following policies are in place and well communicated to your internal and external stakeholders, in particular your procurement team and suppliers:
- Governance: What are your expected procurement practices and acceptable behaviors? Do you have sufficient anti-corruption and anti-competitive guidelines and safeguards? What are your payment practices and how are they adhered to? How do your suppliers’ own policies align with yours in those regards?
- Social requirements: What are your organisation’s HR policies in relation to its own staff’s employment, remuneration, health and safety, training and development, diversity and inclusion, etc.? In line with these, what are the minimum requirements you, in turn, expect your suppliers to meet? What safeguards are in place to prevent a breach of basic human rights or child labour within your supply chain?
- Environmental requirements: What are the minimal expectations of your suppliers when it comes to environmental practices? Are there relevant standards or certifications they are expected to be compliant with? Are there specific environmental regulations that apply to you—and not necessarily your suppliers—that they must comply with? Are there any materials or substances they should not supply to you? Do they have an environmental policy of their own? Do they measure and disclose their environmental impact? If so, have they set credible targets?
- Entitlement to audit: Set the expectation that you should be entitled to request ESG data, and verify any of the above (including impromptu site visits)
- Upstream requirement: Clarify which of the above requirements you expect your suppliers to request from their own suppliers.
- From here on, communicate these policies and integrate their implications into your procurement processes. While this will not have any major immediate impact, it will grow in the right direction over time. These processes include:
- All new supplier qualifications: Amend your qualification questionnaire to reflect your policy requirements. Record their adherence to your new supplier charter
- All new tendering cycles, agreement renewals, and new contracts: Apply weighting criteria to the ESG credentials of the supplier, their products or services, or their solution. Request EPDs (Environmental Product Declarations) or LCAs (Life Cycle Assessments) where appropriate and consider applying a carbon price to simplify comparisons.
- Engage with existing suppliers: Starting with your largest suppliers, both in terms of spend and potential materiality, risk, or opportunity:
- Understand your company’s ESG targets, their timing, and your procurement organisation’s expected contribution. In accordance, set an annual target percentage of suppliers and/or spend that should comply your new policies.
- Communicate your new policies and the reasons behind them, but also ask them about their own ESG journey, their related initiatives, and how you could collaborate. Gain an advantage over those who are already ahead, and be ready to assist those who are eager to catch up.
- Detail your new expectations, the timelines for compliance, and the consequences for not meeting the requirements
- Suggest voluntary disclosure. Consider leveraging with your suppliers the platforms or frameworks you may be asked to engage with by your own customers.
- Develop and integrate ESG KPIs within established business reviews and/or SLAs, as applicable
- Inform your own ESG disclosures based on your supplier’s public or confidential disclosures
- Adopt a circular (economy) procurement mindset:
- Consider product-as-a-service, rental, leasing, and other financial model options other than outright purchases
- Consider purchasing used or recycled raw materials. Ask your existing suppliers if they (could) offer recertified products?
- Consider the amount of recycled content within the materials or products purchased
- Consider the end-of-life implications at the time of purchase: Is it upgradeable? Repairable? Compostable? Recyclable? Are your suppliers ready to take their end-of-life products (trade-ins) and/or post-production waste back. Build this into your new contracts.
- Donate end-of-life equipment
- Look for more sustainable avenues for your waste streams. There may be new revenue streams you did not know about!
- Set up a sustainable procurement risk management process and conduct internal procurement practice audits and supplier audits:
- Consider using a third party for impartiality, confidentiality, and credibility.
- Ensure your whistle-blowing policy (ref. Governance) is appropriate for protected disclosure from employees, ex-employees, suppliers/supplier’s staff, and members of the public
- Measure, monitor progress, review, and take necessary action (typically second nature in procurement!)
In summary, if you align with your company’s sustainability policy, set clear ESG expectations with procurement staff and suppliers, adjust your procurement processes to reflect these, start at the top, and validate compliance, you will have probably given your procurement organisation the best chance at leading your company’s sustainability efforts.
(*) Organisation with significant EU operations may want to familiarise themselves with the EU CSRD.
Supply Chain Enabled