Sustainable Procurement — Pain or Gain?
Why Ignoring It Will Cost You Time and Money on a Long Run.
Procurement is the process of seeking, purchasing, buying goods or services from an external source, often through a tender procedure or competitive bidding, on the best terms — historically based on two criteria, price and quality, in order to maximize the benefits to the procuring entity.
Sustainable purchases are expanding this structure, taking into account the effects of third-party purchasing decisions, creating a “triple baseline” of external issues that should be performed by the procuring entity. In practice, the continued influence of a potential supplier approach is often assessed as a form of quality review.
This structure is also known as a triple bottom line.
The sustainable procurement process is usually associated with public policy, although it applies to the private sector as well.
Ensuring a sustainable procurement approach involves reviewing short-term needs and taking into account the long-term effects of each purchase, and long-term goals related to resource efficiency, climate change, social responsibility, and economic sustainability.
Sustainable procurement involves a higher level of cooperation and interaction between all parties in the supply chain. Many enterprises globally have already adopted a broad interpretation of sustainable procurement and have developed tools and methods to support this interaction and cooperation.
Sustainable Purchasing Leadership Council (SPLC), a non-profit organization whose mission is to support and recognize purchasing leadership that accelerates the transition to a prosperous and sustainable future, provides a learning directory and online learning opportunities. One of the latest webinars SPLC delivered together with EcoVadis, ‘Making The Case for Investment in Company’s Sustainable Procurement Program’, focused on lessons companies with successful sustainable procurement practices derived from their experience.
It turns out that commonly needed resources regardless of the activity sector are:
- Staffing (everything in this world relies on committed people);
- Impact assessment (identification of areas of highest procurement impact);
- Supplier assessment;
- Research support (for individual project area initiatives);
- Consulting and membership (to keep on top of trends and learn from others).
The lessons successful companies took from their experiences convincing top-management of taking real actions towards leadership in sustainable procurement are boiled down to 8 pillars:
- Customer revenue.
- Investors. Investors usually ask about Environmental, Social and Governance (ESG) issues, sustainability goals and strategies, CSR initiatives, sustainable procurement practices are yet another bonus to have in hands.
- Competition. Communicate the value of your sustainable purchasing efforts as key differentiators.
- Return on supplier engagement. Gains in efficiency, innovation, reliability, and other business-critical results.
- Risks and reputation. Address unknown or unresolved supply chain issues that could tarnish your brand.
- Corporate strategy. Highlight sustainable purchasing contribution to existing goal enables to pass the message to the C-suite.
- Cost savings. Sustainable purchasing efforts can enhance your company’s bottom line (cost avoidance vs. cost savings)
- Taking small steps. Focus on audacious goals, pitch a manageable subset of actions; use incremental wins to build momentum for the next steps.
Triple bottom line approach suggests that sustainable purchasing can be approached from 3 angles — environmental, social, and economical.
ENVIRONMENTAL ASPECT
This is the dominant rationale at the macro level for sustainable purchasing, derived from the growing consensus of the 21st century, that humanity requires surplus resources because of unsustainable patterns of consumption. The goal of sustainable supply is to promote the conservation, re-use and responsible use of these resources, the use of renewable or recycled materials, where feasible, and waste reduction.
The simplest justification for ‘green’ procurement (another term for sustainable procurement) is that it is an instrument for tackling climate change, that also offers wider potential to mitigate the excessive exploitation of any scarce resources.
Examples of green procurement are the purchase of energy-saving light bulbs, the commissioning of a new building from a renewable source of wood, organic food served in the dining room at the workplace, etc.
The funny thing is that the ultimate green purchase is avoiding buying at all.
In support of the Sustainable Development Goals, organizations develop and publish their own “Sustainable Procurement Guidelines and Procedures.”
SOCIAL ASPECT
Sustainable purchases are used to address social policy issues, such as inclusiveness, equality, international labor standards and goals for diversity, regeneration, and integration.
Examples include solving such needs as employment, care, well-being, and the needs of groups, including ethnic minorities, children, the elderly, the disabled, adults with no basic skills, and immigrants. The criteria for socially responsible purchases can be applied at each stage of the supply chain.
ECONOMIC ASPECT
Often, the differences in the purchase price between a non-sustainable and a sustainable alternative are insignificant. However, even where the sustainable option is more expensive, saving energy, water and avoiding waste during the product or service lifecycle can provide significant financial savings.
At the macroeconomic level, it can be argued that there are economic benefits in terms of improving efficiency through the inclusion of life-long costs before making informed decisions.
Creating sustainable markets is essential for long-term growth, while sustainable development requirements contribute to innovation.
There are also potential global applications of sustainable procurement:
- It can promote fair trade or ethical practices,
- It allows additional investments for developing countries.
At the microeconomic level, sustainable procurement provides an opportunity for economic redistribution. Goals may include creating jobs and wealth in regeneration areas or helping small businesses and/ or businesses owned by ethnic minorities.
GOVERNMENT’S ROLE IN DEVELOPMENT OF SUSTAINABLE PROCUREMENT
Public spending, which accounts for an average of 12% of GDP in OECD countries and up to 30% in developing countries, has enormous purchasing power.
The shift from spending on more sustainable goods and services could help stimulate markets for innovation and sustainable development, thereby allowing the transition to a green economy.
Through sustainability practices, governments can serve as an example and pursue key policy goals.
Sustainability of purchases allows governments to:
* Address the key issue of greenhouse gas emissions,
* Improve resource efficiency,
* Use recycled materials.
Key international organizations are increasingly restoring public procurement as a means of changing unsustainable patterns of consumption and production.
The United Nations Environmental Program, UNEP, which aims to develop and promote efficient use of resources and more sustainable consumption and production processes, including the promotion of sustainable resource management in the life cycle of goods and services in developed and developing countries, have developed recommendations for the introduction of sustainable public procurement to help include public, economic and environmental issues in the procurement processes.
INTERESTING SUSTAINABLE PROCUREMENT CASES
The Marrakesh Task Force on Sustainable Government Procurement (MTF or SPP) has established an approach for the effective implementation of sustainable procurement.
The Capacity Building for Sustainable Government Procurement in Developing Countries project has been piloted in 7 different countries: Chile, Colombia, Costa Rica, Lebanon, Mauritius, Tunisia and Uruguay, and is still spreading to developing countries.
- In Brazil, the project provided for paper recycling. As a result, we see an improvement in the environmental situation.
- In Costa Rica, management services have been transformed.
- In France, the main goal was to replace toner cartridges for laser printers. The purchase of reconstituted cartridges by the French Ministry of Education has led to a reduction in the amount of waste generated during the production stage.
- In Hong Kong and China, governments have sought to improve traffic through LED traffic lights.
- In Italy — Organic products for schoolchildren. Improvement of the environmental situation as a result of implementation.
- In England — steel construction in England. These cases show significant positive impacts associated with reduced CO2 emissions, waste generation, and water consumption.
- In Scotland, consultancy and temporary staffing services have been upgraded
- In the United States, there was an impetus for the sustainable transport of waste. Positive impacts associated with reducing CO2 emissions, waste generation, and water consumption.
The advantages observed from these 8 cases implementation:
- The decisiveness of public purchasers in solving social issues.
2. Issues of employment and social inclusion are considered essential for public authorities that promote these priorities through procurements; some social consequences are directly targeted at tenders involving companies employing disabled people (France) or those who are struggling with illiteracy in Scotland.
3. The other positive effects are the results of a specific procurement, as in the case of the state of Sao Paulo (laptops and printers using recycled paper), which has a clear positive impact on waste collectors.
Case analysis illustrates the diversity and strength of the registered effects of sustainable development. Public buyers can be clearly seen as key potential members of a society that can influence a wide range of spheres of sustainable development.
Large-scale procurement strategies are important in the EU. At the same time, the US federal government requires some ‘green’ procurement practices in their buildings and supports the broad and inclusive use of green procurement practices.
Sustainable purchases help local governments save money, create local “green” jobs and improve environmental sustainability.
According to the criteria for sustainable procurement, any customer organization may adopt a broad approach to sustainable development, reflecting local economic, environmental and social needs, as well as cross-cutting sustainable development strategies such as life cycle assessment.
INFLUENTIAL ORGANIZATIONS IN THE SPHERE OF SUSTAINABLE PROCUREMENT
- Greater London Authority — the first public sector body that publishes a policy of consistent purchasing, which promises to give “a clear competitive advantage” to companies that have demonstrated the commitment to sustainable purchasing issues. The policy reflects the Mayor’s enthusiasm for the public procurement measure as an instrument for promoting social inclusion, equity and environmental goals.
2. Procura+ is a network of European state bodies and united regions, that is exchanging experience and acting in the field of sustainable and innovative procurement.
3. ICLEI — Local Governments for Sustainability, founded in 1990 as the International Council for Local Environmental Initiatives is a global network of cities, cities, and regions that strive for a sustainable future.
TWO MAJOR APPROACHES TO ‘GREEN’ PROCUREMENT
Although there is no clear definition of how organizations implement sustainable procurement, there are two approaches that can be combined:
1 — Based on product
This is when the organization considers the flow of products in the supply chain and assesses the environmental authority of itself and its suppliers. This path is usually used when an organization wants to understand the impact of a product or range of products for strategic and marketing purposes. This approach can also provide a vivid picture of the supplier’s processes.
2 — Based on suppliers
The organization can analyze the supplier’s Corporate Social Responsibility (CSR) management systems and its compliance with the law and CSR standards of the “purchasing” organization. In this case, the organization measures the environmental and social risks that may be imposed on them by the supplier. Effectively implemented, this method will show whether the supplier meets the environmental standards of the organization and whether the suppliers meet the requirements of the law. Some estimates improve the entire supply chain, providing incentives for other businesses to be more sustainable.
Companies can use different tools to evaluate their CSR management systems:
1 — Self-assessment questionnaires;
2 — Free impact assessment using Corporation B certification;
3 — Estimates of scientifically-based targets;
4 — On-site audit programs that are managed internally or through third parties.
“GREEN” PROCUREMENT IN THE ORGANIZATION
Eight easy steps to ‘environmentalize’ the procurement policy of the organization:
1. Create a team of green buyers
2. Perform basic inventory
3. Set environmental criteria
4.Develop the green supply specifications
5. Take advantage of partnership opportunities
6. Write own green procurement policy
7. Train staff and community
8. Regularly review & upgrade the policy
Going beyond the usual “3R” Reduce, Reuse and Recycle, the company can try to implement the following principles:
RECLAIM: Improve, get back and/or make operational once again, wasted or degraded resources — for example, in the case of degraded or unusable land or derelict buildings.
RECONSIDER: Used in relation to sustainable living: reconsider the need for a wasteful living lifestyle, the overuse of resources and redundant materials — in order to have a minimum impact on the environment.
RECOVER: Salvage or recoup the usefulness of a resource. Also, bring a resource back to its original or improved functioning state.
REGULATE: Control and restrict resource use with prescribed rules and norms — particularly in the case of non-renewable resources. It can also include the management and monitoring of such resources to prevent misuse and degradation.
RELINQUISH/RENOUNCE: Relinquishing or renouncing refers to giving up the use of certain goods or services that produce a negative environmental impact. Sometimes it may also mean the giving up of a personal ‘convenience’ for the good of the environment.
REPAIR: Quite simply, machines and technologies that are in a bad condition or in a state of deterioration (uses more resources and emits) more waste that normal) need to be repaired to make it more efficient with less environmental impacts.
REPLACE: In some cases, resource crunching, wasteful goods, and technologies have to be replaced by more appropriate and productive alternatives, that are less energy-intensive too.
RESTORE: Reinstall and return to the environment the resources that were taken from it. Restoring also refers to the return of resources to its natural state.
RESTRICT: Curtail and control the indiscriminate and wasteful use of natural resources. It can also mean the confinement of resources use within levels below which it can be regenerated and regulated.
RECONDITION: An example of recycling — to disassemble and clean products recovered in factories and reassemble them after changing some parts. Quality assurance is processed as required and reconditioned products and units are shipped to the market as the same products and units as those recovered.
Advantages of sustainable procurement
1 — Minimization of risk in the company’s business practice;
2 — Compliance with environmental and social legislation;
3 — Increase in consumer perception (reputation);
4 — Cost control, applying a wider approach to determining the cost over the product life cycle;
5 — Creation of markets for new products and services;
6 — Reduction of costs and resource efficiency improvement;
7 — Competitive advantage;
8 — Promoting access to capital and increasing value assessment;
9 — Effective management:
* Fair competition, transparency, the prohibition of discrimination;
* Satisfaction of the requirements of the state policy and corresponds to the goals of the world society;
* Compliance with the requirements of legislation in the field of social protection and environmental protection;
* Improvement of internal management, the achievement of effective results in planning, control, etc;
* Encouragement of sustainable consumption.
10 — Improvement of the environment:
* Rational use of natural resources;
* Reduction of waste, emissions;
* Environmental protection, reduction of toxic load.
11 — Improvement in the social sphere (solving social problems):
* Improvement of working conditions;
* Reducing poverty and unemployment;
* Empowerment of people from risk groups/ national minorities;
* Improvement of the health care system, improvement of living standards;
* Improvement of social conditions, creation of new workplaces;
* Development of the regional economic sector and promotion of small and medium-sized enterprises.
12 — Recovery of the economy and the market:
* Economic efficiency;
*Improvement of the national/ regional market, including the exchange of technologies and the transition to new technologies;
*Innovation stimulation.
Sustainable procurement practices implementation in the organization is an effort definitely worth taking. Your organization’s practical path towards ‘green’ procurement can be whether pain or gain but in the long run, in the upcoming green economy reality, it will save money, time and help gain competitive advantage. So, start soon and collect your wins along the way towards sustainability.
Stay tuned for more articles at Ecognize!
Writer Anna Chashchyna
