Sustainable procurement was once considered to be optional, and no more than a ‘nice to have’, an ‘extra’. But climate change and environmental considerations have changed the way we view this. A company’s procurement strategy is something that is falling under increasing scrutiny and businesses who lack such policies risk losing out on opportunities and advantages.
👉In this article we’ll explore the definition of sustainable procurement and look at how it can offer a competitive advantage for businesses.
First up, what do we mean by sustainable procurement?
A good starting point is to first define the two components that make up sustainable procurement.
So first up, what do we mean by procurement? Procurement involves the activities required to obtain the goods and services that a company needs to support their day to day operations. From sourcing, to negotiating contracts, to purchasing materials, these activities combine to form an important strategic business function.
And sustainability? The definition of sustainability can admittedly be hard to pin down. There are lots of different interpretations out there and the term seems vague because it covers a huge variety of actions. But in its most simple form it means any practice that has the intention of preserving nature, conserving resources, conducting environmental stewardship, and reducing any negative environmental and social impacts.
Sustainable procurement combines these two practices. It integrates sustainability requirements and criteria to the procurement process and asks companies to reconsider their existing supply chains. It allows a company to ensure that sustainability values are incorporated into the entire life cycle of their product or service.
According to the UN sustainable procurement means making sure that the products and services we buy are as sustainable as possible, with the lowest environmental impact and most positive social results.
Real life examples of sustainable procurement include things like purchasing renewable energy, sourcing recycled raw materials, using other organizations' waste and byproducts, selecting local suppliers to cut down on transport emissions, partnering or financing to implement sustainability improvements to the supply chain etc.
Why is sustainable procurement important for the environment?
There are many reasons as to why sustainable procurement is important (economic, ethical and social reasons), but one of the most significant is the impact of a company’s supply chain on the environment.
Global warming is one of the biggest challenges that we face as a society today, and governments, business and individuals around the world are all being asked to play their part as we work towards reducing greenhouse gas emissions and preventing global warming. Since a company’s supply chain is responsible for a huge portion of their carbon footprint (this can be as much as 80% of their overall emissions), if we’re going to have any chance of reducing carbon emissions globally, businesses across the board will have to reassess their supply chains and procurement processes.
Sustainable procurement is therefore not just a ‘nice to have’ it’s a necessity.
The good news is that sustainable procurement also brings with it many advantages and opportunities. Let’s take a look at some of these in the next section.
Why is sustainable procurement a competitive advantage?
Enhances brand perception
Customers care about being part of brands and organizations that are committed to the fight against climate change and minimizing their environmental impact as much as possible. Therefore, it stands to reason that brands who adopt sustainability practices, and more specifically sustainable procurement policies, will benefit from a more positive brand perception. In fact, research has shown that sustainable procurement results in as much as a 15 to 30% increase in brand value.
Conversely, it’s actually a risk to brand reputation when a company doesn’t take into account sustainable procurement practices. Even if it’s a supplier who is responsible for the damaging action, consumers and other stakeholders will still view the company as being either fully or partially responsible. For example, fashion brands who find themselves caught up in scandals over the use of factories that breach labor laws, take a huge hit when it comes to brand reputation - even if they claim to have had no knowledge of the practice.
Improves efficiency and reduces waste
Companies with sustainable procurement strategies can benefit from cost reductions by improving the efficiency of their supply chains. For example, by working with suppliers who use sustainable practices, or reducing the use of unnecessary packaging, reducing energy consumption and by minising excess waste.
Competitive advantage through brand differentiation
In today's global marketplace companies face huge competition, which is why sustainable procurement practices can help brands to differentiate their services or products from that of competitors.
Consumers and clients are increasingly switched on when it comes to environmental concerns and sustainability considerations. The reality is that companies who don’t adopt these considerations into the running or their business will likely lose out.
Market for new products or services
Companies who embrace sustainability and sustainable procurement practices also have the opportunity to create new eco-friendly product lines or to charge price premiums. Customers who actively seek out sustainable or environmentally friendly goods are often willing to pay a bit more for the product or service. And since 33% of consumers choose to buy from brands they perceive to be doing social or environmental good, companies might also gain completely entirely new customers too!
The link between sustainable procurement and long term cost efficiency is strong. According to the World Economic Forum, in their report on responsible value chains, sustainable procurement practices can reduce procurement costs by as much as 9 to 16%! This is a result of reduced energy costs, reduced over-specification, reduced consumption, and reduced social and environmental compliance costs.
While some companies may be deterred by the perceived high cost involved with adopting sustainable procurement practices, this is fallacy. The long term results are clear, sustainable practices not only cut down on operational costs in the long run, but also attract additional revenue from new customers and opportunities for premium pricing.
Minimizes supply chain risk
Companies risk both financial and brand repercussions from negative supplier practices. Issues such as pollution, child labour practices, and non-compliance with environmental regulations can lead to supply disruption, presenting serious issues for companies.
One of the best ways to protect against this is to adopt sustainable procurement policies which will strengthen the supply chain and minimize any exposure to such issues.
Sustainable procurement also helps to protect the company against issues such as scarcity. Companies that rely heavily on non-renewable resources are more susceptible to price volatility and shortages.
Compliance with environmental and social regulations and law
Environmental and sustainability legislation and frameworks are becoming increasingly commonplace. Some of these require companies to disclose ESG (environmental, social and governance) practices incorporated into their business operations. But, even where this is not the case it's likely that regulation in this area will become increasingly demanding, and expansive in scope, as we move closer towards the deadlines for net zero emissions.
How can companies implement sustainable procurement policies?
Sustainable procurement can seem complex at first. After all, the supply chain often involves the input of many different companies, and implementing new policies will affect every aspect of this, from processes, to logistics, to raw materials etc. But, as we’ve shown, the value that it brings to a business makes it worth the time and effort.
So how do companies implement sustainable procurement in their own operations?
Sustainable procurement strategies should work to fit the needs and operational constraints of your business, but at the very minimum should take into account materials ESG factors (ie, environmental, social and governance factors that represent a risk to a business). Companies should invest the time and resources to develop suitable sustainable procurement policies under the umbrella of their wider CSR (corporate social responsibility) strategy. This might mean that they have to re-evaluate their existing processes and identify areas for improvement.
Once a sustainable procurement strategy has been developed, companies should then look to engage with their existing suppliers. Supplier relations are an ongoing relationship, and some companies may find that they have reasonable sway over a specific value chain.
Companies should first seek to understand what their suppliers are doing when it comes to sustainability practices. Do they have controls in place that pursue any sustainability objectives? Companies may find that their suppliers have already adopted sustainability initiatives.
If this is not the case however, a company should look to engage the supplier in a discussion on the matter. Explaining why sustainable procurement is important, and sharing the different benefits that it can bring. Hopefully this will motivate them to adopt their own sustainability practices and perhaps even engage with their own suppliers on the matter.
Then, once a sustainable procurement program is in place, it’s time to implement best practices to ensure that the company can meet its sustainability objectives. This is best achieved by formalizing sustainable procurement policies and practices, making it publicly available on the company’s website, and including it in all supplier contracts.
What about Greenly?
At Greenly we can help you to assess your company’s carbon footprint, and then give you the tools you need to cut down on emissions. Why not request a free demo with one of our experts - no obligation or commitment required.
If reading this article has inspired you to consider your company’s own carbon footprint, Greenly can help. Learn more about Greenly’s carbon management platform here.
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