ESG investing: meaning and trends
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Your complete guide to sustainable procurement
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Sustainable procurement was once considered to be optional, and no more than a ‘nice to have' or an ‘extra' like a cherry on top of a cake.
However, climate change and environmental considerations have changed the way we view this.
A company's sustainable procurement strategy is something that is falling under increasing scrutiny and businesses that lack such policies risk losing out on opportunities and advantages.
👉 In this article, we’ll explore the definition of sustainable procurement and delve into how it can offer a competitive advantage for businesses. Additionally, we’ll provide a step-by-step guide on how supply chain managers can implement sustainable procurement systems effectively, with insights on how our company, Greenly, can assist in this transformative journey.
What is the meaning of sustainable procurement?
Sustainable procurement refers to the activities required to obtain the goods and services that a company needs to support its day-to-day operations.
“ Ultimately, sustainable procurement can be broken down into two main goals and activities – sustainability, and procurement. ”
The two main components of sustainable procurement involve sourcing and negotiating contracts to purchase materials, and together – these activities form an important strategic business function.
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However, the sustainable component of sustainable procurement can admittedly be more difficult to pin down – seeing as there are lots of different interpretations out there and the term covers a wide 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 into 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.
What is the difference between procurement and sustainable procurement?
The main difference between procurement and sustainable procurement is that procurement is primarily concerned with acquiring goods and services to ensure the best quality and financial return, whereas sustainable procurement also values ESG factors.
- Procurement seeks to prioritise obtaining goods for the best cost and turn-around time to ensure cost-effectiveness and to meet a company's production needs.
- Sustainable Procurement aims to prioritise the needs of the environment and community over potential profitability or reduced operational costs for the company. Unlike procurement, sustainable procurement also works to promote the importance of protecting the planet, safeguarding and maintaining social responsibility, and the importance of ethics across a company's supply chain.
“ 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 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 and natural resources.
Global warming is one of the biggest challenges that we face as a society today and governments, businesses, 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 its carbon footprint (over 80% of 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 becoming 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.
What are the benefits of sustainable procurement?
In addition to environmental protection, sustainable procurement can help boost CSR, improve brand image, reduce supply chain risks, help your company comply with environmental regulations, and more – all of which can prove indispensable when trying to set your company apart from the competition.
The benefits and competitive advantages include the following:
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 that adopt sustainability practices, and more specifically sustainable procurement policies, will benefit from brand equity.
💡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.
“ Ultimately, sustainable procurement can help your company improve its brand reputation and attract new customers, investors, and stakeholders to further drive your business forward. ”
Improves efficiency and reduces waste
Through the implementation of sustainable procurement strategies, your business can benefit from cost reductions by improving the efficiency of its supply chains.
For example, by working with suppliers who use sustainable practices – your company can reduce the use of unnecessary packaging, and energy consumption, and minimize excess waste.
💡Simultaneously, this can help your company to reduce operational costs in addition to boosting your brand image and increasing awareness surrounding your business.
Competitive advantage through brand differentiation
In today's global marketplace, your business is bound to face huge competition – which is why sustainable procurement practices could help differentiate your services or products from your competitors.
Consumers and clients are increasingly drawn to companies that actively address environmental concerns and integrate sustainability into their business decisions.
“ The reality is that companies that don't adopt these considerations into the running of their business will likely lose out in the long term, meaning that seeking to incorporate sustainable procurement practices today could help set your business up for long-term success. ”
Market for new products or services
Companies that embrace sustainability practices also have the opportunity to create new eco-friendly product lines or to charge price premiums.
Customers who actively seek out environmentally friendly goods are often willing to pay a bit more for sustainable products or services, meaning that if your company decides to hop onto the sustainable procurement bandwagon – your business could soon reap valuable marketing benefits and see new revenue growth.
In addition to this, since 33% of consumers choose to buy from brands they perceive to be doing social or environmental good, this means that sustainable procurement could allow your company to gain entirely new customers!
It's also worth noting that many government tenders now include sustainability considerations, failing to incorporate sustainability into your value chain could mean your company is disqualified from consideration.
Controls costs
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, such practices can reduce procurement costs by as much as 9 to 16%! This is a result of reduced energy usage (resulting in reduced energy costs), reduced over-specification, reduced consumption, and reduced social and environmental compliance costs.
Some companies, including your own, may be deterred by economic factors such as the perceived high cost involved with adopting sustainable procurement practices – but this is a common misconception.
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.
👉 Decreased costs could benefit your business by allowing for increased funds to help expand the business elsewhere – such as by hiring new talent, attracting new customers, or even valuable partnerships.
Minimises supply chain risk
If your company is looking for ways to decarbonize your supply chain, make it more efficient, and boost supplier engagement all at the same time – sustainable procurement just might be the exact solution your business has been looking for.
Companies risk both financial and brand repercussions from negative supplier practices. Issues such as pollution, child labor practices, and non-compliance with environmental regulations can lead to supply chain disruptions and present serious issues for your company.
One of the best ways to protect against this is to adopt sustainable procurement policies which will strengthen the supply chain, boost supplier engagement, and minimize any exposure to such issues.
“ Sustainable procurement can play a big part in helping to build greater resilience in your business, which can help your company remain relevant and profitable – even during a disruptive, global event such as a pandemic or weather crisis. ”
Future-proof your business
Sustainable supply chains also help 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.
Implementing sustainable procurement can help to avoid disruptions to your production line, as renewable resources are easier to replenish.
Compliance with environmental laws
Environmental and sustainability legislation and frameworks are rapidly becoming the new norm, making it essential for companies to seek guidance on overall sustainability and effective CSR practices. Implementing sustainable procurement is an excellent starting point for these efforts.
Some of these require companies to disclose ESG (environmental, social, and governance) practices incorporated into their business operations.
However, 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 to the deadlines to work towards net zero emissions
👉 Sustainable procurement can help your company avoid future penalties or legal battles by encouraging the implementation of improved societal and environmental practices, ensuring compliance with future climate policies.
| Benefit | Summary |
|---|---|
| Improves efficiency and reduces waste | Implementing sustainable procurement practices streamlines operations and cuts down on resource wastage. |
| Brand differentiation | Adopting sustainable procurement can set a company apart in the market, enhancing its reputation and appeal. |
| New market opportunities | Sustainable procurement opens doors to new markets and customer bases that prioritize environmental responsibility. |
| Cost reduction | Long-term savings are realized through efficient resource use and sustainable practices, reducing overall costs. |
| Minimises risk | Engaging in sustainable procurement helps mitigate risks associated with environmental and social issues. |
| Future proof | Companies that invest in sustainability are better prepared for future regulatory changes and market shifts. |
| Legal compliance | Sustainable procurement ensures adherence to current and future regulations, avoiding legal repercussions. |
What is ESG in sustainable procurement?
ESG is a compulsory part of sustainable procurement. This is because, in addition to the financial and performance aspects of procurement, companies must consider the impacts of procurement decisions on local communities, the environment, and society as a whole.
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).
Ultimately, sustainable procurement requires companies to integrate ESG principles into their procurement practices. Raw materials and supply chains for example should be selected with environmental factors and social factors in mind. By considering ESG factors in your procurement strategy, your business can demonstrate strong corporate social responsibility (CSR) and maximize the benefits of sustainable procurement practices.
“ To be successful with sustainable procurement, your company should invest the time and resources to develop suitable policies under the umbrella of its wider CSR (corporate social responsibility) strategy. This might mean starting from scratch or that you have to re-evaluate existing processes and identify areas for improvement. ”
💡 ESG is often viewed as the three pillars of sustainable procurement.
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Step-by-step guide for implementing a sustainable procurement system
Implementing a sustainable procurement system can seem like a daunting task, but with a structured approach, supply chain managers can integrate sustainability into their procurement processes effectively. Here’s a step-by-step guide to help you get started:
Step 1: Assess current procurement practices
Begin by conducting a thorough assessment of your current procurement practices. Identify areas where sustainability can be integrated and evaluate the environmental and social impacts of your existing supply chain. This initial assessment will serve as a baseline for your sustainable procurement strategy.
Step 2: Develop a sustainable procurement policy
Create a comprehensive sustainable procurement policy that outlines your sustainability goals, criteria for supplier selection, and expectations for suppliers. This policy should align with your company’s overall corporate social responsibility (CSR) objectives and be communicated clearly to all stakeholders.
Step 3: Engage stakeholders and build internal support
Engage key stakeholders, including procurement teams, senior management, and other relevant departments, to gain support for your procurement initiatives. Building internal support is crucial for the successful implementation of the policy.
Step 4: Evaluate and select suppliers
Evaluate your current suppliers based on sustainability criteria such as environmental impact, social responsibility, and ethical practices. Prioritise suppliers who align with your sustainability goals and consider partnering with new suppliers who offer more sustainable options.
Step 5: Set clear sustainability criteria
Establish clear sustainability criteria for the procurement process. This includes specifying requirements for environmentally friendly materials, energy-efficient products, and socially responsible practices. Ensure these criteria are included in all supplier contracts and procurement documents.
Step 6: Collaborate with suppliers
Work collaboratively with your suppliers to improve sustainability practices. Share your sustainability goals and expectations, and encourage suppliers to adopt similar practices. Provide support and resources to help them achieve these objectives.
Step 7: Monitor and measure performance
Implement a system to monitor and measure the sustainability performance of your suppliers regularly. Use key performance indicators (KPIs) to track progress and identify areas for improvement. This continuous monitoring will help ensure that your suppliers adhere to your sustainability criteria.
Step 8: Report and communicate progress
Regularly report on your efforts and progress to stakeholders. Transparency is key to building trust and demonstrating your commitment to sustainability. Highlight achievements, challenges, and future goals in your sustainability reports.
Step 9: Continuous improvement
Sustainable procurement is an ongoing process. Continuously seek opportunities for improvement and stay informed about new sustainability practices and technologies. Encourage innovation and be adaptable to changes in the sustainability landscape.
How can you improve your existing sustainable procurement strategy?
Seeking to improve your company's already existing sustainable procurement strategy can prove challenging, but fear not!
Here are a few ideas to get you started on making improvements to your existing sustainable procurement plan:
- Do a Deep Dive on Your Existing Set-Up – Before improvements can be made, it's imperative to get a full understanding of what is working well and what isn't. Which will be a better investment: spending time searching for new suppliers or upgrading your current technology? These decisions can't be made until an overview of your current strategy is made, and Greenly can help with that.
- Build Awareness – Maybe sustainable procurement is strong with your suppliers, but what about other key actors that are part of your business? Offering training to your employees regarding sustainability can help to create future ideas for sustainable procurement within your organization.
- Boost Communication & Transparency – Aiming for better communication with your stakeholders, employees, suppliers, and investors all around regarding other topics can indirectly help you to develop new and improved ideas for your sustainable procurement strategy.
Still, feeling lost? Greenly can help your company with its sustainable procurement strategy today!
Greenly can help you achieve sustainable procurement
At Greenly, we understand the challenges and opportunities that come with sustainable procurement. Our services are designed to help you seamlessly integrate sustainability into your supply chain:
- Decarbonise your supply chain: Engage your suppliers in your journey to Net Zero, reduce carbon emissions, and monitor their trajectory.
- Measure Scope 3 emissions: Analyse your Scope 3 emissions to improve transparency and enhance your RSE communication.
- Source sustainably: Create new partnerships with our low-carbon suppliers and replace the most wasteful suppliers with less carbon-intensive solutions.
- Set reduction targets: Establish SBTi reduction targets for all your suppliers and support them in reducing their carbon emissions.
- Access our supplier directory: Compare your suppliers and implement a responsible purchasing policy using the largest directory of scored suppliers.
Why choose Greenly?
- Quick identification of top emissive suppliers - Identify and address the most significant sources of emissions in your supply chain.
- Matching with green suppliers - Use our database to find and partner with suppliers who prioritize sustainability.
- Comprehensive support - From carbon management recommendations to supplier emission calculations, we provide end-to-end support for your sustainable procurement needs.
By partnering with Greenly, you can ensure that your procurement processes are not only sustainable but also contribute to your competitive advantage in the market. Visit our website to learn more about how we can assist you in achieving your sustainability goals.
What about carbon management?
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. We offer a free demo for you to better understand our platform and all that it has to offer – including help with boosting supplier engagement, personalized assistance, and new ways to involve your employees.
Learn more about Greenly’s carbon management platform here.
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