Sustainable Procurement

According to the United Nations Development Project (UNDP), “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.”

It’s also known as green procurement or sustainable purchasing, and happens when an organisation adopts and integrates the principles of corporate social responsibility (CSR) into its procurement processes and decisions, while also pursuing procurement practices that conform with all relevant legal and regulatory standards, and meet the organisation’s business requirements.

Why Does Sustainable Procurement Matter?

Besides considerations like price and quality, sustainable procurement looks beyond the organisation itself to establish how procurement practices affect the environment, the economy, and the society at large.

Requirements, specifications, and criteria that drive sustainable procurement are compatible with protecting the environment and society. This runs the gamut from not endorsing or using child labour or using materials hazardous to health and the environment, to considering the impact of your business practices on communities, economic development, natural resources, greenhouse gas emissions, and climate change.

Issues such as these are at the forefront of public consciousness and the media these days, and a direct influencer of consumer behaviour. Organisations that incorporate sustainability in their procurement and other business practices tend to be perceived as ethical, and attract the patronage and loyalty of environmentally and socially conscious buyers. But there are other advantages to sustainable procurement, besides brand perception.

(Image source: Manutan.com)

The Benefits Of Sustainable Procurement

The EcoVadis Sustainable Procurement Barometer 2019 examines the current state of sustainable procurement within global companies, and highlights how they benefit from it. 81% of companies interviewed for the barometer say that their organisation's commitment to sustainable procurement has increased over the past three years.

For buyers, much of this activity has been in response to the challenges they face with regard to regulatory compliance, risks, and cost. On the supply side, ethical considerations are the main motivating factor. But for all stakeholders in the procurement ecosystem, certain common benefits exist, including the following.

Risk Reduction And Management

Relationships with suppliers who engage in unethical business practices can tarnish the brand reputation of buyers, and have a negative financial impact on the brand. Failure to maintain sustainable procurement efforts can also have economic and legal repercussions, in the form of non-compliance or fines for breaching industry regulations.

Successfully implementing sustainable procurement and using suppliers who are also committed to sustainable practices reduces the risks that your organisation faces, and provides greater scope for managing those risks.

Reductions In Cost

Sustainable procurement practices help to reduce an organisation’s total cost of ownership through reduced energy costs, reduced consumption, reductions in over specification, and cost reductions related to environmental and social compliance. And improved visibility over total cost of ownership of the organisation’s products and services gives more control over costs in general.

Data from the World Economic Forum indicates that sustainable procurement practices can reduce procurement costs by nine to 16%. This is money that can be put back into the business, for growth and innovation.

Reduced Overheads

With the sustainable procurement of energy-saving products and services, you can lower your utility bills. Improving work conditions by offering employees flexible hours can save on staffing costs, while reducing absenteeism and staff turnover

Increased Revenue

Innovations stemming from socially responsible and eco-friendly practices can lead to the development of new products and services, which add to the organisation’s portfolio. With customers prepared to pay extra for sustainability and corporate responsibility, sustainable procurement gives opportunities for price increases on premium products and services. Extra income may also be derived from external programmes dedicated to waste management and recycling.

Better Regulatory Compliance

Sustainable procurement puts you in a better position to meet the demands of existing legal frameworks and regulatory compliance regimes -- and makes the organisation agile enough to cope with any changes or new legislation that may appear in future.

Improved Customer Perception

When customers approve of what you’re doing as an organisation, they feel better about supporting your business. They’re also more willing to pay a premium for goods and services delivered through an ecosystem that makes the environment and social responsibility a top priority.

All of this translates into an improved perception of your brand, and opportunities for more sales, growth, and expansion.

Some Best Practices For Sustainable Procurement

The first stage in implementing a sustainable procurement programme is to identify the needs of all relevant stakeholders. Many organisations perform stakeholder dialogs for this, revealing expectations and priorities that may be used as a basis for developing a sustainability strategy and aligning it with the company road map.

In drawing up a plan of action, it’s important to set clear goals and intentions, and to pull in different departmental stakeholders. This will enable your procurement team to call on the expertise of people who may have greater experience in matters of sustainability.

When selecting tools and methods to gauge the sustainability performance of suppliers, put the emphasis on simplicity, and ease of use. Most procurement software packages will include quantitative indicators such as sustainability ratings, which accelerate and scale up sustainable procurement programmes so they can drive real impact.

A supplier performance monitoring programme that aligns with the organisation’s sustainability strategy should include quantifiable indicators that enable the business to easily identify risks and opportunities.

Within the organisation, Chief Procurement Officers (CPOs) must work to build sustainability into their procurement function. In essence, that means looking at ways to improve internal and external standards, building a sustainable and more efficient supply chain, meeting the demands of socially and environmentally conscientious consumers and investors, screening suppliers that pose a potential risk, and taking steps to preserve and maintain the brand reputation.

DBS: Turning Sustainable Procurement Challenges Into Opportunities

The Development Bank of Singapore (DBS Bank Ltd) believes that the world’s biggest problems are now the world’s biggest business opportunities. DBS formed a Sustainability Council in 2017, to oversee and coordinate bank-wide sustainability efforts. And with its 2019 statement of purpose: “Best Bank for a Better World”, DBS looks to enrich lives and transform businesses by providing amazing solutions and experiences in a sustainable manner.

Among the challenges that the bank is meeting head on is the issue of procurement fraud, one of the most common forms of fraud across industries. Recognising the need for constant vigilance and the importance of enterprise wide anti-fraud controls, DBS Group Procurement & Services (GPS) created rule sets for the automation of transaction surveillance, so that monitoring of transactions could be carried out more efficiently and regularly.

With its use of technology, DBS is also creating opportunities for its neighbours in the wider business community. For example, in 2019 DBS launched its first multi-tier financing facility on a China-based logistics blockchain platform. Using the bank's APIs (Application Programming Interfaces), the system allows small- and medium-sized enterprises (SMEs) to get faster access to trade financing.

DBS is typically able to offer digital trade financing services to SMEs in the ecosystem within 24 hours. This is particularly helpful to smaller businesses, which often face rejection by financial institutions for their trade finance needs.

Elsewhere, the bank is honouring its commitment to “build a more sustainable society for future generations” by taking steps to reduce its environmental footprint. As part of its drive to “Recycle more, Waste less,” the bank got more than 50,000 people pledging to adopt simple and easy steps (like switching from plastic to reusable bags), to reduce waste in their daily lives.

Clients visiting DBS Treasures Lounges now drink from glasses and recyclable paper cups. And the bank has come up with hacks to help both staff and customers reduce their dependence on single-use plastics. These include sporks (combination spoon and forks), metal straws, red packets for Chinese New Year without plastic wraps, and tiny zip pouches that unfold into recyclable bags.

By reducing the purchase of disposable plastic water bottles in Singapore (a popular corporate or client gift), DBS now saves some 7.3 tons of plastic waste every year.

Unilever: Proving That Sustainability And Business Can Mix

In 2020 -- after surveying all of its employees for their input on its future sustainability work -- Unilever has merged its sustainability and commercial strategies for the first time. The move is the culmination of a commitment that began ten years ago when, realising that current economic systems are contributing to climate change, bio-diversity loss, and social inequality, the company pledged to “make sustainable living commonplace”.

Five years later, Unilever set about identifying brands within its portfolio that could be considered “Sustainable Living Brands” -- those addressing one or more social or environmental issues through their scale, partnerships, and advocacy. By June 2019, that list had grown to 28 brands, collectively growing 60% faster than Unilever’s total portfolio.

Besides focusing on sustainable brands, Unilever has been making strides in other areas. This year, Unilever has been highlighted as a world leader in corporate sustainability by global environmental non-profit CDP, achieving a place on its ‘A List’ for climate change, protecting forests, and water security. CDP’s annual environmental disclosure and scoring process is widely seen as the gold standard for corporate environmental transparency.

Concerning the award, Unilever’s Chief Supply Chain Officer Marc Engel says, “Unilever is committed to working with NGOs, governments and the wider industry to change the way the world does business. We’re delighted to have been recognised as a leader in water security, and the fight against deforestation and climate change.”