Sustainable procurement integrates ESG factors into the business model to comply with environmental targets, eliminate waste in the supply chain, and promote fair labor policies.
To stay competitive, many companies are expending an increasing amount of energy addressing environmental, social, and governance (ESG) issues. Sustainability is not just a trend. Integrating sustainable practices in different aspects of your company’s operations can positively affect consumer engagement and your bottom line.
Applying sustainable strategies to procurement can have a significant impact on your business.
Sustainable procurement can improve operational efficiency and provide short-term and long-term value for any organization. This presents multiple advantages for companies that want to stay relevant in an environmentally conscious marketplace. Let’s take a look at some common benefits:
- Reduce costs throughout the supply chain. Efficient and sustainable procurement practices can reduce energy consumption, reduce waste, and address other social and environmental costs.
- Mitigate risks associated with unsustainable procurement. For example, avoid products produced through child labor or manufacturers who don’t meet environmental standards.
- Boost revenue through consumer-driven premium pricing and brand loyalty.
- Future-proof your business so that it aligns with the contemporary consumer mindset.
Why Does It Matter?
Sustainable procurement can help businesses achieve their goals. However, many organizations don’t see the connection between sustainable procurement and growth. Here’s how it stands:
- 70% of CPOs said that their organization doesn’t understand where Scope 3 emissions are coming from in their value chain
- 90% say they struggle to move the needle on ESG topics
- 75% don’t know what targets to set for ESG
Here’s why it matters:
- Prospective clients look for sustainable companies to work with
- Two-thirds of the total ESG footprint lies with suppliers
- 80 to 90% of greenhouse gas emissions are directly related to the value chain (Scope 3 emissions such as embedded emissions, employee travel, etc.)
- Regulations for sustainability in supply chains are constantly becoming tighter
How To Get Started
Transforming a company’s procurement strategy doesn’t happen overnight. It can take time to strategize a new plan for sustainable sourcing. Want to know the best way to get started?
Turn your data into value. Most companies have rich upstream value chain data. You know how much the company buys, where it comes from, and who makes it. Use this data to understand the supply chain before making new purchasing decisions.
Use data and analytics to help you build a high-maturity ESG organization and rapidly track progress.
How to Develop a Sustainable Procurement Strategy
Here are five basic steps to developing a sustainable procurement strategy.
- Be honest about where you’re at. Identify your organization’s vulnerabilities. What steps are you currently taking to be compliant with ESG standards?
- Understand and quantify ESG footprint. Use data and analytics to establish clear metrics. Without them, it will be challenging to communicate a strategy to shareholders.
- Find the biggest risks and improvement areas. Engage with suppliers. Ask yourself if they meet your targets? Assess the supplier market for human labor and environmental standards risks.
- Set attainable goals for the short-term and long-term. Be ambitious but realistic. It can be challenging to establish a genuinely sustainable procurement strategy.
- Go public with the goals to hold accountable. Sharing your goals keeps you accountable, but it also communicates your intentions in a way that resonates with consumers.
The Next Steps
Once you’ve set a viable strategy, it’s full steam ahead. Promote your new policies, roll out your initiatives, and keep track of your impact.
Promote ESG Initiatives
- Set baseline policies for supplier selection, procurement, and supply management
- Be transparent with the themes, so they become embedded in your organization’s culture
- Initiate your plan, track at regular intervals, and schedule open discussions to assess progress
- Track performance against targets
- Use data and analytics to keep a detailed record of your initiative’s impact. Effective sustainability standards can result in:
- Faster growth and higher valuations by 10 to 20%
- Brand equity growth between 15 to 30%
- 9-16% lower procurement costs
The Bottom Line
Sustainable procurement has many benefits for companies. It brings together various aspects of social and environmental concern to provide value for shareholders throughout the value chain.
When implemented strategically, sustainable procurement enhances consumer perception of compliant brands and reduces costs over the lifetime of products. It can even create new markets for products and services providing a competitive advantage that may grant access to new capital and opportunities.