Why is Sustainable Procurement a Competitive Advantage?

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 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.

Sustainable procurement refers to the activities required to obtain the goods and services that a company needs to support its day-to-day operations. 

The two main components of sustainable procurement involve sourcing and negotiating contracts to purchasing materials, and together – these activities combine to form an important strategic business function.

However, the sustainable component to sustainable procurement can admittedly be more difficult to pin down – seeing as there are lots of different interpretations out there and the term seems vague because it 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.

The main difference between procurement and sustainable procurement is that procurement is primarily concerned with acquiring goods and services with the goal of ensuring the best quality and financial return, whereas sustainable procurement values ESG factors that are not as important to consider in procurement alone.

• Procurement seeks to prioritize obtaining goods for the best cost and turn-around time in order to ensure cost-effectiveness and to meet a company’s production needs. 
• Sustainable Procurement aims to prioritize 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.

👉 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.

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. 

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.

👉 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.

Sustainable procurement can help to 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 current competition.

The benefits and competitive advantages of sustainable procurement 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 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

If your company is to implement sustainable procurement strategies, your business can benefit from cost reductions by improving the efficiency of their supply chains. 

For example, by working with suppliers who use sustainable practices – your company can reduce the use of unnecessary packaging, 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 your brand to differentiate your services or products from your competitors. 

Consumers and clients are increasingly interested in companies that can demonstrate an effort towards environmental concerns and involving sustainability into their business decisions.

Market for new products or services

Companies that 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, meaning that if your company decides to hop onto the sustainable procurement bandwagon – your business could soon reap valuable marketing and financial benefits. 

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!

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, 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. 

Some companies, including your own, may be deterred by 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.

👉 Therefore, sustainable procurement 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.

Minimizes 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 labour 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.

Future proofing

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. 

If your business is to transition to the practice of sustainable procurement, it can help to avoid disruptions to your production line – as renewable resources, often a part of sustainable procurement, are easier to replenish.

Compliance with environmental and social regulations and law

Environmental and sustainability legislation and frameworks are becoming the new norm, meaning companies such as your own may need some guidance in the right direction on overall sustainability and good CSR – and sustainable procurement is a great place to start.

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 could help your company to indirectly avoid future penalties or legal battles – as sustainable procurement could encourage your business to implement improved societal and environmental practices elsewhere across your company that can help you comply with future climate policies.

ESG is a compulsory part of sustainable procurement. This is because ESG, or environmental, social, and governance criteria – all must be considered when developing a sustainable procurement strategy.

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 incorporate ESG principles into their procurement practice – as raw materials and supply chains cannot be chosen under the values of sustainable procurement without considering ESG values. Taking ESG manners into account with your company’s sustainable procurement strategy can also help to ensure your business demonstrates good corporate social responsibility (CSR) strategies, and further enhance the potential benefits of incorporating sustainable procurement practices.

💡 ESG is often viewed as the three pillars of sustainable procurement.

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? 

There are several ways in which your business can work towards sustainable procurement, such as by:

• Acquiring renewable energy credits such as RECS or carbon credits
• Seeking to implement energy efficient technologies to help better monitor and manage your supply chain and overall production line
• Utilizing waste or byproducts from other companies for creativity and re-work them to be used as raw materials
• Finding new ways to incorporate sustainable packaging into your company’s product shipments 
• Aiming to acquire more in-house or locally sourced raw materials for your company’s production line
• Encouraging employees and deliveries alike to reduce their carbon footprint associated with travel, such as by seeking the use of EVs or public transportation

Remember, sustainable procurement practices shouldn’t just be implemented within your organization, but your company should seek to encourage your suppliers to help reduce your company’s own scope emissions. 

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 – which is a great first step to implementing procurement.  

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. However, if this isn’t the case for your company – your business should look to engage your suppliers 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, ultimately – working to pave the way for your company’s sustainable procurement program. 

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.

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 a 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!

If reading this article has inspired you to consider your company’s own sustainable procurement plan, Greenly can help.

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 assistance with boosting supplier engagement, personalized assistance, and new ways to involve your employees.

Learn more about Greenly’s carbon management platform here.