PROCUREMENT IS ONE OF THE CRITICAL FUNCTIONS WITHIN ORGANISATIONS, EVEN MORE SO FOR THOSE COMPANIES THAT RELY ON SUPPLY CHAINS FOR THEIR CORE ACTIVITIES AND VALUE GENERATION.
Yet, when we talk about sustainability we do not often consider the procurement process as one of the enablers of sustainability, a practical tool to turn strategy and objectives into reality. Procurement may play different roles within organisations - it may be an enabler, supporter but it is often a critical strategic function that ensures viability of the business and acts an integrator for multiple cross-functional inputs. A glue, really, that enables the delivery of the organisational purpose and objectives! This is often true for organisations and projects that rely on sub-contractors, and it is certainly true for public procurement, international development, infrastructure and construction industries, to name just a few big spenders.
So where do we start?
The starting point is always (just like in school in an Economics class) - definitions! What do you actually mean by “sustainability”? There are many interpretations and ways that this can be understood, so ensuring that there is an articulation of what exactly “sustainability” and “sustainable procurement” mean to the specific organisation is crucial. For some this may mean human rights within supply chain are a priority issue, and for others removal of single-use plastic and transition to renewable energy is the focus. Ultimately, once you know what you are trying to achieve and what “good looks like”, you can move in that direction, monitor, demonstrate and articulate the progress of that sustainability journey. Otherwise, you are randomly shooting in the dark. Here comes the challenge: there are so many sustainability related issues that are currently on the radars - some are spoken about and understood more than others. This means that the mix and prioritisation for every organisation will be different, but the key here is relevance and materiality to your operations or the specific procurement. You want to focus your efforts if you are to make any impact.
Right, let’s assume that you got this part covered, you have your metrics and targets - be those around CO2 reduction, renewables use, water stewardship or waste management practices or anything else that may be relevant for your business and circumstances. Now, how do you use the procurement tools you have at your disposal to translate these objectives into outcomes? Often, there is a great desire to do the right thing, but organisations are not always sure about how to go about it.
Here are 5 practical steps in embedding sustainability in your procurement process.
🗂 1. Procurement policy.
Do you have a "Sustainable procurement policy”? If you do, do you also have another one, the "Non-Sustainable Procurement Policy”? That’s the challenge with adding extra "Sustainable” strategies, policies and procedures - it leave room to assume that sustainability is not actually part of your business thinking and decision making, but just another set of documents that nobody has probably read. Instead, consider reviewing the relevant risks and revisiting your Procurement policy so that sustainability is embedded into your every day operations and procurement decision making, just like quality and value for money principles are. The level of impact and importance can be magnified multiple times when we talk about public sector procurement, or multinationals.
📋 2. Tender Specifications.
This is often the most important tool in your toolbox to drive more sustainable outputs. Writing specifications for goods or services is the opportunity to communicate to the supplier exactly what you are looking to achieve - or NOT looking for, as the case may be. Do you want to minimise CO2 impact of your value chain? Let the supplier know that proposals that help you with that will be viewed favourably, ask for CO2 impact measurements over the life of the product or service to enable you to make informed comparison across bids. Are you looking to recyclable materials only? Consider what that would mean in the context of your requirements and make it clear to the bidders.
For example, reduced greenhouse gas emissions, waste minimisation and water conservation can be achieved by specifying:
- Energy efficient IT equipment which helps to reduce CO2 emissions;
- Presence detectors for controlling lighting in offices;
- Environmentally preferable refrigerants to reduce ozone depletion and global warming;
- Recycled paper to reduce the impact on landfill;
- Refurbished electronics and equipment to minimise impact on landfill and avoid creating demands for new products creation;
- Packaging to be reduced, returned and contain biodegradable/ compostable materials.
Figuring out the details of the right specifications and scope of work is also an opportunity to drive the internal conversations about what exactly the organisation is looking to achieve in the context of sustainability. This engagement with internal cross-functional stakeholders is critical for thinking through what might be important and how to balance sustainability performance with the technical and commercial requirements in a way that is still delivering value and needed outcomes.
🔍 3. Supplier due diligence.
Yes, know your partners, but do not JUST know them - learn about what they value and what they do. For example, if you have targets for supply chain diversity, women and/or local ownership, micro, small and medium enterprises (MSME) participation etc. You can ask for evidence of the suppliers’ approach to sustainability, third party certifications, policies and procedures that demonstrate their commitment to sustainability.
Suppler due diligence questionnaires is not only the tool to collect information, but an opportunity to let your suppliers know you are looking for partners that share your values, as well as act on them. You won’t get this at 100% straight away, but without tracking and acting on this information, making a change is not possible.
Due diligence process should be flexible enough yet needs to be proportionate not only to the size and importance of the suppliers, but the influence and strength of the market position of the buyer. In some markets, where supply of a particular good or specialist service is limited, security of supply prevails, so you may not be in a position to expect suppliers to meet all the sustainability requirements straight away. In these instances, you want to be clear on what is an absolute necessity and the biggest risks that you are not willing to take. For example, if you are in a labour intensive business, you might choose to only work with suppliers that are able to demonstrate (not just promise) that they have no child labour, but you might accept it if a supplier hasn’t yet eliminated single-use plastic from their operations - this is something you might decide to work on later together with the supplier.
📝 4. Tender evaluation criteria
If sustainability is important, then it needs to be clearly reflected in the decision making. The weighting you will assign to this criteria is important - if it sits at 5-10% of the overall requirement, supplier will see it as an afterthought. Would you choose a tender that offers a less sustainable option but at a cheaper price and quicker? Perhaps in some instances this would make better business sense, however if this is the case more often than not, is the commitment to sustainability as firm as the organisation reports it to be?
🖋 5. Contractual clauses
Contracting is the last “line of defence” available to the buying organisation to direct the sustainability performance of the supplier. This is especially true when it comes to the longer term contracts, where there are likely to be changes in circumstances over the life of the contract. There are number of ways that you may be able to incorporate any of the requirements or expectations into the contracts:
- Compliance clauses may be the most obvious ones - these will cover the instances where a supplier is found to be in breach of any of the ethical, environmental or social commitments, and will describe the measures that the contracting parties will take to address the breach, depending on the severity. This most often applies to the regulatory requirements such as anti-bribery and corruption, modern slavery act etc, although can be as easily utilised where any other commitments are not met.
- Clauses with KPIs or incentives linked to improvement in environmental or social performance of the supplier offer an opportunity to support suppliers, and in some instances a market sector (if the buyer is sufficiently influential) with improvements that in the long term offer an even greater benefit for everyone involved. This may be particularly important where there is limited capacity of the supplier to drive change on their own.
- Many organisations have started developing Supplier charters or Supplier Code of Conduct, that describe commitments such as human rights, fair working practices, ethical conduct as well as environmental considerations and standards that a supplier is expected to uphold. These are a great way of setting out the values and behavioural expectations between the buyer and supplier. They work even better when there is an associated compliance programme and regular checks are performed against the commitments. It is important to note that where it not practical or feasible to perform supplier visits and/or audits, other ways of compliance evidence should be sought.
These 5 steps are the starting point. Like with many things, a contract is not very useful without rigorous contract and supplier performance management; and just a mention of sustainability in your procurement tender is not going to make you sustainable. These ideas should be a part of a holistic approach to systems change. As any change, embedding sustainability is a journey and may be a complex one but it always starts with the first step.
Start simple, start somewhere. Just start!
If you would like to share any other procurement levers that can help drive sustainability agenda, or would like to discuss your particular situation, please get in touch - email@example.com
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