What is Sustainable Procurement?
Purchasing decisions that aim to meet an enterprise’s requirement for goods or services, and at the same time minimize the impact on environment from such purchase can be termed as sustainable procurement.
The concept of sustainable procurement has fast evolved from “good to have” to “must have” in recent years. Not just as a means to ensure compliance and keeping it as a part of corporate social responsibility, enterprises that have an active framework in place to make sustainability a part of their procurement process enjoy higher acceptance among current and prospective clients.
Benefits of Sustainable Procurement
When implementing sustainable procurement, businesses look at tangible benefits in the short- to mid-term, such as:
- Create a greater social impact instead of randomly contributing to philanthropic causes
- Boost profits and enhance CSR, and in turn goodwill
- Avoid risks in terms of ethics, legal as well as brand image
- Create a point of differentiation for clients and customers
- Able to serve evolving consumer preferences
Sustainable procurement helps companies achieve the aforementioned and some more. With governments across the world coming up with sustainability legislations, enterprises look at ensuring compliance with environmental and social laws as the one of the highlights.
Three Major Pillars of Sustainable Procurement
There are three key pillars of sustainable procurement — economics, environment and social.
- Economics is the first thing that comes up at the discussion table with all business stakeholders. The cost has to be justified from the very beginning. With disruptions across the globe, businesses are wary of investments where the returns are not immediately visible. As a result, enterprises look at sustainable investment practices that enable revenue growth along with low total cost of ownership (TCO) throughout the life cycle.
- As part of sustainable procurement, enterprises seek to minimize the impact on environment from purchasing. Enterprises have to comply with local legislations that demand reduced CO2 emissions and a minimum carbon footprint from any activity in an enterprise’s procurement ecosystem — to the extent that it’s not just sustainable, but ethical too.
- Enterprises need to deliver on their social goals that are laid down in their sustainable procurement framework. Most of these revolve around protecting human rights, preventing child labor, ensuring health and safety with the organization and in their partners’ ecosystem.
Best Practices in Sustainable Procurement
Building a sustainable procurement practice requires taking into account external as well as internal factors — because inefficiency can come from just about anywhere. Addressing the challenges needs a practical, hands-on approach with some of the sustainable procurement best practices.
Evaluate the Existing Setup
Studying the existing setup gives a fair idea of the capabilities that are there and what needs to be incorporated.
Create a Policy Framework
Creating a sustainable procurement policy framework can resolve most of the issues right at the onset of the transformation journey. The framework also prevents future issues by ensuring adherence.
All stakeholders, internal or external, need to be on the same page so that organizational goals can be met with ease and well within the policy framework.
Open, consistent communication channels mean greater collaboration across the board, across all stakeholders, across all employees — leading to real-time feedback for policy makers.
Challenges for Sustainable Procurement
Implementing sustainable procurement is not without its challenges. The key to its implementation is getting everyone onboard — that is, all stakeholders must come together and agree on a common framework. A small contradiction can potentially become a hinderance to implementation of the sustainable procurement process.
Cost estimation is another challenging factor that may require a lot of deliberation and analysis. This is the one factor that can throw the entire calculation of profit and loss wayside, especially for the short term. However, once an enterprise is through with this phase, it can witness cost and risk reduction, which eventually leads to revenue growth.
Sustainable Procurement Requirements
Sustainable procurement requirements have become increasingly important in recent years, and many organizations continue to set ambitious sustainability targets to reduce their carbon footprint and minimize their environmental impact. Procurement leaders need to be aware of these targets and ensure their enterprise’s procurement processes align with its sustainability goals.
Companies can initiate sustainable procurement practices and make a positive impact on the environment and society, there are however certain requirements that need to be fulfilled, including:
The leadership or senior management must have a demonstrated commitment to sustainability and should be able to communicate the importance of sustainable procurement to the organization.
Stakeholders — such as suppliers, customers, and employees — need to be engaged so that they understand the organization's sustainability goals and expectations.
Enterprises need to ensure that their procurement policy is comprehensive and includes sustainability requirements and guidelines for evaluating suppliers' environmental and social performance.
Supplier ESG Evaluation
Procurement professionals should evaluate suppliers' environmental and social performance as part of the supplier selection process. Suppliers who do not meet the sustainability criteria should be disqualified.
Supplier Performance Monitoring
Enterprises should monitor suppliers' performance regularly to ensure that they continue to meet sustainability requirements.
Training and Awareness Programs
Creating a sustainable procurement practice requires procurement professionals to undergo training and awareness programs to better understand the importance of sustainability, and it’s a must moving forward.
Sustainability Reporting and Communication
Sustainability reporting is a major step toward commitment to maintaining transparency on sustainability goals of an enterprise. It sends clear communication to all stakeholders as well as prospective clients and partners about the enterprise’s progress and the impact it’s making on the environment and society.
Value of Sustainable Procurement in Business Transition
Working toward sustainable procurement shows the intent of an enterprise to align with its mission and vision statement. This could potentially increase an enterprise’s reputation and an image that it has the ability to stand resilient to market fluctuations. Most clients and customers look for partners that have sustainability embedded in their value chains. For enterprises, it’s not just for long-term revenue growth, but to stay ahead of regulatory changes and reduce transition risk.
Drivers such as cost reduction, risk reduction and revenue growth have motivated companies to ensure sustainability across their supply chain, and this has been substantiated by several research reports. The key to moving toward sustainable sourcing is to not embrace every aspect of sustainability in one go, but to include one aspect at a time — and continue building sustainability metrics during the process over time.