Sustainable Procurement - What does it mean?


Sustainable Procurement - What does it mean?

Today, sustainability is at the top of every company’s agenda and has become a business imperative. Consumers demand it and businesses are keen to show that they recognize the importance of this global issue. Worldwide, sustainability is cited as an important purchase criterion for 60% of consumers, while it’s reported by 93% of the world’s top 250 companies. And in a recent survey PwC found out that 82% of questioned investors said that companies should embed ESG directly into their corporate strategy.

What exactly does sustainability mean?

In its broadest sense, sustainability means having the ability to support a process into the future. In practical terms, sustainability is often used in reference to environmental or social goals. With climate change representing such a pressing issue for the entire planet, sustainability is at the center of movements around reducing waste, lowering dependence on fossil fuels, and decreasing the carbon footprint of supply chains. In terms of social or human factors, sustainability looks to manage the impact of business practices on communities and individuals as well as upholding human rights.

What are ESG goals?

As part of the sustainability movement, organizations are championing ESG goals. ESG is an acronym that refers to Environmental, Social, and Governance criteria that companies are striving to incorporate into their mission and long-term plans.

Many investors take ESG criteria extremely seriously when deciding which assets to fund. The specific ways that ESG goals are measured may vary, but there are already internationally agreed upon disclosure mechanisms that many companies employ. Some typical metrics include greenhouse gas emissions, energy efficiency, community impact, human rights adherence, cumulative environmental risk, and diversity and inclusion.

Regardless of the exact metrics being chosen, ESG investing has become a huge industry – in part, because of the long-term approach it takes and the returns it can offer. Currently, global sustainable investment exceeds $30 trillion and by 2025, it is predicted that roughly a third of all global assets under management will have ESG mandates. Since June 2021, about one in three dollars managed globally was invested with some form of ESG strategy — more than $35 trillion in total.

Why is procurement so important to sustainable practices?

Although it is commonly accepted that over-consumption is damaging to the environment, the impact that procurement can have on sustainability is not transparent. For the majority of products, between 80 and 90% of emissions are categorized as “scope 3.” Based on Greenhouse Protocol Scope approach, it means that they are catalogued as indirect emissions connected with a company’s supply chain, rather than direct emissions stemming from, say, a company’s use of heating or lighting.

Implementing sustainable procurement strategies is essential if organizations want their ESG criteria to stand up to scrutiny. Sustainable procurement is important because the origin and transportation of goods have a huge impact on their sustainability profile and finally, on how a company will perform when assessed against ESG metrics. Without taking this into account, a company may proclaim to have strong ESG values but could, in reality, be having a hugely damaging impact on the planet.

Fortunately, technology is now available that allows organizations to more accurately measure the ESG impact of their procurement. By utilizing innovations like Big Data and artificial intelligence, it is possible to assess and onboard suppliers to ensure they are aligned with the set sustainability goals.

Unfortunately, only 20% of chief procurement officers said that their organizations used sustainability as a primary criterion in their sourcing decisions or supplier reviews. These organizations represent the future-first companies for whom sustainability is more than just a buzzword. Make sure you join them.