November 01, 2023 | Procurement Strategy
By Marijn Overvest
As we enter 2024, an extraordinary transition is happening within organizations in how they source materials, select suppliers, and manage supply chains. Sustainability is more than a mere trend; it’s becoming a responsibility for all businesses pursuing a brighter future for people and the planet.
Over the last few decades, environmental concerns have grown significantly, and the apparent inevitability of climate change requires us to change our ways of sourcing, procurement, production, and distribution of products and services.
Businesses across the globe are realizing the significance and impact of procurement practices on the environment and society.
Meanwhile, consumers are becoming more informed about the need for companies to prioritize social and environmental responsibility.
We will explore three key reasons, including insights and real-world examples, to elaborate on why and how the year 2024 will be the turning point in amplifying sustainability in procurement.
Businesses must do more than give up single-use plastic to be truly sustainable. Sustainability involves an active commitment to environmental responsibility across all functions. Within procurement, sustainability revolves around sourcing and acquiring products through eco-conscious ways.
More companies can reduce their environmental impact through socially responsible procurement practices such as choosing eco-friendly materials, ethical sourcing, and carbon-neutral production. This approach contributes to a circular economy by promoting responsible use of resources so that products are designed for longer use, easy recycling, and with minimal environmental impact.
Businesses have a responsibility to society and the environment to reduce their environmental footprint.
For instance, according to the Paris Climate Accord, companies can facilitate 60% of emissions reduction by 2030, preventing severe environmental repercussions by embracing and shifting toward more sustainable business practices.
By extension, these practices help conserve natural resources, protect the health of ecosystems, and minimize the impact of pollution.
The business world has transformed significantly from its focus on economic performance. Rather, we are seeing an amplified focus on environmental consciousness and social responsibility.
In 2024, sustainable procurement is set to take center stage because of three key reasons:
Climate change and growing environmental issues are some of the most pivotal driving factors behind the increased global focus on sustainability in procurement.
A 2023 report by the International Panel on Climate Change (IPCC) says human-induced greenhouse gas emissions caused global surface temperatures to rise by 1.1°C above pre-industrial levels in 2011-2020.
The severe impacts of climate change, including extreme weather, higher global temperatures, and ecological degradation have highlighted the urgency for businesses to change their ways.
More companies are recognizing the enormous impact their business practices can have on the planet, which is why we are seeing a transformation in how these companies define their standards and policies.
Furthermore, consumers are shifting towards greener alternatives by purchasing eco-friendly products to reduce their environmental impact. This remarkable shift in consumer preferences reflects a growing global concern for the environment as we’re seeing some of the most concerning effects of climate change.
Companies around the world are no longer focused simply on the business’ bottom line. As stakeholder preferences are shifting toward more ethical and sustainable values, companies are driven to make conscious efforts to integrate sustainability into their procurement processes.
Additionally, governments and regulatory agencies are enforcing more rigorous environmental regulations and standards. The most common of which include limits on emissions of air and water pollutants, including organic compounds, heavy metals, and hazardous waste.
Governments limit these emissions by imposing strict regulations for proper labeling, handling, transportation, and disposal of various materials and waste. Regulatory agencies set these guidelines to ensure that businesses operate responsibly while reducing their carbon footprint.
As a result of strict environmental regulations, more and more companies are actively committed to incorporating sustainability and social responsibility into their procurement practices and corporate policies.
IKEA, the global furniture and home decor giant, has demonstrated its commitment to sustainability by sourcing its products in eco-friendly and ethical ways. Among the company’s sustainability initiatives are the use of renewable materials in energy-efficient products like LADDA rechargeable batteries, increased use of FSC-certified wood in their furniture, and circular services such as recycling and refurbishing. Additionally, IKEA ensures compliance with environmental regulations by publishing regular sustainability reports.
Patagonia, an American outdoor clothing retailer, has implemented several initiatives to make its clothing lines greener. The company emphasizes on sustainability in its products including the use of recycled polyester and organic cotton. Its sustainability initiatives include a self-imposed earth tax, which began in 1985, and has since encouraged other companies to do the same. The Worn Wear program also allows customers to buy and sell used Patagonia products, increasing the lifecycle of products and minimizing waste.
Veja is a French footwear brand with a focus on sustainable products and fair trade practices. The brand sources eco-friendly materials like organic cotton and upcycled plastic bottles to manufacture its shoes.
In recent years, Veja has expanded its sustainable procurement efforts through chemical transparency across its production and supply chains, requiring comprehensive reports from its suppliers to ensure all materials are free from harmful chemicals.
Sustainability initiatives within procurement processes help companies align business values and quality standards with the concerns of their consumer base. It is a strategic approach that requires careful planning and outlining of policies to ensure compliance and continued improvement.
However, implementing sustainable procurement practices requires a collective effort not only from businesses but their employees as well.
Procurement leaders need teams who have specialized knowledge of sustainability and understand its significance. They can achieve this by providing sustainability training, procurement courses, and other resources that can help them apply sustainable procurement practices efficiently.
Furthermore, businesses that embrace sustainable procurement in 2024 can thrive through long-term sustainability, enhanced customer loyalty, and improved regulatory compliance.
Sustainable procurement is a vital strategy for building a more sustainable and socially responsible world, but it also helps boost economic performance.
Companies that choose suppliers with the same ethical and sustainable values in mind have a better chance of securing better deals and resilient partnerships.
Sustainable procurement delivers incredible opportunities for cost savings, better waste management, and lower raw material costs which ultimately contribute to economic growth.
Additionally, businesses can significantly enhance their cost structures through recycling, investing in energy-efficient technology, and socially responsible supply chain management.
In the event of supply chain disruptions like geopolitical issues and natural disasters, businesses are vulnerable to severe financial risks. By embracing sustainable procurement, companies can diversify their supplier base, source domestically, and develop more resilient supply chains.
Among global consumer goods companies, Procter & Gamble (P&G) has been implementing sustainable procurement practices for years, which has led to several tangible benefits on both environmental and economic fronts. P&G’s investments in energy-efficient manufacturing practices significantly reduced their greenhouse gas emissions, and consequently, lowered energy costs.
Nestlé has made remarkable strides in sustainable sourcing of materials and ingredients. In doing so, the global food and beverage company has reduced its environmental impact while enormously improving its brand image. Their commitment to sustainability and social responsibility has led to increased consumer loyalty through a positive brand reputation.
Unilever incorporates ethical and sustainable practices within its supply chain in its sourcing of agricultural raw materials like soy, tea, palm oil, and others. Aside from its sourcing practices, Unilever demonstrates its commitment to sustainability by working with socially responsible suppliers, effectively reducing supply chain risks related to regulatory non-compliance and unethical sources.
Ultimately, having a sustainable and optimized supply chain helps businesses to be socially responsible but also better equipped to address sudden fluctuations and disruptions within the supply chain.
Failure to adopt sustainable procurement practices can lead to severe consequences. For instance, brand reputation could suffer immensely for companies that resist change. In recent years, consumers have demonstrated behavior that shifts toward sustainability and social responsibility. Therefore, resisting change can lead to great losses in customer loyalty.
Resisting sustainability can also result in faster depletion of energy and resources as well as inefficient waste management, leading to higher operational costs and low profitability.
Furthermore, failure to adhere to environmental regulations can land companies in serious legal repercussions such as fines, legal actions, and operational setbacks.
In a modern era that emphasizes social responsibility and sustainability more than ever, companies across the globe are impelled to reevaluate the way they carry out procurement practices. Businesses are demonstrating that sustainability and social responsibility can coexist with economic growth; these moral imperatives can only grow in the upcoming year, urging more companies to reconsider their methods.
Sustainable procurement in 2024 will be driven by three factors: the growing global environmental concern, the amplified emphasis on ethics and social responsibility in business, and the economic advantages and risk mitigation bolstered by sustainable business practices.
The author is the founder of Procurement Tactics.